RULE 497(e)
Registration No. 33-36317
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NEW JERSEY 600 FIFTH AVENUE
DAILY MUNICIPAL NEW YORK, N.Y. 10020
INCOME FUND, INC. (212) 830-5220
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PROSPECTUS
March 3, 1997
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. The Fund offers
two classes of shares to the general public. The Class A shares of the Fund are
subject to a service fee pursuant to the Fund's Rule 12b-1 Distribution and
Service Plan and are sold through financial intermediaries who provide servicing
to Class A shareholders for which they receive compensation from the Manager and
the Distributor. The Class B shares of the Fund are not subject to a service fee
and either are sold directly to the public or are sold through financial
intermediaries that do not receive compensation from the Manager or Distributor.
In all other respects, the Class A and Class B shares represent the same
interests in the income and assets of the Fund. No assurance can be given that
those objectives will be achieved. The Fund is concentrated in the securities
issued by New Jersey or entities within New Jersey and the Fund may invest a
significant percentage of its assets in a single issuer, and therefore an
investment in the Fund may be riskier than an investment in other types of money
market funds.
This Prospectus sets forth concisely the information 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 or writing the Fund at the
above address. The "Statement of Additional Information" bears the same date as
this Prospectus and is incorporated by reference into this Prospectus in its
entirety.
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.
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TABLE OF FEES AND EXPENSES
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Annual Fund Operating Expenses
(as a percentage of average net assets)
Class A shares Class B shares
Management Fees 0.30% 0.30%
12b-1 Fees (After Fee Waiver) 0.14% 0.00%
Other Expenses 0.34% 0.31%
Administration Fees 0.21% 0.21%
Total Fund Operating ----- -----
Expenses (After Fee Waiver) 0.78% 0.61%
<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):
Class A $8 $25 $43 $97
Class B $6 $20 $34 $76
</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 outstanding shares of the Fund
were reclassified into Class A shares and Class B shares on February 9, 1996.
The Distributor has voluntarily waived 12b-1 Fees amounting to .06% of average
net assets on Class A Shares, absent such waivers the 12b-1 Fee would have been
.20%. In addition, absent such waivers the Total Fund Operating Expenses of
Class A Shares would have been .84%.
The figures reflected in this example should not be considered as a
representation of past or future expenses. Actual expenses may be greater or
less than those shown above.
<PAGE>
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.
<TABLE>
<CAPTION>
February 9, 1996
Year (Commencement
Ended of Offering) to Year Ended
October 31, October 31, October 31, October 26, 1990
------------------------------------------ (Inception) to
1996 1996 1995 1994 1993 1992 October 31, 1991
-------- --------- ---------- --------- --------- ------ ----------------
Class A Class B Class A Class A Class A Class A Class A
--------- ---------- -------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Net investment income............... 0.027 0.020 0.030 0.020 0.020 0.030 0.042
Dividends from net investment income ( 0.027) ( 0.020) ( 0.030) ( 0.020) ( 0.020) 0.030 0.042
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total Return........................ 2.69% 2.77%* 3.08% 2.03% 1.98% 3.01% 4.62%*
Ratios/Supplemental Data
Net assets, end of period (000)..... $151,421 $ 366 $ 130,128 $ 105,929 $78,347 $ 46,374 $ 26,238
Ratios to average net assets:
Expenses......................... 0.78%+# 0.61%#* 0.72%+ 0.66%+ 0.61%+ 0.42%+ 0.27%*+
Net investment income............ 2.65%+ 2.72%* 3.02%+ 2.02%+ 1.95%+ 2.88%+ 4.32%*+
* Annualized
+ Net of management, administration and shareholder servicing fees waived
which were equivalent to .06%, .18%, .26%, .35%, .70%, and .70%, of average
net assets respectively, plus expense reimbursement which were equivalent
to .00%, .00%, .00%, .00%, .04%, and .53% of average net assets,
respectively.
# Includes expense offsets.
</TABLE>
<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 fifteen 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 (with respect to
the Class A shares of the Fund only) pursuant to the Fund's distribution and
service plan adopted under Rule 12b-1 under the Investment Company Act of 1940,
as amended (the "1940 Act"). (See "Distribution and Service Plan" herein.)
On any day on which the New York Stock Exchange, Inc. is open for trading ("Fund
Business Day"), investors may, without charge by the Fund, purchase and redeem
shares of the Fund's common stock at their net asset value next determined after
receipt of the order. An investor's subscription 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 same Class
of the Fund unless a shareholder has elected by written notice to the Fund to
receive either of such distributions in cash. (See "Dividends and Distributions"
herein.)
The Fund intends that its investment portfolio may be concentrated in 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.
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The Fund's Board of Directors is authorized to divide the unissued shares into
separate series of stock, one for each of the Fund's separate investment
portfolios that may be created in the future.
INVESTMENT OBJECTIVES, POLICIES
AND 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 believed to be
consistent with the preservation of capital, maintenance of liquidity and
stability of principal. There can be no assurance that the Fund will achieve its
investment objectives.
The Fund's assets will be invested primarily in high quality debt obligations
issued by or on behalf of the State of 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
gross 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
5
<PAGE>
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.
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 Rating Services, a division of The McGraw-Hill
Companies ("S&P'") and Moody's Investors Service, Inc. ("Moody's"). The two
highest ratings by S&P and Moody's are "AAA" and "AA" by S&P in the case of
long-term bonds and notes or "Aaa" and "Aa" by Moody's in the case of bonds;
"SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by Moody's in the case of notes;
"A-1" and "A-2" by S&P or "Prime-1" and "Prime-2" by Moody's in the case of
tax-exempt commercial paper. The highest rating in the case of variable and
floating demand notes is "VMIG-1" by Moody's 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. Reassessment, however, 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.
6
<PAGE>
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 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
7
<PAGE>
("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 10% 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 1940 Act with respect to investing its assets in
one or relatively few issuers. This non-diversification may present greater
risks than in the case of a diversified company. The Fund, however, intends to
qualify as a "regulated investment company" under Subchapter M of the Code. The
Fund will be restricted in that at the close of each quarter of the taxable
year, at least 50% of the value of its total assets must be represented by cash,
government securities, investment company securities and other securities
limited in respect of any one issuer to not more than 5% in value of the total
assets of the Fund and to not more than 10% of the outstanding voting securities
of such issuer. In addition, at the close of each quarter of its taxable year,
not more than 25% in value of the Fund's total assets may be invested in
securities of one issuer other than government securities. The limitations
described in this paragraph 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.
8
<PAGE>
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.
After enjoying an extraordinary boom during the mid-1980's, New Jersey as well
as the rest of the Northeast slipped into a slowdown well before the national
recession which officially began in July 1990 (according to the National Bureau
of Economic Research). At the onset of that recession, New Jersey experienced
accelerated 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. 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, 1997. 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 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
<PAGE>
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. 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.
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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 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. As of January 31, 1997, the Manager was
investment manager, advisor or supervisor with respect to assets aggregating
approximately $9.5 billion. The Manager acts as manager or administrator of
fifteen other investment companies and also advises pension trusts, profit
sharing trusts and endowments.
New England Investment Companies, L.P. ("NEICLP") is the limited partner and
owner of a 99.5% interest in 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.
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On August 30, 1996, The New England Mutual Life Insurance Company (the "New
England") and Metropolitan Life Insurance Company ("MetLife") merged, with
MetLife being the continuing company. The Manager remains a wholly-owned
subsidiary of NEICLP, but Reich & Tang Asset Management, Inc., its sole general
partner, is now an indirect subsidiary of MetLife. Also, MetLife New England
Holdings, Inc., a wholly-owned subsidiary of MetLife, owns 51% of the
outstanding limited partnership interest of NEICLP and may be deemed a
"controlling person" of the Manager. Reich & Tang, Inc. owns approximately 16%
of the outstanding partnership units of NEICLP.
MetLife is a mutual life insurance company with assets of $142.2 billion at
March 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.2 trillion at March 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through twelve subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units include, AEW Capital Management, L.P.,
Back Bay Advisors, L.P., Graystone Partners, L.P., Harris Associates, L.P.,
Jurika & Voyles, L.P., Loomis, Sayles & Co., L.P., MC Management, L.P., New
England Funds, L.P., New England Funds Management L.P., Reich & Tang Asset
Management, L.P., Vaughan-Nelson, Scarborough & McConnell L.P. and Westpeak
Investment Advisors, L.P. These affiliates in the aggregate are investment
advisors or managers to 43 other registered investment companies.
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.
The merger between The New England and MetLife resulted in an "assignment" of
the Investment Management Contract relating to the Fund. Under the 1940 Act,
such an assignment caused the automatic termination of this agreement. On
November 28, 1995, the Board of Directors, including a majority of the directors
who are not interested persons (as defined in the 1940 Act) of the Fund or the
Manager, approved a new Investment Management Contract effective August 30,
1996, which has a term which extends to July 31, 1998 and may be continued in
force thereafter for successive twelve-month periods beginning each August 1,
provided that such continuance is specifically approved annually by majority
vote of the Fund's outstanding voting securities or by its Board of Directors,
and in either case by a majority of the directors who are not parties to the
Investment Management Contract or interested persons of any such party, by votes
cast in person at a meeting called for the purpose of voting on such matter.
The new Investment Management Contract was approved by a majority of the
shareholders of the Fund on July 12, 1996 and contains the same terms and
conditions governing the Manager's investment management responsibilities as the
Fund's previous Investment Management Contract with the Manager, except as to
the date of execution and termination.
The merger and the change in control of the Manager is not expected to have any
impact upon the Manager's performance of its responsibilities and obligations
under the new Investment Management Contract.
Pursuant to the Administrative Services Contract for the Fund, the Manager
performs clerical, accounting supervision and office service functions
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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
Class A shares of the Fund under the Shareholder Servicing Agreement. The fees
are accrued daily and paid monthly. Investment management fees and operating
expenses, which are attributable to both Classes of shares of the Fund, will be
allocated daily to each Class of shares based on the percentage of shares
outstanding for each Class at the end of the day.
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. Generally, all shares will be
voted in the aggregate, except if voting by Class is required by law or the
matter involved affects only one Class, in which case shares will be voted
separately by Class. 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, 1997, the amount of shares owned by all officers and directors as a group
was less than 1% of the outstanding shares of the Fund.
The Fund is subdivided into two classes of common stock, Class A and Class B.
Each share, regardless of class, will represent an interest in the same
portfolio of investments and will have identical voting, dividend, liquidation
and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that: (i) the
Class A and Class B shares will have different class designations; (ii) only the
Class A shares will be assessed a service fee of .20% of the average daily net
assets of the Class A shares of the Fund pursuant to the Rule 12b-1 Distribution
and Service Plan of the Fund; (iii) only the holders of the Class A shares would
be entitled to vote on matters pertaining to the Plan and any related agreements
in accordance with provisions of Rule 12b-1; and (iv) the exchange privilege
will permit shareholders to exchange their shares only for shares of the same
class of a Fund that participates in a exchange privilege with the Fund. (See
"Exchange Privilege" herein.) Payments that are made under the Plans will be
calculated and charged daily to the appropriate class prior to determining daily
net asset value per share and dividends/distributions.
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.
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DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends equal to all its net investment income (excluding
capital gains and losses, if any, and amortization of market discount) on each
Fund Business Day and 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 of the same class immediately upon payment thereof unless
a shareholder has elected by written notice to the Fund to receive either of
such distributions in cash.
The Class A shares will bear the service fee under the Plan. As a result, the
net income of and the dividends payable to the Class A shares will be lower than
the net income of and dividends payable to the Class B shares of the Fund.
Dividends paid to each Class of shares of the Fund will, however, be declared
and paid on the same days at the same times and, except as noted with respect to
the service fees payable under the Plan, will be determined in the same manner
and paid in the same amounts.
HOW TO PURCHASE AND REDEEM SHARES
Investors who have accounts with Participating Organizations may invest in the
Fund through their Participating Organizations in accordance with the procedures
established by the Participating Organizations. Certain Participating
Organizations are compensated by the Distributor from its shareholder servicing
fee and by the Manager from its management fee for the performance of these
services. An investor who purchases shares through a Participating Organization
that receives payment from the Manager or the Distributor will become a Class A
shareholder. (See "Investments Through Participating Organizations" herein.) All
other investors, and investors who have accounts with Participating
Organizations but who do not wish to invest in the Fund through their
Participating Organizations, may invest in the Fund directly as Class B
shareholders of the Fund and not receive the benefit of the servicing functions
performed by a Participating Organization. Class B shares may also be offered to
investors who purchase their shares through Participating Organizations who do
not receive compensation from the Distributor or the Manager because they may
not be legally permitted to receive such as fiduciaries. The Manager pays the
expenses incurred in the distribution of Class B shares. Participating
Organizations whose clients become Class B shareholders will not receive
compensation from the Manager or Distributor for the servicing they may provide
to their clients. (See "Direct Purchase and Redemption Procedures" herein.) With
respect to both Classes of shares, the minimum initial investment in the Fund by
Participating Organizations is $1,000, which may be satisfied by initial
investments aggregating $1,000 by a Participating Organization on behalf of
customers whose initial investments are less than $1,000. The minimum initial
investment for securities brokers, financial institutions and other industry
professionals that are not Participating Organizations is $1,000. The minimum
initial investment for all other investors is $5,000. Initial investments may be
made in any amount in excess of the applicable minimums. The minimum amount for
subsequent investments is $100 unless the investor is a client of a
Participating Organization whose clients have made aggregate subsequent
investments of $100.
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent,
which accepts orders for purchases and redemptions from Participating
Organizations and from investors directly.
In order to maximize earnings on its portfolio, the Fund normally has its assets
as fully invested as is practicable. Many securities in which the Fund invests
require immediate settlement in funds of
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Federal Reserve member banks on deposit at a Federal Reserve Bank (commonly
known as "Federal Funds"). Accordingly, the Fund does not accept a subscription
or invest an investor's payment in portfolio securities until the payment has
been converted into Federal Funds.
Shares will be issued as of the first determination of the Fund's net asset
value per share for each class made after acceptance of the investor's order at
the net asset value per share 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, New York City 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, New York City time, on a Fund Business Day will not
result in share issuance until the following Fund Business Day. Fund shares
begin accruing income on the day the shares are issued to an investor.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are given
in proper form to the Fund's transfer agent, a check for the proceeds of a
redemption will be sent to the shareholder's address of record. If a shareholder
elects to redeem all the shares of the Fund he owns, all dividends accrued to
the date of such redemption will be paid to the shareholder along with the
proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the 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, New
York City time, on any Fund Business Day become effective at 12 noon that day.
Shares redeemed are not entitled to participate in dividends declared on the day
a redemption becomes effective. A redemption request received after 12 noon, New
York City time, on any Fund Business Day becomes effective on the next Fund
Business Day.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. During the notice
period any shareholder who receives such a notice may (without regard to the
normal $100 requirement for an additional investment) make a purchase of
additional shares to increase the total net asset value at least to the minimum
amount and thereby avoid such mandatory redemption.
For Participant Investor accounts, notice of a proposed mandatory redemption
will be given only to the appropriate Participating Organization, and the
Participating Organization will be responsible for notifying the Participant
Investor of the proposed mandatory redemption. During the notice period a
shareholder or Participating Organization who receives such a notice may avoid
mandatory redemption by purchasing sufficient additional shares to increase the
total net asset value to at least $500.
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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.
INVESTMENTS THROUGH
PARTICIPATING ORGANIZATIONS
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks and financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the Manager with respect to investment of their
customer accounts in the Fund. When instructed by its customer to purchase or
redeem Fund shares, the Participating Organization, on behalf of the customer,
transmits to the Fund's transfer agent a purchase or redemption order, and in
the case of a purchase order, payment for the shares being purchased.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Fund shares for the customers'
accounts. Also Participating Organizations may send their customers periodic
account statements showing the total number of Fund shares owned by each
customer as of the statement closing date, purchases and redemptions of the Fund
shares by each customer during the period covered by the statement and the
income earned by Fund shares of each customer during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Participant Investors whose Participating Organizations have not undertaken to
provide such confirmations and statements will receive them from the Fund
directly.
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures offered to
Participant Investors by the Participating Organizations. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Fund directly. A Participant Investor should read
this Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Fund shares may be purchased
and redeemed through the Participating Organization.
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. It is the Fund management's
position, however, 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. This is an unsettled area of the law, however, 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.
In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 12 noon, New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day provided that the Federal Funds required in connection with the orders
are received by the Fund's transfer agent before 4:00 p.m., New York City time,
on that day. Orders for which Federal Funds are received after 4:00 p.m., New
York City time, will not result in share issuance until the following Fund
Business Day. Participating Organizations are responsible for instituting
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<PAGE>
procedures to insure that purchase orders by their respective clients are
processed expeditiously.
DIRECT PURCHASE AND REDEMPTION PROCEDURES
The following purchase and redemption procedures apply to investors who wish to
invest in the Fund directly and not through Participating Organizations. These
investors may obtain a current prospectus and the subscription order form
necessary to open an account by telephoning the Fund at the following numbers:
Within New York State 212-830-5220
Outside New York State (toll free) 800-221-3079
All shareholders, other than certain Participant Investors, will receive from
the Fund individual confirmations of each purchase and redemption of Fund shares
(other than draft check redemptions) and a monthly statement listing the total
number of Fund shares owned as of the statement closing date, purchase and
redemptions of Fund shares during the month covered by the statement and the
dividends paid on Fund shares of each shareholder during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
INITIAL PURCHASES OF SHARES
Mail
Investors may send a check made payable to "New Jersey Daily Municipal Income
Fund, Inc." along with a completed subscription order form to:
New Jersey Daily Municipal Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue
New York, New York 10020
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member bank of the Federal Reserve
System can normally be converted into Federal Funds within two business days
after receipt of the check. Checks drawn on a non-member bank may take
substantially longer to convert into Federal Funds and to be invested in Fund
shares. An investor's subscription will not be accepted until the Fund receives
Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, investors should first obtain a new account number by telephoning
the Fund at (212) 830-5220 (within New York State) or at (800) 221-3079 (outside
of New York State). The investors should then instruct a member commercial bank
to wire their money immediately to:
Investors Fiduciary Trust Company
ABA #101003621
Reich & Tang Funds
DDA #890752-953-8
For New Jersey Daily Municipal
Income Fund, Inc.
Account of (Investor's Name)
Fund Account #
SS #/Tax I.D. #
The investor should then promptly complete and mail the subscription order form.
Investors planning to wire funds should instruct their bank early in the day so
the wire transfer can be accomplished before 12 noon New York City time, on that
same day. There may be a charge by the investor's bank for transmitting the
money by bank wire, and there also may be a charge for use of Federal Funds. The
Fund does not charge investors in the Fund for its receipt of wire transfers.
Payment in the form of a "bank wire" received prior to 12 noon, New York City
time, on a Fund Business Day will be treated as a Federal Funds payment received
on that day.
Personal Delivery
Deliver a check made payable to "New Jersey Daily Municipal Income Fund, Inc."
to:
Reich & Tang Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
ELECTRONIC FUNDS TRANSFERS (EFT),
PRE-AUTHORIZED CREDIT
AND DIRECT DEPOSIT PRIVILEGE
You may purchase shares of the Fund (minimum of $100) by having salary, dividend
payments, interest
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payments or any other payments designated by you, or by having federal salary,
social security, or certain veteran's, military or other payments from the
federal government, automatically deposited into your Fund account. You can also
have money debited from your checking account. To enroll in any one of these
programs, you must file with the Fund a completed EFT Application,
Pre-authorized Credit Application, or a Direct Deposit Sign-Up Form for each
type of payment that you desire to include in the Privilege. The appropriate
form may be obtained from your broker or the Fund. You may elect at any time to
terminate your participation by notifying in writing the appropriate depositing
entity and/or federal agency. Death or legal incapacity will automatically
terminate your participation in the Privilege. Further, the Fund may terminate
your participation upon 30 days' notice to you.
SUBSEQUENT PURCHASES OF SHARES
Subsequent purchases can be made either by bank wire or by personal delivery, as
indicated above, or by mailing a check to the Fund's transfer agent at:
New Jersey Daily Municipal Income Fund, Inc.
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232
There is a $100 minimum for each subsequent purchase. All payments should
clearly indicate the shareholder's account number. Provided that the information
on the subscription order form on file with the Fund is still applicable, a
shareholder may re-open an account without filing a new subscription order form
at any time during the year the shareholder's account is closed or during the
following calendar year.
REDEMPTION OF SHARES
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share of each
class following receipt by the Fund's transfer agent of the redemption order
(and any supporting documentation which it may require). Normally, payment for
redeemed shares is made on the same Fund Business Day after the redemption is
effected, provided the redemption request is received prior to 12 noon, New York
City time and on the next Fund Business Day if the redemption request is
received after 12 noon, New York City time. However, redemption payments will
not be effected unless the check (including a certified or cashier's check) used
for investment has been cleared for payment by the investor's bank, currently
considered by the Fund to occur 15 days after investment.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee. When a
signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature and guaranteed by an eligible guarantor
institution which includes a domestic bank, a domestic savings and loan
institution, a domestic credit union, a member bank of the Federal Reserve
System or a member firm of a national securities exchange, pursuant to the
Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written request,
accompanied by any certificate that may have been previously issued to the
shareholder, addressed to:
New Jersey Daily Municipal Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
All previously issued certificates submitted for redemption must be endorsed by
the shareholder and all written requests for redemption must be signed by the
shareholder, in each case with signature guaranteed. Normally the redemption
proceeds are paid by check mailed to the shareholder of record.
18
<PAGE>
Checks
By making the appropriate election on their subscription form, shareholders may
request a supply of checks which may be used to effect redemptions from any one
or more of the Classes of shares in the Fund in which they invest. The checks,
which will be issued in the shareholder's name, are drawn on a special account
maintained by the Fund with the Fund's agent bank. Checks may be drawn in any
amount of $250 or more. When a check is presented to the Fund's agent bank for
payment, it instructs the transfer agent to redeem a sufficient number of full
and fractional shares in the shareholder's account to cover the amount of the
check. The use of a check to make a withdrawal enables a shareholder in the Fund
to receive dividends on the shares to be redeemed up to the Fund Business Day on
which the check clears. Checks provided by the Fund may not be certified. Fund
shares purchased by check may not be redeemed by check until the check has
cleared, which could take up to 15 days following the date of purchase.
There is no charge to the shareholder for checks provided by the Fund. The Fund
reserves the right to impose a charge or impose a different minimum check amount
in the future, if the Board of Directors determines that doing so is in the best
interests of the Fund and its shareholders.
Shareholders electing the checking option are subject to the procedures, rules
and regulations of the Fund's agent bank governing checking accounts. Checks
drawn on a jointly owned account may, at the shareholder's election, require
only one signature. The Fund's agent bank will not honor checks which are in
amounts exceeding the value of the shareholder's account at the time the check
is presented for payment. Since the dollar value of the account changes daily,
the total value of the account may not be determined in advance and the account
may not be entirely redeemed by check. In addition, the Fund reserves the right
to charge the shareholder's account a fee up to $20 for checks not honored as a
result of an insufficient account value, a check deemed not negotiable because
it has been held longer than six months, an unsigned check and a post-dated
check. The Fund reserves the right to terminate or modify the check redemption
procedure at any time or to impose additional fees following notification to the
Fund's shareholders.
Investors wishing to avail themselves of this method of redemption should elect
it on their subscription order form. Individuals and joint tenants are not
required to furnish any supporting documentation. Corporations and other
entities making this election, however, are required to furnish a certified
resolution or other evidence of authorization in accordance with the Fund's
normal practices. Appropriate authorization forms will be sent by the Fund or
its agents to corporations and other shareholders who select this option. As
soon as the authorization forms are filed in good order with the Fund's agent
bank, it will provide the shareholder with a supply of checks. This checking
service may be terminated or modified at any time.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option. The proceeds of a telephone redemption may be sent to the
shareholders at their address or, if in excess of $1,000, to their bank
accounts, both as set forth in the subscription order form or in a subsequent
written authorization. The Fund may accept telephone redemption instructions
from any person with respect to accounts of shareholders who elect this service
and thus such shareholders risk possible loss of principal and interest in the
event of a telephone redemption not authorized by them. The Fund will employ
reasonable procedures to confirm that telephone redemption instructions are
genuine, and will require that shareholders electing such option provide a form
of personal identification. The failure by the Fund to employ such reasonable
procedures may cause the Fund to be liable for the losses incurred by investors
due to telephone redemptions based upon unauthorized or fraudulent instructions.
A shareholder making a telephone withdrawal should call the Fund at (212)
830-5220; outside New York State at (800) 221-3079 and state (i) the
19
<PAGE>
name of the shareholder appearing on the Fund's records, (ii) the shareholder's
account number with the Fund, (iii) the amount to be withdrawn, (iv) whether
such account is to be forwarded to the shareholder's designated bank account or
address, and (v) the name of the person requesting the redemption. Usually the
proceeds are sent to the designated bank account or address on the same Fund
Business Day the redemption is effected, provided the redemption request is
received before 12 noon, New York City time and on the next Fund Business Day if
the redemption request is received after 12 noon, New York City time. The Fund
reserves the right to terminate or modify the telephone redemption service in
whole or in part at any time and will notify shareholders accordingly.
EXCHANGE PRIVILEGE
Shareholders of the Fund are entitled to exchange some or all of their Class of
shares in the Fund for shares of the same Class of certain other investment
companies which retain Reich & Tang Asset Management L.P. as investment adviser
or manager and which participate in the exchange privilege program with the
Fund. If only one Class of shares is available in a particular exchange fund,
the shareholder of the Fund is entitled to exchange their shares for the shares
available in that exchange fund. Currently the exchange privilege program has
been established between the Fund and California Daily Tax Free Income Fund,
Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund,
Inc., Florida Daily Municipal Income Fund, 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. and Short Term Income Fund, Inc. In the future, the exchange
privilege program may be extended to other investment companies which retain
Reich & Tang Asset Management L.P. as investment adviser or manager. An exchange
of shares in the Fund pursuant to the exchange privilege is, in effect, a
redemption of Fund shares (at net asset value) followed by the purchase of
shares of the investment company into which the exchange is made (at net asset
value) and may result in a shareholder realizing a taxable gain or loss for
Federal income tax purposes.
There is no charge for the exchange privilege or limitation as to frequency of
exchange. The minimum amount for an exchange is $1,000, except that shareholders
who are establishing a new account with an investment company through the
exchange privilege must insure that a sufficient number of shares are exchanged
to meet the minimum initial investment required for the investment company into
which the exchange is being made. Each Class of shares is exchanged at its
respective net asset value.
The exchange privilege provides shareholders of the Fund with a convenient
method to shift their investment among different investment companies when they
feel such a shift is desirable. The exchange privilege is available to
shareholders resident in any state in which shares of the investment company
being acquired may legally be sold. Shares may be exchanged only between the
same Class of shares of investment company accounts registered in identical
names. Before making an exchange, the investor should review the current
prospectus of the investment company into which the exchange is to be made.
Prospectuses may be obtained by contacting the Manager at the address or
telephone number set forth on the cover page of this Prospectus.
Instructions for exchanges may be made by sending a signature guaranteed written
request to:
New Jersey Daily Municipal Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
or, for shareholders who have elected that option, by telephoning the Fund at
(212) 830-5220; outside New York State at (800) 221-3079. The Fund reserves the
right to reject any exchange request and may modify or terminate the exchange
privilege at any time.
SPECIFIED AMOUNT AUTOMATIC WITHDRAWAL PLAN
Shareholders may elect to withdraw shares and receive payment from the Fund of a
specified
20
<PAGE>
amount of $50 or more automatically on a monthly or quarterly basis in an amount
approved and confirmed by the Manager. If a monthly or quarterly withdrawal
payment is chosen, a specified amount plan payment is made by the Fund generally
on the 23rd day of the month. Whenever such 23rd day of a month or quarter is
not a Fund Business Day, the payment date is the Fund Business Day preceding the
23rd day of the month or quarter. 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.
The election to receive automatic withdrawal payments may be made at the time of
the original subscription by so indicating on the subscription order form. The
election may also be made, changed or terminated at any later time by the
participant. Because the withdrawal plan involves the redemption of Fund shares,
such withdrawals may constitute taxable events to the shareholder, but the Fund
does not expect that there will be any realizable capital gains.
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Securities and Exchange
Commission has required that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan permitted by Rule 12b-1. 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 (with respect to
Class A shares of the Fund only).
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 with respect
only to the Class A shares a service fee equal to .20% per annum of the Class A
shares' average daily net assets (the "Shareholder Servicing Fee") for providing
personal shareholders services and for the maintenance of shareholder accounts.
The fee is accrued daily and paid monthly and any portion of the fee may be
deemed to be used by the Distributor for payments to Participating Organizations
with respect to their provision of such services to their clients or customers
who are shareholders of the Class A shares of the Fund. The Class B shareholders
will not receive the benefit of such services from Participating Organizations
and, therefore, will not be assessed a Shareholder Servicing Fee.
The Plan provides that the Manager may make payments from time to time from its
own resources, which may include the management fee and past profits for the
following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements, for performing shareholder servicing and related
administrative functions on behalf of the Class A shares of the Fund; (ii) to
compensate certain Participating Organizations for providing assistance in
distributing the Class A Shares of the Fund; 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 Distributor will determine the amount of
such payments made pursuant to the Plan, provided that such payments will not
increase the
21
<PAGE>
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 Distributor and Participating Organizations in carrying out their
obligations under the Shareholder Servicing Agreement with respect to Class A
shares, and (ii) preparing, printing and delivering the Fund's prospectus to
existing shareholders of the Fund and preparing and printing subscription
application forms for shareholder accounts.
For the fiscal year ended October 31, 1996, the total amount spent pursuant to
the Plan for Class A shares was .44% of the average daily net assets of the
Fund, of which .14% of the average daily net assets was paid by the Fund to the
Distributor, pursuant to the Shareholder Servicing Agreement and an amount
representing .30% was paid by the Manager (which may be deemed an indirect
payment by the Fund). Of the total amount paid by the Manager, $598,171 was
utilized for Broker assistance payments, $16, 266 for compensation to sales
personnel, $ 4,886 for travel and expenses, $43,335 for Prospectus printing, and
$628 on miscellaneous expenses.
FEDERAL INCOME TAXES
The Fund has elected to qualify under the Code as a regulated investment company
that distributes "exempt-interest dividends" as defined in the Code. The Fund's
policy is to distribute as dividends each year 100% (and in no event less than
90%) of its tax-exempt interest income, net of certain deductions, and its
investment company taxable income (if any). If distributions are made in this
manner, dividends 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 having 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. Interest on certain
"private activity bonds" (generally, a bond issue in which more than 10% of the
proceeds are used for a non-governmental trade or business and which meets the
private security or payment test, or a bond issue which meets the private loan
financing test) issued after August 7, 1986 will constitute an item of tax
preference subject to the individual alternative minimum tax. Corporations will
be required to include in alternative minimum taxable income, 75% of the amount
by which their adjusted current earnings (including generally, tax-exempt
interest) exceeds their alternative minimum taxable income (determined without
this item). In certain cases Subchapter S corporations with accumulated earnings
and profits from Subchapter C years will be subject to a tax on "passive
investment income", including tax-exempt interest. Although the Fund intends to
maintain a $1.00 per share net asset value, a Shareholder may realize a taxable
gain or loss upon the disposition of shares.
22
<PAGE>
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.
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.
23
<PAGE>
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 1940 Act including the removal of Fund director(s) and communication
among shareholders, any registration of the Fund with the Securities and
Exchange Commission or any state, or as the Directors may consider necessary or
desirable. Each Director serves until the next meeting of the shareholders
called for the purpose of considering the election or reelection of such
Director or of a successor to such Director, and until the election and
qualification of his or her successor, elected at such a meeting, or until such
Director sooner dies, resigns, retires or is removed by the vote of the
shareholders.
For further information with respect to the Fund and the shares offered hereby,
reference is made to the Fund's Registration Statement filed with the Securities
and Exchange Commission, including the exhibits thereto. The Registration
Statement and the exhibits thereto may be examined at the Commission and copies
thereof may be obtained upon payment of certain duplicating fees.
NET ASSET VALUE
The net asset value of each Class of the Fund's shares is determined as of 12
noon, New York City time, on each Fund Business Day. The net asset value of a
Class is computed by dividing the value of the Fund's net assets for such Class
(i.e., the value of its securities and other assets less its liabilities,
including expenses payable or accrued but excluding capital stock and surplus)
by the total number of shares outstanding for such Class.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, except that if fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Directors will consider whether any action should be initiated.
Although the amortized cost method provides certainty in valuation, it may
result in periods during which the value of an instrument is higher or lower
than the price an investment company would receive if the instrument were sold.
The Fund intends to maintain a stable net asset value at $1.00 per share
although there can be no assurance that this will be achieved.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105 is custodian for the Fund's cash and securities. Reich & Tang Services
L.P., 600 Fifth Avenue, New York, New York 10020 is the transfer agent and
dividend 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.
24
<PAGE>
TABLE OF CONTENTS
Table of Fees and Expenses.................. 2 NEW JERSEY
Selected Financial Information.............. 3 DAILY
Introduction................................ 4 MUNICIPAL
Investment Objectives, INCOME
Policies and Risk Considerations.......... 5 FUND, INC.
New Jersey Risk Factors..................... 9
Management of the Fund......................11
Description of Common Stock.................13 PROSPECTUS
Dividends and Distributions.................14 March 3, 1997
How to Purchase and Redeem Shares...........14
Investments Through
Participating Organizations.............16
Direct Purchase and
Redemption Procedures .................17
Initial Purchases of Shares...............17
Electronic Funds Transfers (EFT),
Pre-Authorized Credit and Direct
Deposit Privilege.....................17
Subsequent Purchases of Shares............18
Redemption of Shares......................18
Exchange Privilege........................20
Specific Amount Automatic
Withdrawal Plan........................20
Distribution and Service Plan...............21
Federal Income Taxes........................22
New Jersey Income Taxes.....................23
General Information ........................23
Net Asset Value.............................24
Custodian and Transfer Agent................24
<PAGE>
RULE 497(e)
Registration No. 33-36317
- --------------------------------------------------------------------------------
EVERGREEN SHARES OF
NEW JERSEY DAILY
MUNICIPAL INCOME FUND, INC.
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
PROSPECTUS
March 3, 1997
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. The Fund offers
two classes of shares to the general public, however only Class A shares are
offered by this Prospectus. The Class A shares of the Fund are subject to a
service fee pursuant to the Fund's Rule 12b-1 Distribution and Service Plan and
are sold through financial intermediaries who provide servicing to Class A
shareholders for which they receive compensation from the Manager and the
Distributor. The Class B shares of the Fund are not subject to a service fee and
either are sold directly to the public or are sold through financial
intermediaries that do not receive compensation from the Manager or Distributor.
In all other respects, the Class A and Class B shares represent the same
interests in the income and assets of the Fund. No assurance can be given that
those objectives will be achieved. Only Evergreen Shares are offered by this
Prospectus. The Fund is concentrated in the securities issued by New Jersey or
entities within New Jersey and the Fund may invest a significant percentage of
its assets in a single issuer, and therefore an investment in the Fund may be
riskier than an investment in other types of money market funds.
This Prospectus sets forth concisely the information 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 Keystone
Distributor, Inc. ("EKD") has entered into agreements for this purpose or
directly from EKD. 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 EKD. 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>
<CAPTION>
<S> <C> <C> <C>
TABLE OF CONTENTS
TABLE OF FEES AND EXPENSES 3 SHAREHOLDER SERVICES 14
SELECTED FINANCIAL INFORMATION 3 Effect of Banking Laws 16
INTRODUCTION 4 DISTRIBUTION AND SERVICE PLAN 16
INVESTMENTS OBJECTIVES, FEDERAL INCOME TAXES 17
POLICIES AND RISKS CONSIDERATIONS 5 NEW JERSEY INCOME TAXES 18
NEW JERSEY RISK FACTORS 8 GENERAL INFORMATION 18
MANAGEMENT OF THE FUND 10 NET ASSET VALUE 19
DESCRIPTION OF COMMON STOCK 12 CUSTODIAN AND TRANSFER AGENT 19
DIVIDENDS AND DISTRIBUTIONS 12
HOW TO PURCHASE AND REDEEM SHARES 13
How to Buy Shares 13
How to Redeem Shares 13
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF FEES AND EXPENSES
- --------------------------------------------------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
Class A shares Class B shares
Management Fees 0.30% 0.30%
12b-1 Fees (After Fee Waiver) 0.14% 0.00%
Other Expenses 0.34% 0.31%
Administration Fees 0.21% 0.21%
Total Fund Operating ----- -----
Expenses (After Fee Waiver) 0.78% 0.61%
<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):
Class A $8 $25 $43 $97
Class B $6 $20 $34 $76
</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 outstanding shares of the Fund
were reclassified into Class A shares and Class B shares on February 9, 1996.
The Distributor has voluntarily waived 12b-1 Fees amounting to .06% of average
net assets on Class A Shares, absent such waivers the 12b-1 Fee would have been
.20%. In addition, absent such waivers the Total Fund Operating Expenses of
Class A Shares would have been .84%.
The figures reflected in this example should not be considered as a
representation of past or future expenses. Actual expenses may be greater or
less than those shown above.
- --------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
February 9, 1996
Year (Commencement
Ended of Offering) to Year Ended
October 31, October 31, October 31, October 26, 1990
------------------------------------------ (Inception) to
1996 1996 1995 1994 1993 1992 October 31, 1991
-------- --------- ---------- --------- --------- ------ ----------------
Class A Class B Class A Class A Class A Class A Class A
--------- ---------- -------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
Net investment income............... 0.027 0.020 0.030 0.020 0.020 0.030 0.042
Dividends from net investment income ( 0.027) ( 0.020) ( 0.030) ( 0.020) ( 0.020) 0.030 0.042
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total Return........................ 2.69% 2.77%* 3.08% 2.03% 1.98% 3.01% 4.62%*
Ratios/Supplemental Data
Net assets, end of period (000)..... $151,421 $ 366 $ 130,128 $ 105,929 $78,347 $ 46,374 $ 26,238
Ratios to average net assets:
Expenses......................... 0.78%+# 0.61%#* 0.72%+ 0.66%+ 0.61%+ 0.42%+ 0.27%*+
Net investment income............ 2.65%+ 2.72%* 3.02%+ 2.02%+ 1.95%+ 2.88%+ 4.32%*+
* Annualized
+ Net of management, administration and shareholder servicing fees waived
which were equivalent to .06%, .18%, .26%, .35%, .70%, and .70%, of average
net assets respectively, plus expense reimbursement which were equivalent
to .00%, .00%, .00%, .00%, .04%, and .53% of average net assets,
respectively.
# Includes expense offsets.
</TABLE>
3
<PAGE>
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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 fifteen 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 (with respect to
the Class A shares of the Fund only) 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" herein)
On any day on which the New York Stock Exchange, Inc. is open for trading
("Fund Business Day"), investors may, without charge by the Fund, purchase and
redeem shares of the Fund's common stock at their net asset value next
determined after receipt of the order. An investor's subscription 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 same Class
of the Fund unless a shareholder has elected by written notice to the Fund to
receive either of such distributions in cash. (See "Dividends and Distributions"
herein.)
The Fund intends that its investment portfolio may be concentrated in 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>
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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 believed to
be consistent with the preservation of capital, maintenance of liquidity and
stability of principal. There can be no assurance that the Fund will achieve its
investment objectives.
The Fund's assets will be invested primarily in high quality debt
obligations issued by or on behalf of the State of 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
gross 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 Rating Services, a division of The McGraw-Hill
Companies ("S&P'") and Moody's Investors Service, Inc. ("Moody's"). The two
highest ratings by S&P and Moody's are "AAA" and "AA" by S&P in the case of
long-term bonds 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. Reassessment, however, 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
6
<PAGE>
capital funds, and general economic conditions. (See "Variable Rate Demand
Instruments and Participation Certificates" in the Statement of Additional
Information.) Banks are subject to extensive governmental regulations which may
limit both the amounts and types of loans and other financial commitments which
may be made and interest rates and fees which may be charged. The profitability
of this industry is largely dependent upon the availability and cost of capital
funds for the purpose of financing lending operations under prevailing money
market conditions. Also, general economic conditions play an important part in
the operations of this industry and exposure to credit losses arising from
possible financial difficulties of borrowers might affect a bank's ability to
meet its obligations under a letter of credit. The Fund may invest 25% or more
of the net assets of any portfolio in securities that are related in such a way
that an economic, business or political development or change affecting one of
the securities would also affect the other securities including, for example,
securities the interest upon which is paid from revenues of similar type
projects, or securities the issuers of which are located in the same state.
The Fund has adopted the following fundamental investment restrictions
which apply to all portfolios and which may not be changed unless approved by a
majority of the outstanding shares of each series of the Fund's shares that
would be affected by such a change. The Fund is subject to further investment
restrictions that are set forth in the Statement of Additional Information. The
Fund may not:
1. Borrow Money. This restriction shall not apply to borrowings from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition
of securities, in an amount up to 15% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing was made.
While borrowings exceed 5% of the value of the Fund's total assets, the
Fund will not make 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 10% 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
7
<PAGE>
to not more than 5% in value of the total assets of the Fund and to not more
than 10% of the outstanding voting securities of such issuer. In addition, at
the close of each quarter of its taxable year, not more than 25% in value of the
Fund's total assets may be invested in securities of one issuer other than
government securities. The limitations described in this paragraph regarding
qualification as a "regulated investment company" are not fundamental policies
and may be revised to the extent applicable Federal income tax requirements are
revised. (See "Federal Income Taxes" herein.)
The primary purpose of investing in a portfolio of 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. At the onset of that recession, New Jersey experienced
accelerated 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. 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, 1997. 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
8
<PAGE>
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 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
9
<PAGE>
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 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.
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MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The Fund's Board of Directors, which is responsible for the overall
management and supervision of the Fund, has employed the Manager to serve as
investment manager of the Fund. The Manager provides persons satisfactory to the
Fund's Board of Directors to serve as officers of the Fund. Such officers, as
well as certain other employees and directors of the Fund, may be directors or
officers of Reich & Tang Asset Management, Inc., the sole general partner of the
Manager or employees of the Manager or its affiliates. Due to the services
performed by the Manager, the Fund currently has no employees and its officers
are not required to devote 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. As of January 31, 1997, the Manager
was investment manager, advisor or supervisor with respect to assets aggregating
approximately $9.5 billion. The Manager acts as manager or administrator of
fifteen other investment companies and also advises pension trust, profit
sharing trusts and endowments.
New England Investment Companies, L.P. ("NEICLP") is the limited partner
and owner of a 99.5% interest in 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.
On August 30, 1996, The New England Mutual Life Insurance Company (the "New
England") and Metropolitan Life Insurance Company ("MetLife") merged, with
MetLife being the continuing company. The
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<PAGE>
Manager remains a wholly-owned subsidiary of NEICLP, but Reich & Tang Asset
Management, Inc., its sole general partner, is now an indirect subsidiary of
MetLife. Also, MetLife New England Holdings, Inc., a wholly-owned subsidiary of
MetLife, owns 51% of the outstanding limited partnership interest of NEICLP and
may be deemed a "controlling person" of the Manager. Reich & Tang, Inc. owns
approximately 16% of the outstanding partnership units of NEICLP.
MetLife is a mutual life insurance company with assets of $142.2 billion at
March 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.2 trillion at March 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles
across a wide range of asset categories through twelve subsidiaries, divisions
and affiliates offering a wide array of investment styles and products to
institutional clients. Its business units include, AEW Capital Management, L.P.,
Back Bay Advisors, L.P., Graystone Partners, L.P., Harris Associates, L.P.,
Jurika & Voyles, L.P., Loomis, Sayles & Co., L.P., MC Management, L.P., New
England Funds, L.P., New England Funds Management L.P., Reich & Tang Asset
Management, L.P., Vaughan-Nelson, Scarborough & McConnell L.P. and Westpeak
Investment Advisors, L.P. These affiliates in the aggregate are investment
advisors or managers to 43 other registered investment companies.
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.
The merger between The New England and MetLife resulted in an "assignment"
of the Investment Management Contract relating to the Fund. Under the 1940 Act,
such an assignment caused the automatic termination of this agreement. On
November 28, 1995, the Board of Directors, including a majority of the directors
who are not interested persons (as defined in the 1940 Act) of the Fund or the
Manager, approved a new Investment Management Contract effective August 30,
1996, which has a term which extends to July 31, 1998 and may be continued in
force thereafter for successive twelve-month periods beginning each August 1,
provided that such continuance is specifically approved annually by majority
vote of the Fund's outstanding voting securities or by its Board of Directors,
and in either case by a majority of the directors who are not parties to the
Investment Management Contract or interested persons of any such party, by votes
cast in person at a meeting called for the purpose of voting on such matter.
The new Investment Management Contract was approved by a majority of the
shareholders of the Fund on July 12, 1996, and contains the same terms and
conditions governing the Manager's investment management responsibilities as the
Fund's previous Investment Management Contract with the Manager, except as to
the date of execution and termination.
The merger and the change in control of the Manager is not expected to have
any impact upon the Manager's performance of its responsibilities and
obligations under the new Investment Management Contract.
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 Class A shares of the Fund under the Shareholder Servicing Agreement. The
fees are accrued
11
<PAGE>
daily and paid monthly. Investment management fees and operating expenses, which
are attributable to both Classes of shares of the Fund, will be allocated daily
to each Class of shares based on the percentage of shares outstanding for each
Class at the end of the day.
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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. Generally, all
shares will be voted in the aggregate, except if voting by Class is required by
law or the matter involved affects only one Class, in which case shares will be
voted separately by Class. 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, 1997, the amount of shares owned by all officers and directors as a group
was less than 1% of the outstanding shares of the Fund.
The Fund is subdivided into two classes of common stock, Class A and Class
B. Each share, regardless of class, will represent an interest in the same
portfolio of investments and will have identical voting, dividend, liquidation
and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that: (i) the
Class A and Class B shares will have different class designations; (ii) only the
Class A shares will be assessed a service fee of .20% of the average daily net
assets of the Class A shares of the Fund pursuant to the Rule 12b-1 Distribution
and Service Plan of the Fund; (iii) only the holders of the Class A shares would
be entitled to vote on matters pertaining to the Plan and any related agreements
in accordance with provisions of Rule 12b-1; and (iv) the exchange privilege
will permit shareholders to exchange their shares only for shares of the same
class of a Fund that participates in a exchange privilege with the Fund.
Payments that are made under the Plans will be calculated and charged daily to
the appropriate class prior to determining daily net asset value per share and
dividends/distributions.
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 of the same Class immediately upon payment thereof unless
a shareholder has elected by written notice to the Fund to receive either of
such distributions in cash.
The Class A shares will bear the service fee under the Plan. As a result,
the net income of and the dividends payable to the Class A shares will be lower
than the net income of and dividends payable to the Class B shares of the Fund.
Dividends paid to each Class of shares of the Fund will, however, be declared
and paid on the same days at the same times and, except as noted with respect to
the service fees payable under the Plan, will be determined in the same manner
and paid in the same amounts.
12
<PAGE>
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HOW TO PURCHASE AND REDEEM SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can purchase shares of the Fund through broker-dealers, banks or other
financial intermediaries, or directly through EKD. The minimum initial
investment is $1,000 which may be waived in certain situations. There is no
minimum for subsequent investments. In states where EKD 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 Class A shares are
offered through this Prospectus. Instructions on how to purchase shares of the
Fund are set forth in the Share Purchase Application.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss the Fund or the Fund's Manager incurs.
If such investor is an existing shareholder, the Fund may redeem shares from his
or her account to reimburse the Fund or the Fund's Manager for any loss. In
addition, such investors may be prohibited or restricted from making further
purchase in any of the Evergreen mutual funds.
HOW TO REDEEM SHARES
You may "redeem", i.e., sell your shares in the Fund to the Fund on any
Fund Business Day, either directly or through your financial intermediary. The
price you will receive is the net asset value next calculated after the Fund
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check, the Fund
will not send proceeds until it is reasonably satisfied that the check has been
collected (which may take up to ten days). Once a redemption request has been
telephoned or mailed, it is irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. The Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service. Certain financial intermediaries may require that
you give instructions earlier than 4:00 p.m. (Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to State Street Bank and Trust Company ("State
Street") which is the registrar, transfer agent and dividend disbursing agent
for the Fund. Stock power forms are available from your financial intermediary,
State Street, and many commercial banks. Additional documentation is required
for the sale of shares by corporations, financial intermediaries, fiduciaries
and surviving joint owners. Signature guarantees are required for all redemption
requests for shares with a value of more than $10,000 or where the redemption
proceeds are to be mailed to an address other than that shown in the account
registration. A signature guarantee must be provided by a bank or trust company
(not a Notary Public), a member firm of a domestic stock exchange or by other
financial institutions whose guarantees are acceptable to State Street.
Shareholders may withdraw amounts of $1,000 or more from their accounts by
calling State Street at 800-423-2615 between the hours of 8:00 a.m. to 5:30 p.m.
(Eastern time) each Fund Business Day. Redemption requests made after 4:00 p.m.
(Eastern time) will be processed using the net asset value determined on the
next business day. Such redemption requests must include the shareholder's
account name, as registered with the Fund, and the account number. During
periods of drastic economic or market changes, shareholders may experience
difficulty in effecting telephone redemptions. Shareholders who are unable to
reach State Street by telephone should follow the procedures outlined above for
redemption by mail.
The telephone redemption service is not available to shareholders
automatically. Shareholders wishing to use the telephone redemption service must
indicate this on the Share Purchase Application and choose how the redemption
proceeds are to be paid. Redemption proceeds will either (i) be mailed by check
to the shareholder at the address in which the account is registered or (ii) be
wired to an account with the same registration as the shareholder's account in
the Fund at a designated commercial bank. State Street currently deducts a $5.00
wire charge from all redemption proceeds wired. This charge is subject to change
without notice. Redemption proceeds will be wired on the same day if the request
is made prior to 12 noon (Eastern
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<PAGE>
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.
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SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
The Fund offers the following shareholder services. For more information
about these services or your account, contact EKD or the toll-free number on the
front of this Prospectus. Some services are described in more detail in the
Share Purchase Application.
Systematic Investment Plan. You may make monthly or quarterly investments into
an existing account automatically in amounts of not less than $25.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $25,000 per
investment. Telephone investment requests received by 3:00 p.m. (Eastern time)
will be credited to a shareholder's account two business days after the request
is received.
Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or
when an existing account reaches that size, you may participate in the Fund's
Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share
Purchase Application. Under this plan, you may receive (or designated a third
party to receive) a monthly or quarterly check in a stated amount of not less
than $75. Fund shares will be redeemed as necessary to meet withdrawal payments.
All participants must elect to have their dividends and capital gain
distributions reinvested automatically. In order to make a payment, a number of
shares equal in aggregate net asset value to the payment amount are redeemed at
their net asset value on the Fund Business Day immediately preceding the date of
payment. To the extent that the redemptions to make plan payments
14
<PAGE>
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 for each Class 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.
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
16
<PAGE>
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. It is the Fund management's
position, however, 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. This is an unsettled area of the law, however, 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.
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DISTRIBUTION AND SERVICE PLAN
- --------------------------------------------------------------------------------
Pursuant to Rule 12b-1 under the 1940 Act, the Securities and Exchange
Commission has required that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan permitted by Rule 12b-1. 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 (with respect to
the Class A shares of the Fund only).
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 with
respect only to the Class A shares a service fee equal to .20% per annum of the
Fund's Class A shares' average daily net assets (the "Shareholder Servicing
Fee") for providing personal shareholders services and for the maintenance of
shareholder accounts. The fee is accrued daily and paid monthly and any portion
of the fee may be deemed to be used by the Distributor for payments to
Participating Organizations with respect to their provision of such services to
their clients or customers who are shareholders of the Class A shares of the
Fund. The Class B shareholders will not receive the benefit of such services
from Participating Organizations and, therefore, will not be assessed a
Shareholder Servicing Fee.
The Plan 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
16
<PAGE>
Class A Shares of the Fund; (ii) to compensate certain Participating
Organizations for providing assistance in distributing the Class A Shares of the
Fund; and (iii) to pay the costs of printing and distributing the Fund's
prospectus to prospective investors, and to defray the cost of the preparation
and printing of brochures and other promotional materials, mailings to
prospective shareholders, advertising, and other promotional activities,
including the salaries and/or commissions of sales personnel in connection with
the distribution of the Fund's 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
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 with respect to Class A shares and (ii)
preparing, printing and delivering the Fund's prospectus to existing
shareholders of the Fund and preparing and printing subscription application
forms for shareholder accounts.
For the fiscal year ended October 31, 1996, the total amount spent pursuant
to the Plan for Class A shares was .44% of the average daily net assets of the
Fund, of which .14% of the average daily net assets was paid by the Fund to the
Distributor, pursuant to the Shareholder Servicing Agreement and an amount
representing .30% was paid by the Manager (which may be deemed an indirect
payment by the Fund). Of the total amount paid by the Manager, $598,171 was
utilized for Broker assistance payments, $16, 266 for compensation to sales
personnel, $4,886 for travel and expenses, $43,335 for Prospectus printing, and
$628 on miscellaneous expenses.
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FEDERAL INCOME TAXES
- --------------------------------------------------------------------------------
The Fund has elected to qualify under the Code as a regulated investment
company that distributes "exempt-interest dividends" as defined in the Code. The
Fund's policy is to distribute as dividends each year 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 having 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. 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. Corporations will
be required to include in alternative minimum taxable income, 75% of the amount
by which their adjusted current earnings (including generally, tax-exempt
interest) exceeds their alternative minimum taxable income (determined without
this item). In addition, in certain cases Subchapter S corporations with
accumulated earnings and profits from Subchapter C years will be subject to a
tax on "passive investment income", including tax-exempt interest.
17
<PAGE>
Although the Fund intends to maintain a $1.00 per share net asset value, a
Shareholder may realize a taxable gain or loss upon the disposition of shares.
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.
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.
18
<PAGE>
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-Laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of 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 each Class of the Fund's shares is determined as of
12 noon, Eastern time, on each Fund Business Day. The net asset value of a Class
is computed by dividing the value of the Fund's net assets for such Class (i.e.,
the value of its securities and other assets less its liabilities, including
expenses payable or accrued but excluding capital stock and surplus) by the
total number of shares outstanding for such Class.
The Fund'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.
19
<PAGE>
Distributor
Evergreen Keystone 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>
RULE 497(e)
Registration No. 33-36317
[GRAPHIC OMITTED]
PROSPECTUS
VISTA SELECT SHARES OF NEW JERSEY DAILY MUNICIPAL INCOME FUND
March 3, 1997
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. This Prospectus relates
exclusively to the Vista Select shares class of the Fund. The Fund is
concentrated in the securities issued by New Jersey. Additionally, the Fund may
invest a significant percentage of its assets in a single issuer, and therefore
an investment in the Fund may be riskier than an investment in other types of
money market funds. The Fund offers two classes of shares to the general public,
however only Class A shares are offered by this Prospectus. The Class A shares
of the Fund are subject to a service fee pursuant to the Fund's Rule 12b-1
Distribution and Service Plan and are sold through financial intermediaries who
provide servicing to Class A shareholders for which they receive compensation
from the Manager and the Distributor. The Class B shares of the Fund are not
subject to a service fee and either are sold directly to the public or are sold
through financial intermediaries that do not receive compensation from the
Manager or Distributor. In all other respects, the Class A and Class B shares
represent the same interests in the income and assets of the Fund.
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 1-800-34-VISTA. 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 Vista Select shares may not be purchased
other than through certain securities dealers with whom Vista Fund Distributors,
Inc. ("VFD") has entered into agreements for this purpose, directly from VFD or
through certain "Participating Organizations" (see "Investments Through
Participating Organizations") with whom they have accounts. Vista Select 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 VFD.
Shares of the Fund other than the Vista Select 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 Contents......................................................... 2
Table of Fees and Expenses................................................ 3
Selected Financial Information............................................ 4
Introduction.............................................................. 5
Investment Objectives, Policies and Risk Considerations................... 6
New Jersey Risk Factors...................................................12
Management of The Fund....................................................16
Description of Common Stock...............................................19
Dividends and Distributions...............................................20
How to Purchase and Redeem Shares.........................................20
Initial Purchase of Vista Select Shares..............................21
Subsequent Purchases of Shares.......................................23
Redemption of Shares.................................................24
Exchange Privilege...................................................26
Specified Amount Automatic Withdrawal Plan...........................27
Investments Through Participating Organizations......................27
Distribution and Service Plan.............................................29
Federal Income Taxes......................................................30
New Jersey Income Taxes...................................................32
General Information ......................................................33
Net Asset Value...........................................................33
Custodian, Transfer Agent and Dividend Agent..............................34
2
<PAGE>
TABLE OF FEES AND EXPENSES
--------------------------------------
Annual Fund Operating Expenses
(as a percentage of average net assets)
Class A shares Class B shares
Management Fees 0.30% 0.30%
12b-1 Fees (After Fee Waiver) 0.14% 0.00%
Other Expenses 0.34% 0.31%
Administration Fees 0.21% 0.21%
Total Fund Operating ----- -----
Expenses (After Fee Waiver) 0.78% 0.61%
<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):
Class A $8 $25 $43 $97
Class B $6 $20 $34 $76
</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 outstanding shares of the Fund
were reclassified into Class A shares and Class B shares on February 9, 1996.
The Distributor has voluntarily waived 12b-1 Fees amounting to .06% of average
net assets on Class A Shares, absent such waivers the 12b-1 Fee would have been
.20%. In addition, absent such waivers the Total Fund Operating Expenses of
Class A Shares would have been .84%.
THE FIGURES REFLECTED IN THIS EXAMPLE SHOULD NOT BE CONSIDERED AS A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN ABOVE.
3
<PAGE>
- --------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
Year
Ended Year Ended
October 31, October 31, October 26, 1990
------------------------------------------ (Inception) to
1996 1995 1994 1993 1992 October 31, 1991
-------- ---------- --------- --------- ------ ----------------
Class A Class A Class A Class A Class A Class A
--------- -------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Net investment income............... 0.027 0.030 0.020 0.020 0.030 0.042
Dividends from net investment income ( 0.027) ( 0.030) ( 0.020) ( 0.020) 0.030 0.042
-------- -------- -------- -------- -------- --------
Net asset value, end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Return........................ 2.69% 3.08% 2.03% 1.98% 3.01% 4.62%*
Ratios/Supplemental Data
Net assets, end of period (000)..... $151,421 $130,128 $ 105,929 $78,347 $ 46,374 $ 26,238
Ratios to average net assets:
Expenses......................... 0.78%+# 0.72%+ 0.66%+ 0.61%+ 0.42%+ 0.27%*+
Net investment income............ 2.65%+ 3.02%+ 2.02%+ 1.95%+ 2.88%+ 4.32%*+
</TABLE>
February 9, 1996
(Commencement of Offering) to
CLASS B October 31, 1996
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 1.00
Net investment income............... 0.020
Dividends from net investment income ( 0.020)
Net asset value, end of period...... $ 1.00
Total Return........................ 2.77%*
Ratios/Supplemental Data
Net assets, end of period (000)..... $ 366
Ratios to average net assets:
Expenses.......................... 0.61%*++
Net investment income............. 2.72%*
* Annualized
+ Net of management, administration and shareholder servicing fees waived which
were equivalent to .06%, .18%, .26%, .35%, .70% and .70%, of average net assets
respectively, plus expense reimbursement which were equivalent to .00%, .00%,
.00%, .00%, .04%, and .53%, of average net assets, respectively.
++ Includes expense offsets.
4
<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 fifteen 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 (with respect to
Class A Shares of the Fund only) pursuant to the Fund's distribution and service
plan adopted under Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"). (See "Distribution and Service Plan" herein.)
On any day on which the New York Stock Exchange, Inc. is open for trading ("Fund
Business Day"), investors may, without charge by the Fund, purchase and redeem
shares of the Fund's common stock
5
<PAGE>
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 same Class
of the Fund unless a shareholder has elected by written notice to the Fund to
receive either of such distributions in cash. (See "Dividends and Distributions"
herein.)
The Fund intends that its investment portfolio may be concentrated in 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.
Vista Select shares have been created for the primary purpose of providing a New
Jersey tax-free money market fund product for investors who purchase shares
directly from VFD, through dealers with whom VFD has entered into agreements for
this purpose or through certain "Participating Organizations" (see "Investments
Through Participating Organizations" herein) with whom they have accounts or who
acquire Vista Select shares through the exchange of shares of certain other
investment companies as hereinafter described. Vista Select 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. For example, shareholders who hold other
shares of the Fund may not participate in the exchange privilege described
herein and have different arrangements for redemptions by check.
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 believed to be
consistent with the preservation of capital, maintenance of liquidity and
stability of principal. There can be no assurance that the Fund
6
<PAGE>
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
gross 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,
7
<PAGE>
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 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 total 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.
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-
8
<PAGE>
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 Rating
Services, a division of The McGraw-Hill Companies ("S&P") and Moody's Investors
Service, Inc. ("Moody's"). The two highest ratings by S&P and Moody's are "AAA"
and "AA" by S&P in the case of long-term bonds and notes or "Aaa" and "Aa" by
Moody's in the case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by
Moody's in the case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2"
by Moody's in the case of tax-exempt commercial paper. The highest rating in the
case of variable and floating demand notes is "VMIG-1" by Moody's 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. Reassessment, however, 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.
9
<PAGE>
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 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
10
<PAGE>
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 10% 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 1940 Act with respect to investing its assets in
one or relatively few issuers. This non-diversification may present greater
risks than in the case of a diversified company.
11
<PAGE>
However, the Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Code. The Fund will be restricted in that at the close of
each quarter of the taxable year, at least 50% of the value of its total assets
must be represented by cash, government securities, investment company
securities and other securities limited in respect of any one issuer to not more
than 5% in value of the total assets of the Fund and to not more than 10% of the
outstanding voting securities of such issuer. In addition, at the close of each
quarter of its taxable year, not more than 25% in value of the Fund's total
assets may be invested in securities of one issuer other than government
securities. The limitations described in this paragraph 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.
After enjoying an extraordinary boom during the mid-1980's, New Jersey as well
as the rest of the Northeast slipped into a slowdown well before the national
recession which officially began in July 1990 (according to the National Bureau
of Economic Research). At the onset of that recession, New Jersey experienced
accelerated 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
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<PAGE>
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. 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, 1997. 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 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
13
<PAGE>
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
14
<PAGE>
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 either the local board of
estimate 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 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
15
<PAGE>
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 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. As of January 31, 1997, the Manager was
investment manager, advisor or supervisor with respect to assets aggregating
approximately $9.5 billion. The Manager acts as manager or administrator of
fifteen other investment companies and also advises pension trusts, profit
sharing trusts and endowments.
New England Investment Companies, L.P. ("NEICLP") is the limited partner and
owner of a 99.5% interest in the Manager. Reich & Tang Asset Management, Inc. (a
wholly-owned subsidiary of NEICLP) is the general partner and
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<PAGE>
owner of the remaining .5% interest of the Manager. Reich & Tang Asset
Management L.P. has succeeded NEICLP as the Manager of the Fund.
On August 30, 1996, The New England Mutual Life Insurance Company ("the New
England") and Metropolitan Life Insurance Company ("MetLife") merged, with
MetLife being the continuing company. The Manager remains a wholly-owned
subsidiary of NEICLP, but Reich & Tang Asset Management, Inc., its sole general
partner, is now an indirect subsidiary of MetLife. Also, MetLife New England
Holdings, Inc., a wholly-owned subsidiary of MetLife, owns 51% of the
outstanding limited partnership interest of NEICLP and may be deemed a
"controlling person" of the Manager. Reich & Tang, Inc. owns approximately 16%
of the outstanding partnership units of NEICLP.
MetLife is a mutual life insurance company with assets of $142.2 billion at
March 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.2 trillion at March 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through twelve subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units include, AEW Capital Management, L.P.,
Back Bay Advisors, L.P., Graystone Partners, L.P., Harris Associates, L.P.,
Jurika & Voyles, L.P., Loomis, Sayles & Co., L.P., MC Management, L.P., New
England Funds, L.P., New England Funds Management L.P., Reich & Tang Asset
Management, L.P., Vaughan-Nelson, Scarborough & McConnell L.P. and Westpeak
Investment Advisors, L.P. These affiliates in the aggregate are investment
advisors or managers to 43 other registered investment companies.
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.
The merger between The New England and MetLife resulted in an "assignment" of
the Investment Management Contract relating to the Fund. Under the 1940 Act,
such an assignment caused the automatic termination of this
17
<PAGE>
agreement. On November 28, 1995, the Board of Directors, including a majority of
the directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved a new Investment Management Contract effective
August 30, 1996, which has a term which extends to July 31, 1998 and may be
continued in force thereafter for successive twelve-month periods beginning each
August 1, provided that such continuance is specifically approved annually by
majority vote of the Fund's outstanding voting securities or by its Board of
Directors, and in either case by a majority of the directors who are not parties
to the Investment Management Contract or interested persons of any such party,
by votes cast in person at a meeting called for the purpose of voting on such
matter.
The new Investment Management Contract was approved by a majority of the
shareholders of the Fund on July 12, 1996 and contains the same terms and
conditions governing the Manager's investment management responsibilities as the
Fund's previous Investment Management Contract with the Manager, except as to
the date of execution and termination.
The merger and the change in control of the Manager is not expected to have any
impact upon the Manager's performance of its responsibilities and obligations
under the new Investment Management Contract.
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 Class A shares of the Fund under the Shareholder Servicing Agreement. The
fees are accrued daily and paid monthly. Investment management fees and
operating expenses, which are attributable to both Classes of shares of the
Fund, will be allocated daily to each Class of shares based on the percentage of
shares outstanding for each Class at the end of the day.
18
<PAGE>
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. Generally, all shares will be
voted in the aggregate, except if voting by Class is required by law or the
matter involved affects only one Class, in which case shares will be voted
separately by Class. There are no conversion or preemptive rights in connection
with any shares of the Fund. All shares, when issued in accordance with the
terms of the offering, will be fully paid and nonassessable. Shares are
redeemable at net asset value, at the option of the shareholder. As of January
31, 1997, the amount of shares owned by all officers and directors as a group
was less than 1% of the outstanding shares of the Fund.
The Fund is subdivided into two classes of common stock, Class A and Class B.
Each share, regardless of class, will represent an interest in the same
portfolio of investments and will have identical voting, dividend, liquidation
and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that: (i) the
Class A and Class B shares will have different class designations; (ii) only the
Class A shares will be assessed a service fee of .20% of the average daily net
assets of the Class A shares of the Fund pursuant to the Rule 12b-1 Distribution
and Service Plan of the Fund; (iii) only the holders of the Class A shares would
be entitled to vote on matters pertaining to the Plan and any related agreements
in accordance with provisions of Rule 12b-1; and (iv) the exchange privilege
will permit shareholders to exchange their shares only for shares of the same
class of a Fund that participates in a exchange privilege with the Fund. (See
"Exchange Privilege" herein.) Payments that are made under the Plans will be
calculated and charged daily to the appropriate class prior to determining daily
net asset value per share and dividends/distributions.
Vista Select shares have been created for the primary purpose of providing a New
Jersey tax-free money market fund product for investors who purchase shares
directly from VFD, through dealers with whom VFD has entered into agreements for
this purpose (see "Investments Through Participating Organizations" herein) with
whom they have accounts, or who acquire Vista Select shares through the exchange
of shares of certain other
19
<PAGE>
investment companies as hereinafter described. Vista Select 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. For example, shareholders who hold other
shares of the Fund may not participate in the exchange privilege described
herein and have different arrangements for redemptions by check.
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 of the same Class immediately upon payment thereof unless
a shareholder has elected by written notice to the Fund to receive either of
such distributions in cash.
The Class A shares will bear the service fee under the Plan. As a result, the
net income of and the dividends payable to the Class A shares will be lower than
the net income of and dividends payable to the Class B shares of the Fund.
Dividends paid to each Class of shares of the Fund will, however, be declared
and paid on the same days at the same times and, except as noted with respect to
the service fees payable under the Plan, will be determined in the same manner
and paid in the same amounts.
HOW TO PURCHASE AND
REDEEM SHARES
- ---------------------
Investors may invest in Vista Select shares through VFD or through dealers with
whom VFD has entered into agreements for this purpose as described herein and
those who have accounts with Participating Organizations may invest in the Vista
Select shares through their Participating Organizations in accordance with the
procedures established by the Participating Organizations. (See "Investments
Through Participating Organizations" herein.) Only Class A shares are offered
through this Prospectus. Certain Participating Organizations are compensated by
the Distributor from its shareholder servicing fee and by the Manager from its
management fee for the performance of these services. An
20
<PAGE>
investor who purchases shares through a Participating Organization that receives
payment from the Manager or the Distributor will become a Class A shareholder.
All other investors, and investors who have accounts with Participating
Organizations but who do not wish to invest in the Fund through their
Participating Organizations, may invest in the Fund directly as Class B
shareholders of the Fund and not receive the benefit of the servicing functions
performed by a Participating Organization. Class B shares may also be offered to
investors who purchase their shares through Participating Organizations who do
not receive compensation from the Distributor or the Manager because they may
not be legally permitted to receive such as fiduciaries. The Manager pays the
expenses incurred in the distribution of Class B shares. Participating
Organizations whose clients become Class B shareholders will not receive
compensation from the Manager or Distributor for the servicing they may provide
to their clients. The minimum initial investment in the Vista Select shares is
$2,500. Initial investments may be made in any amount in excess of the
applicable minimums. The minimum amount for subsequent investments is $100.
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent,
which accepts orders for purchases and redemptions from Participating
Organizations, VFD, and from dealers with whom VFD has entered into agreements
for this purpose.
In order to maximize earnings on its portfolio, the Fund normally has its assets
as fully invested as is practicable. Many securities in which the Fund invests
require immediate settlement in funds of Federal Reserve member banks on deposit
at a Federal Reserve Bank (commonly known as "Federal Funds"). Accordingly, the
Fund does not accept a subscription or invest an investor's payment in portfolio
securities until the payment has been converted into Federal Funds.
Shares will be issued as of the first determination of the Fund's net asset
value per share for each Class made after acceptance of the investor's order at
the net asset value per share 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, New York City 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, New York City time, on a Fund Business Day will not
result in share issuance until the following Fund Business Day. Fund shares
begin accruing income on the day the shares are issued to an investor.
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<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, New
York City time, on any Fund Business Day become effective at 12 noon that day.
Shares redeemed are not entitled to participate in dividends declared on the day
a redemption becomes effective. A redemption request received after 12 noon, New
York City time, on any Fund Business Day becomes effective on the next Fund
Business Day.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed. During the notice
period any shareholder who receives such a notice may (without regard to the
normal $100 requirement for an additional investment) make a purchase of
additional shares to increase the total net asset value at least to the minimum
amount and thereby avoid such mandatory redemption.
For Participant Investor accounts, notice of a proposed mandatory redemption
will be given only to the appropriate Participating Organization, and the
Participating Organization will be responsible for notifying the Participant
Investor of the proposed mandatory redemption. During the notice period a
shareholder or Participating Organization who receives such a notice may avoid
mandatory redemption by purchasing sufficient additional shares to increase the
total net asset value to at least $500.
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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.
INITIAL PURCHASE OF
VISTA SELECT SHARES
Investors may obtain a current prospectus and the order form necessary to open
an account by telephoning the Vista Service Center at 1-800-34-VISTA.
Mail. To purchase shares of the Vista Select shares send a check made payable to
"Vista Select Shares of New Jersey Daily Municipal Income Fund, Inc." along with
a completed subscription order form to:
New Jersey Daily Municipal Income Fund, Inc.
P.O. Box 419392
Kansas City, Missouri 64141-6392
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member bank of the Federal Reserve
System can normally be converted into Federal Funds within two business days
after receipt of the check. Checks drawn on a non-member bank may take
substantially longer to convert into Federal Funds and to be invested in Fund
shares. An investor's subscription will not be accepted until the Fund receives
Federal Funds.
Bank Wire. To purchase shares of the Vista Select shares using the wire system
for transmittal of money among banks, investors should first telephone the Fund
at 1-800-34-VISTA to obtain a new account number. The investor should then
instruct a member commercial bank to wire the money immediately to:
Investors Fiduciary Trust Company
ABA #1010-0362-1
VISTA MUTUAL FUNDS
DDA #751-1-629
For New Jersey Daily Municipal Income Fund, Inc.
Account of
Fund Account #
SS#/Tax ID#
The investor should then promptly complete and mail the subscription order form.
Investors planning to wire funds should instruct their bank early in the day so
the wire transfer can be accomplished before 12 noon, New York City time, on
that same day. There may be a charge by the investor's bank for transmitting the
money by bank wire, and there also may be a charge for use of Federal Funds. The
Fund does not charge investors in the Fund for its receipt of wire transfers.
Payment in the form of a "bank wire" received prior to 12 noon, New York City
time, on a Fund Business Day will be treated as a Federal Funds payment received
on that day.
SUBSEQUENT PURCHASES
OF SHARES
Subsequent purchases can be made either by bank wire or by mailing a check to:
Vista Mutual Funds
P.O. Box 419392
Kansas City, Missouri 64141-6392
There is a $100 minimum for each subsequent purchase. All payments should
clearly indicate the shareholder's account number. Provided that the information
on
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the subscription order form on file with the Fund is still applicable, a
shareholder may re-open an account without filing a new subscription order form
at any time during the year the shareholder's account is closed or during the
following calendar year.
REDEMPTION OF SHARES
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share for each
Class following receipt by the Fund's transfer agent of the redemption order
(and any supporting documentation which it may require). Normally, payment for
redeemed shares is made on the same Fund Business Day after the redemption is
effected, provided the redemption request is received prior to 12 noon, New York
City time and on the next Fund Business Day if the redemption request is
received after 12 noon, New York City time. However, redemption payments will
not be effected unless the check (including a certified or cashier's check) used
for investment has been cleared for payment by the investor's bank, currently
considered by the Fund to occur 15 days after investment.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee. When a
signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature and guaranteed by an eligible guarantor
institution which includes a domestic bank, a domestic savings and loan
institution, a domestic credit union, a member bank of the Federal Reserve
System or a member firm of a national securities exchange, pursuant to the
Fund's transfer agent's standards and procedures.
Written Requests. Shareholders may make a redemption in any amount by sending
a written request to the Fund addressed to:
Vista Mutual Funds
P.O. Box 419392
Kansas City, Missouri 64141-6392
Normally the redemption proceeds are paid by check mailed to the shareholder of
record.
Checks. By making the appropriate election on their subscription form,
shareholders may request a supply of checks which may be used to effect
redemptions. The checks, which will be issued in the shareholder's name, are
drawn on a special account maintained by the Fund with the Fund's agent bank.
Checks may be drawn in any amount of $500 or more. When a check is presented to
the Fund's agent bank for payment, it instructs the transfer agent to redeem a
sufficient number of full and fractional shares in the shareholder's account to
cover the amount of the check. The use of a check to make a
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<PAGE>
withdrawal enables a shareholder in the Fund to receive dividends on the shares
to be redeemed up to the Fund Business Day on which the check clears. Checks
provided by the Fund may not be certified. Fund shares purchased by check may
not be redeemed by check until the check has cleared, which could take up to 15
days following the date of purchase.
There is no charge to the shareholder for checks provided by the Fund. The Fund
reserves the right to impose a charge or impose a different minimum check amount
in the future, if the Board of Directors determines that doing so is in the best
interests of the Fund and its shareholders.
Shareholders electing the checking option are subject to the procedures, rules
and regulations of the Fund's agent bank governing checking accounts. Checks
drawn on a jointly owned account may, at the shareholder's election, require
only one signature. The Fund's agent bank will not honor checks which are in
amounts exceeding the value of the shareholder's account at the time the check
is presented for payment. Since the dollar value of the account changes daily,
the total value of the account may not be determined in advance and the account
may not be entirely redeemed by check. In addition, the Fund reserves the right
to charge the shareholder's account a fee up to $20 for checks not honored as a
result of an insufficient account value, a check deemed not negotiable because
it has been held longer than six months, an unsigned check and a post-dated
check. The Fund reserves the right to terminate or modify the check redemption
procedure at any time or impose additional fees following notification to the
Fund's shareholders.
Investors wishing to avail themselves of this method of redemption should elect
it on their subscription order form. Individuals and joint tenants are not
required to furnish any supporting documentation. Corporations and other
entities making this election, however, are required to furnish a certified
resolution or other evidence of authorization in accordance with the Fund's
normal practices. Appropriate authorization forms will be sent by the Fund or
its agents to corporations and other shareholders who select this option. As
soon as the authorization forms are filed in good order with the Fund's agent
bank, it will provide the shareholder with a supply of checks. This checking
service may be terminated or modified at any time or to impose additional fees
following notification to the Fund's shareholders.
Telephone. The Fund accepts telephone requests for redemption from shareholders
who elect this option. The proceeds of a telephone redemption may be sent to the
shareholders at their address or, to their bank accounts, both as set forth in
the subscription order form or in a subsequent written authorization. However,
all telephone redemption instructions in excess of $25,000 will be wired
directly to such previously designated bank account, for the protection of
shareholders. The
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Fund may accept telephone redemption instructions from any person with respect
to accounts of shareholders who elect this service and thus such shareholders
risk possible loss of principal and interest in the event of a telephone
redemption not authorized by them. The Fund will employ reasonable procedures to
confirm that telephone redemption instructions are genuine, and will require
that shareholders electing such option provide a form of personal
identification. The failure by the Fund to employ such reasonable procedures may
cause the Fund to be liable for the losses incurred by investors due to
telephone redemptions based upon unauthorized or fraudulent instructions.
A shareholder making a telephone withdrawal should call the Fund at
1-800-34-VISTA and state (i) the name of the shareholder appearing on the Fund's
records, (ii) the shareholder's account number with the Fund, (iii) the amount
to be withdrawn, (iv) whether such amount is to be forwarded to the
shareholder's designated bank account or address, and (v) the name of the person
requesting the redemption. Usually the proceeds are sent to the designated bank
account or address on the same Fund Business Day the redemption is effected,
provided the redemption request is received before 12 noon, New York City time
and on the next Fund Business Day if the redemption request is received after 12
noon, New York City time and on the next Fund Business Day of the redemption
request is received after 12 noon, New York City time. The Fund reserves the
right to terminate or modify the telephone redemption service in whole or in
part at any time and will notify shareholders accordingly.
EXCHANGE PRIVILEGE
Shareholders of the Vista Select shares may exchange at relative net asset value
for Vista Shares of the Vista U.S. Government Money Market Fund, the Vista 100%
U.S. Treasury Securities Money Market Fund, the Vista Treasury Plus Money Market
Fund, the Vista Federal Money Market Fund, the Vista Prime Money Market Fund,
the Vista Cash Management Fund, the Vista Tax Free Money Market Fund, the Vista
New York Tax Free Money Market Fund, the Vista California Tax Free Money Market
Fund, and the Vista Select shares of any Reich & Tang Asset Management L.P.
sponsored fund and may exchange at relative net asset value plus any applicable
sales charges, the Vista Select shares of the Fund for the shares of the
non-money market Vista Mutual Funds, in accordance with the terms of the
then-current prospectus of the fund being acquired. The prospectus of the Vista
Mutual Fund into which shares are being exchanged should be read carefully prior
to any exchange and retained for future reference. With respect to exchanges
into a fund which charges a front-end sales charge, such sales charge will not
be applicable if the shareholder previously acquired his Vista Select shares by
exchange from such fund. Under the exchange privilege, Vista Select shares may
be exchanged for shares of other
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<PAGE>
funds only if those funds are registered in the states where the exchange may
legally be made. In addition, the account registration for the Vista Mutual
Funds into which Vista Select shares are being exchanged must be identical to
that of the account registration for the Fund from which shares are being
redeemed. Any such exchange may create a gain or loss to be recognized for
Federal income tax purposes. Normally, shares of the fund to be acquired are
purchased on the redemption date, but such purchase may be delayed by either
Fund up to five business days if the Fund determined that it would be
disadvantaged by an immediate transfer of the proceeds. (This privilege may be
amended or terminated at any time following 60 days' written notice.)
Arrangements have been made for the acceptance of instructions by telephone to
exchange shares if certain preauthorizations or indemnifications are accepted
and on file. Further information is available from the Transfer Agent.
SPECIFIED AMOUNT AUTOMATIC WITHDRAWAL PLAN
Shareholders who own $10,000 or more shares of the Fund may elect to withdraw
shares and receive payment from the Fund of a specified amount of $100 or more
automatically on a monthly or quarterly basis in an amount approved and
confirmed by the Manager. 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 so that the designated payment is received on approximately the
first or fifteenth day of the month following the end of the selected payment
period. 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.
The election to receive automatic withdrawal payments may be made at the time of
the original subscription by so indicating on the subscription order form. The
election may also be made, changed or terminated at any later time by the
participant. Because the withdrawal plan involves the redemption of Fund shares,
such withdrawals may constitute taxable events to the shareholder, but the Fund
does not expect that there will be any realizable capital gains.
INVESTMENTS THROUGH
PARTICIPATING ORGANIZATIONS
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks and financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the Fund. When instructed by its customer to purchase
or redeem Fund shares, the Participating Organization, on behalf of the
customer, transmits to the transfer agent a purchase or redemption order, and in
the case of a purchase order, payment for
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<PAGE>
the shares being purchased. No certificates are issued with respect to
investments in the Fund.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Vista Select shares for the
customers' accounts. Also, Participating Organizations may send their customers
periodic account statements showing the total number of Vista Select shares
owned by each customer as of the statement closing date, purchases and
redemptions of Vista Select shares by each customer during the period covered by
the statement and the income earned by Vista Select shares of each customer
during the statement period (including dividends paid in cash or reinvested in
additional Vista Select shares).
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures offered to
Participant Investors by the Participating Organizations. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Fund directly. A Participant Investor should read
this Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Vista Select shares may be
purchased and redeemed through the Participating Organization.
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. It is the Fund management's
position, however, 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. This is an unsettled area of the law, however, and if a
determination contrary to the Fund management's position is made by a bank
regulatory agency or court concerning shareholder servicing and administration
payments to banks from the Manager, any such payments will be terminated and any
shares registered in the banks' names, for their underlying customers, will be
re-registered in the name of the customers at no cost to the Fund or its
shareholders. In addition, state securities laws may differ on this issue from
the interpretations of Federal law expressed herein and banks and financial
institutions may be required to register as underwriters, distributors or
dealers pursuant to state law.
In the case of qualified Participating Organizations, orders received by the
transfer agent before 12 noon, New York City time, on a Fund Business Day,
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<PAGE>
without accompanying Federal Funds will result in the issuance of shares on that
day provided that the Federal Funds required in connection with the orders are
received by the Fund's transfer agent before 4:00 p.m., New York City time, on
that day. Orders for which Federal Funds are received after 4:00 p.m., New York
City time, will not result in share issuance until the following Fund Business
Day. Participating Organizations are responsible for instituting procedures to
insure that purchase orders by their respective clients are processed
expeditiously.
DISTRIBUTION AND
SERVICE PLAN
- -----------------------
Pursuant to Rule 12b-1 under the 1940 Act, the Securities and Exchange
Commission has required that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan permitted by Rule 12b-1. 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 (with respect to
Class A shares only).
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 with respect
only to Class A shares 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 monthly and any portion of the fee may be
deemed to be used by the Distributor for payments to participating organizations
with respect to their provision of such services to their clients or customers
who are shareholders of the Class A shares of the Fund. The Class B shareholders
will not receive the benefit of such services from Participating Organizations
and, therefore, will not be assessed a Shareholder Servicing Fee.
The Plan provides that the Manager may make payments from time to time from its
own resources, which may include the management fee and past profits for the
following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements, for performing shareholder servicing and related
administrative functions on behalf of the Class A shares of the Fund; (ii) to
compensate certain Participating Organizations for providing assistance in
distributing the Class A Shares of the Fund; 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
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<PAGE>
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
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 with respect to Class A shares, and (ii)
preparing, printing and delivering the Fund's prospectus to existing
shareholders of the Fund and preparing and printing subscription application
forms for shareholder accounts.
For the fiscal year ended October 31, 1996, the total amount spent pursuant to
the Plan for Class A shares was .44% of the average daily net assets of the
Fund, of which .14% of the average daily net assets was paid by the Fund to the
Distributor, pursuant to the Shareholder Servicing Agreement and an amount
representing .30% was paid by the Manager (which may be deemed an indirect
payment by the Fund). Of the total amount paid by the Manager, $598,171 was
utilized for Broker assistance payments, $16, 266 for compensation to sales
personnel, $ 4,886 for travel and expenses, $43,335 for Prospectus printing, and
$628 on miscellaneous expenses.
FEDERAL INCOME TAXES
The Fund has elected to qualify under the Code as a regulated investment company
that distributes "exempt-interest dividends" as defined in the Code. The Fund's
policy is to distribute as dividends each year 100% (and in no event less than
90%) of its tax-exempt interest income, net of certain deductions, and its
investment company taxable income (if any). If distributions are made in this
manner, dividends 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
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<PAGE>
dividends" may be subject to Federal alternative minimum tax. Dividends paid
from taxable income, if any, and distributions of any realized short-term
capital gains (whether from tax-exempt or taxable obligations) are taxable to
shareholders as ordinary income for Federal income tax purposes, whether
received in cash or reinvested in additional shares of the Fund. The Fund does
not expect to realize long-term capital gains, and thus, does not contemplate
distributing "capital gain dividends" or having undistributed capital gain
income within the meaning of the Code. The Fund 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. 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. Corporations will be required to include in
alternative minimum taxable income, 75% of the amount by which their adjusted
current earnings (including generally, tax-exempt interest) exceeds their
alternative minimum taxable income (determined without this item). In addition,
in certain cases Subchapter S corporations with accumulated earnings and profits
from Subchapter C years will be subject to a tax on "passive investment income",
including tax-exempt interest. Although the Fund intends to maintain a $1.00 per
share net asset value, a Shareholder may realize a taxable gain or loss upon the
disposition of shares.
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
31
<PAGE>
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.
Shareholders are urged to consult with their tax advisors the treatment of
distributions from the Fund and ownership of shares of the Fund in their own
states and localities.
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<PAGE>
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 1940 Act including the removal of Fund director(s) and communication
among shareholders, any registration of the Fund with the Securities and
Exchange Commission or any state, or as the Directors may consider necessary or
desirable. Each Director serves until the next meeting of the shareholders
called for the purpose of considering the election or reelection of such
Director or of a successor to such Director, and until the election and
qualification of his or her successor, elected at such a meeting, or until such
Director sooner dies, resigns, retires or is removed by the vote of the
shareholders.
For further information with respect to the Fund and the shares offered hereby,
reference is made to the Fund's registration statement filed with the Securities
and Exchange Commission, including the exhibits thereto. The Registration
Statement and the exhibits thereto may be examined at the Commission and copies
thereof may be obtained upon payment of certain duplicating fees.
NET ASSET VALUE
- ----------------------
The net asset value of each Class the Fund's shares is determined as of 12 noon,
New York City time, on each Fund Business Day. The net asset value of a Class is
computed by dividing the value of the Fund's net assets for such Class (i.e.,
the value of its securities and other assets less its liabilities, including
expenses payable or accrued but excluding capital stock and surplus) by the
total number of shares outstanding for such Class.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, except that if fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2
33
<PAGE>
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 TRANSFER AGENT
AND DIVIDEND AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105 is custodian for the Fund's cash and securities. DST Systems, Inc., 127
West 10th Street, Kansas City, Missouri 64105, is the transfer agent and
dividend agent for the Vista Select shares of the Fund. The Fund's custodian and
transfer agents do not assist in, and are not responsible for, investment
decisions involving assets of the Fund.
34
<PAGE>
NEW ACCOUNT APPLICATION (FOR INITIAL INVESTMENT ONLY.)
VISTA MONEY MARKET FUNDS (VISTA SHARES)
1. Account Registration
For Individual: Use line 1
Note: To establish an account beneficiary, check TOD box below and designate
beneficiaries in the space provided, or include on a separate page:
TOD
For Joint Account: Use lines 1 & 2
In the case of joint registration, this account will be registered joint tenants
with rights of survivorship and not tenants in common, unless otherwise stated
by the investor.
For a Minor: Use line 3
For Trust, Corporation, Partnership or other legal entity: Use line 4
The Registered owner is a:
Corporation Trust
Partnership Non-Profit or Charitable Org.
Other
Please Print name clearly and exactly as account is to be registered
1. [ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ] [ ] [ ] [ ][ ] [ ] [ ][ ]
First Name M.I. Last Name
[ ] [ ] [ ]-[ ] [ ]-[ ] [ ] [ ][ ]
Social Security Number
2. [ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ]
First Name M.I. Last Name
[ ] [ ] [ ]-[ ] [ ]-[ ] [ ] [ ][ ]
Social Security Number
3. [ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ] [ ] [ ] [ ][ ] [ ] [ ][ ]
Custodian First Name M.I. Last Name
Custodian for
[ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ] [ ] [ ] [ ][ ] [ ] [ ][ ]
Minor's First Name M.I. Last Name
[ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ]
Minor's Social Security Number
Under the [ ] [ ] [ ][ ] [ ] [ ] [ ][ ] Uniform Gifts/Transfers to Minors Act.
Name of State
4. [ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ]
Name of Entity (If a Trust, include date of agreement and type)
[ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ]
[ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ]
Authorized Individual
[ ] [ ]-[ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ] [ ][ ] [ ] [ ][ ] [ ]
Tax I.D. Number Title
2. Mailing Address
[ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ]
Street Apt. No.
[ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ] [ ] [ ]
City State Zip
[ ] [ ] [ ] [ ] [ ] [ ]-[ ] [ ] [ ][ ] [ ] [ ] [ ] [ ] [ ] [ ]-[ ] [ ] [ ][ ]
Daytime Phone Number Evening Phone Number Country
3. Initial Investment $2,500 minimum initial investment per fund/account or $250
initial investment with a $200 systematic monthly purchase
A. Please indicate the name of the Fund you wish to invest in and make your
check payable to the Fund(s).
Vista Fund Name (Fund Number) Amount
U.S. Government Money Market Fund (220) $________________
100% Treasury Money Market Fund (677) $________________
Treasury Plus Money Market Fund (678) $________________
Federal Money Market Fund (353) $________________
Cash Management Fund (223) $________________
Tax Free Money Market Fund (2) $________________
California Tax Free Money Market Fund (99) $________________
New York Tax Free Money Market Fund (3) $________________
Select Shares of Connecticut Daily
Tax Free Income Fund (140) $________________
Select Shares of New Jersey Daily
Municipal Income Fund (141) $________________
B. Please have your representative fill in this information if he/she opened
your account. This will avoid a duplicate order.
Trade Date _________ Confirm Number __________ Account Number ________________
<PAGE>
4. For Dealer Use Only
When opening your account through a representative, have him/her complete this
section
We guarantee the signature and legal capacity of the applicant.
________________________________________________________________________________
Dealer/Company Name Dealer Number Branch and Region Number (if applicable)
________________________________________________________________________________
Address
________________________________________________________________________________
Representative Name Rep. # Daytime Phone Number
Authorized Signature ____________________________________________
5. Distributions
Please indicate how you would like to receive distributions (check only one)
1. [ ] Dividends reinvested in additional shares
2. [ ] Dividends automatically deposited to your checking account (Please
complete Section 7)
3. [ ] Dividends mailed to your address in Section 2
6. Telephone Privileges
You will be able to execute telephone transactions by calling 1-800-34-VISTA
(800-348-4782) 24 hours a day for automated service, 9 am - 6 pm EST to speak
with a service representative
Telephone privileges will be provided to you automatically unless you elect not
to by checking the box associated with each privilege.
[] Telephone Purchases ($100 minimum)-Your purchase will be deducted from the
account you designate by completing Section 7.
[] Telephone Exchanges-Permits exchanges into established Vista Mutual Funds
($100 minimum) or to new Vista Mutual Funds ($2,500 minimum).
[] Telephone Redemptions-Permits redemptions by telephone with proceeds
deposited in the bank account you designate in Section 7 or mailed to your
address (maximum check amount $25,000).
7. Bank Account Designation
This section must be completed to permit certain options chosen in Sections 5,
6, 8 and 9
Account name must match the name in Section 1. A blank/voided check is required
for account and bank routing information.
_______________________________________________________________________________
Name of Bank Branch
_______________________________________________________________________________
Bank Address City State Zip
___________________________ [ ] [ ][ ] [ ] [ ][ ] [ ] [ ][ ] [ ] [ ]
Type of Account (Checking/Savings) Account Number
[ ] Please check this Box to confirm voided check is attached.
8. Systematic Investment Plan
Amounts (minimum $100) will be automatically drawn on your bank account and
invested in your Vista Mutual Fund account
Authorization Form
Invest automatically the amount of $_______________ on or about the _________
day. Purchases will be made monthly unless you wish to elect quarterly by
checking this box n. If the day you selected for your automatic purchase falls
on a holiday or a weekend, the purchase could be delayed. Funds will be drawn
from (check one):
1. [ ] my/our bank account indicated in Section 7.
2. [ ] my/our Vista money market account and invested in another Vista Fund,
subject to applicable sales charges.
Fund Name: ______________________________________ Class of Shares: [] A [] B
Your first automatic monthly investment will occur no sooner than two weeks
after the receipt of your application.
9. Systematic Redemption Plan
This is a convenient way to receive payments from your fund account. This Plan
is subject to minimum account balances, minimum monthly or quarterly
redemptions, and any applicable sales charges dependent upon the class of shares
you own.
Please make payments of $_______________ prior to the first day of every: n
month or n quarter beginning with the month of __________________________. Your
Application must be received in good order at least two weeks prior to first
actual redemption date.
Check One: [ ] Redemption proceeds automatically deposited to the account you
designate in Section 7, or
[ ] Mail check payable to:
________________________________________________________________________________
Individual or Company Name
________________________________________________________________________________
Street Address City State Zip
<PAGE>
10. Checkwriting Authorization & Signature (For A Shares Only)
[ ] Check here if you would like checkwriting privileges. ($500 minimum per
check.) Only one signature will be required on joint accounts.
CHECKWRITING DRAFTS WILL BE ISSUED 15 DAYS AFTER ACCOUNT IS FUNDED BY CHECK, 7
DAYS IF FUNDED BY AUTOMATED CLEARING HOUSE PURCHASE.
11. Acknowledgment, Certification & Signatures
This section must be signed in order to open a Vista account
UNDER THE PENALTIES OF PERJURY, THE UNDERSIGNED CERTIFIES THAT (1) HE/SHE IS A
CITIZEN OR RESIDENT OF N THE UNITED STATES OR N (STATE COUNTRY) __________, (2)
THE SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER SHOWN IN SECTION 1
IS CORRECT, AND (3) HE/SHE IS NOT SUBJECT TO BACKUP WITHHOLDING EITHER BECAUSE
HE/SHE HAS NOT BEEN NOTIFIED THAT HE/SHE IS SUBJECT TO BACKUP WITHHOLDING AS A
RESULT OF A FAILURE TO REPORT ALL INTEREST AND DIVIDENDS, OR THE INTERNAL
REVENUE SERVICE HAS NOTIFIED HIM/HER THAT HE/SHE IS NO LONGER SUBJECT TO BACKUP
WITHHOLDING. (IF THE UNDERSIGNED IS SUBJECT TO BACKUP WITHHOLDING, CROSS OUT THE
WORDS AFTER (3) ABOVE.)
By signing this Application, the undersigned (1) appoints his/her broker-dealer
or shareholder servicing agent, and/or authorized sub-agent, as his/her agent
for all transactions on his/her behalf with any Vista Mutual Fund; (2) certifies
that he/she has received, reviewed and accepts this Application (including the
services described herein) and the current prospectus(es) of the Vista Mutual
Fund(s) in which he/she is investing and accepts the related statement(s) of
additional information; and (3) agrees that all statements in this Application
apply to shares of any Vista Mutual Fund or Vista Select Shares of other funds
into which his/her shares are transferred.
Subject to the terms and conditions herein and in the applicable Fund's
prospectus and statement of additional information, the undersigned releases and
agrees to hold harmless the Vista Family of Mutual Funds and its agents and/or
sub-agents against any claim, liability, loss, damage, and expense for any act
or failure to act in connection with Fund shares, any related investment
account, privileges or services, and oral and written instructions relating
thereto. Shareholders should be aware that Chase and its affiliates may exchange
among themselves certain information about the shareholder and his account.
THE UNDERSIGNED CERTIFIES THAT HE/SHE (1) WAS NOT OFFERED ANY ADVICE OR
RECOMMENDATION ON INVESTING IN ANY FUND BY ANY COMMERCIAL BANK; AND (2)
UNDERSTANDS THAT (I) NO INVESTMENT ACCOUNT ESTABLISHED WITH RESPECT TO THE VISTA
FAMILY OF MUTUAL FUNDS IS A DEPOSIT ACCOUNT AND NEITHER SUCH ACCOUNT NOR FUND
SHARES ARE FDIC INSURED OR INSURED BY THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY; (II) FUND SHARES ARE NOT OBLIGATIONS OF, ENDORSED BY, NOR GUARANTEED BY,
CHASE OR ANY COMMERCIAL BANK; AND (III) THE UNDERSIGNED MUST MAKE HIS/HER OWN
INVESTMENT DECISIONS AND ASSUME ALL RISK OF LOSS - INCLUDING POSSIBLE LOSS OF
PRINCIPAL - RESULTING FROM DECISIONS TO PURCHASE, EXCHANGE OR SELL SHARES OF ANY
FUND(S).
Check One: [] U.S. Citizen [] Resident Alien
[] Non-Resident Alien; Country of Tax Residency
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
Individual or Custodial Accounts
____________________________________________
Signature of Individual or Custodian Date
____________________________________________
Signature of Joint Tenant (if any) Date
Corporations, Partnerships, Trusts, etc.
____________________________________________
Signature of Corporate Officer, General Partner, Trustee, etc. Date
____________________________________________
Signature of Corporate Officer, General Partner, Trustee, etc. Date
PLEASE COMPLETE THE FOLLOWING SECTIONS IF YOU ARE AN INSTITUTIONAL INVESTOR ONLY
12. PERSON(S) AUTHORIZED TO CONDUCT TRANSACTIONS
The following persons ("Authorized Person(s)") are currently officers, trustees,
general partners, or other authorized agents of the Shareholder. Any _____* of
the Authorized Person(s) is, by lawful and appropriate action of the
Shareholder, a person entitled to give instructions regarding purchases and
redemptions or to make inquiries, regarding your Account.
____________________________________________
Name/Title Signature Date
____________________________________________
Name/Title Signature Date
____________________________________________
Name/Title Signature Date
____________________________________________
Name/Title Signature Date
DST Systems, Inc. ("DST") may, without inquiry, act upon the instructions
(whether verbal, written, or provided by wire, telecommunication, or any other
process) of any person claiming to be an Authorized Person. Neither DST nor any
entity on behalf of which DST is acting shall be liable for any claims or
expenses (including legal fees) or for any losses, resulting from actions taken
upon any instructions believed to be genuine. DST may continue to rely on the
instructions made by any person claiming to be an Authorized Person until it is
informed through an amended Application that the person is no longer an
Authorized Person and it has a reasonable period (not to exceed one week) to
process the amended Application. Provisions of this Application shall be equally
applicable to any successor of DST.
*If this space is left blank, any one Authorized Person is authorized to give
instructions and make inquiries. Verbal instructions will be accepted from any
one Authorized Person. Written instructions will require signatures of the
number of Authorized Persons indicated in this space.
<PAGE>
13. Certificate of Authority Institutional investors must complete one of the
following two Certificates of Authority.
A. FOR CORPORATIONS AND UNINCORPORATED ASSOCIATIONS (With a Board of Directors
or Board of Trustees).
I, ____________________________________, Secretary of the above-named
Shareholder, do hereby certify that a meeting on _______________, at which a
quorum was present throughout, the Board of Directors (Board of Trustees) of the
shareholder duly adopted a resolution which is in full force and effect and in
accordance with the Shareholder's charter and by-laws, which resolution did the
following: (1) empowered the officer/trustee executing this Application to do
so, on behalf of the Shareholder; (2) empowered the above-named Authorized
Person(s) to effect securities transactions for the Shareholder on the terms
described above; (3) authorized the Secretary to certify, from time to time, the
names and titles of the officers of the Shareholder and to notify DST when
changes in officers occur; and (4) authorized the Secretary to certify that such
a resolution has been duly adopted and will remain in full force and effect
until DST receives a duly enacted amendment to the Certification form.
Witness my hand and seal on behalf of the Shareholder this ____ day of
___________________, 19___ Secretary_________________________________________
The undersigned officer (other than the Secretary) hereby certifies that the
foregoing instrument has been signed by the Secretary of the Shareholder.
_______________________________________________________
Certifying Officer of the Corporation or Unincorporated Association
B. PARTNERSHIPS AND TRUSTS (Even if you are the sole trustee)
The undersigned certify that they are all the general partners/trustees of the
Shareholder and that they have done the following under the authority of the
Shareholder's partnership agreement/trust instrument: (1) empowered the general
partner/trustee executing this Application to do so on behalf of the
shareholder; (2) empowered the above-named Authorized Person(s) to effect
securities transactions for the Shareholder on the terms described above; and
(3) authorized the Secretary to certify, from time to time, the names of the
general partners/trustees of the shareholder and to notify DST when changes in
general partners/trustees occur. This authorization will remain in full force
and effect until DST receives a further duly executed certification. If there
are not enough spaces here for all the necessary signatures, complete a separate
certificate containing the language of Certificate B and attach it to the
Application.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
[GRAPHIC OMITTED]
Vista Service Center
P.O. Box 419392
Kansas City, Missouri 64179
1-800-34-VISTA
VSNJ-1-397
<PAGE>
RULE 497(e)
Registration No. 33-36317
- --------------------------------------------------------------------------------
NEW JERSEY 600 Fifth Avenue, New York, NY 10020
DAILY MUNICIPAL (212) 830-5220
INCOME FUND, INC.
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
March 3, 1997
Relating to New Jersey Daily Municipal Income Fund, Inc.,
Evergreen Shares of New Jersey Daily Municipal Income Fund, Inc.,
and the
Vista Select Shares of New Jersey Daily Municipal Income Fund, Inc.
Prospectuses dated March 3, 1997
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., Evergreen Shares of New Jersey
Daily Municipal Income Fund, Inc. and Vista Select Shares of New Jersey Daily
Municipal Income Fund, Inc. (collectively, the "Fund"), dated March 3, 1997 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 Evergreen Shares of New Jersey Daily Municipal Income
Fund, Inc. 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)807-2940. 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.
This Statement of Additional Information is incorporated by reference into the
respective Prospectus in its entirety.
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C> <C>
Investment Objectives, Yield Quotations..........................................14
Policies and Risks..............................2 Manager...................................................14
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...............................20
Repurchase Agreements...........................8 Federal Income Taxes......................................21
New Jersey Risk Factors.............................8 New Jersey Income Taxes...................................22
Investment Restrictions.............................11 Custodian and Transfer Agent..............................23
Portfolio Transactions..............................13 Description of Ratings....................................24
How to Purchase and Redeem Shares...................13 Taxable Equivalent Yield Table............................25
Net Asset Value.....................................13 Independent Auditors Report...............................26
Financial Statements......................................27
</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,
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, 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.) 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 instrumentalities, 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 for each Class. There can be no assurance that this value
will be maintained. The Fund may hold uninvested cash reserves pending
investment. The Fund's investments may include "when-issued" Municipal
Obligations, stand-by commitments and taxable repurchase agreements.
Although the Fund will attempt to invest 100% of its assets in Municipal
Obligations 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 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
2
<PAGE>
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 Rating
Services, a division of The McGraw-Hill Companies ("S&P") and Moody's Investors
Service, Inc. ("Moody's"). The two highest ratings by S&P and Moody's are "AAA"
and "AA" by S&P in the case of long-term bonds and notes, or "Aaa" and "Aa" by
Moody's in the case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by
Moody's in the case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2"
by Moody's, in the case of tax-exempt commercial paper. The highest rating in
the case of variable and floating demand notes is "VMIG-1" by Moody's 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, as amended (the
"1940 Act") with respect to investing its assets in one or relatively few
issuers. This non-diversification may present greater risks than in the case of
a diversified company. However, the Fund intends to qualify as a "regulated
investment company" under Subchapter M of the Code. 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 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.
3
<PAGE>
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. 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 1940 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
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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"* 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 1940 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
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
- --------------------------------------------------------------------------------
* Prime rate is generally the rate charged by a bank to its most creditworthy
customers for short-term loans. The prime rate of a particular bank may differ
from other banks and will be the rate announced by each bank on a particular
day. Changes in the prime rate may occur with great frequency and generally
become effective on the date announced.
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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 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 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 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.
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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, 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.
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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 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 1940 Act. All repurchase agreements entered
into by the Fund shall be fully collateralized at all times during the period of
the agreement in that the value of the underlying security shall be at least
equal to the amount of the loan, including the accrued interest thereon, and the
Fund or its custodian shall have possession of the collateral, which the Fund's
Board believes will give it a valid, perfected security interest in the
collateral. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities are not owned
by the Fund but only constitute collateral for the seller's obligation to pay
the repurchase price. Therefore, the Fund may suffer time delays and incur costs
in connection with the disposition of the collateral. The Fund's Board believes
that the collateral underlying repurchase agreements may be more susceptible to
claims of the seller's creditors than would be the case with securities owned by
the Fund. It is expected that repurchase agreements will give rise to income
which will not qualify as tax-exempt income when distributed by the Fund. The
Fund will not invest in a repurchase agreement maturing in more than seven days
if any such investment together with illiquid securities held by the Fund exceed
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.
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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.
After enjoying an extraordinary boom during the mid-1980's, New Jersey as well
as the rest of the Northeast slipped into a slowdown well before the national
recession which officially began in July 1990 (according to the National Bureau
of Economic Research). At the onset of that recession, New Jersey experienced
accelerated 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. 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, 1997.
The budget for Fiscal Year 1997 became effective June 30, 1996. The Fiscal Year
1996 budget produced a Fund Balance in the General Fund of approximately $441.9
million at the end of Fiscal Year 1996.
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 1993, 1994, 1995 and 1996 in the amounts of
$444.3 million, $119.9 million, $103.6 million, and $466.3 million,
respectively. For Fiscal Year 1997, the State has made appropriations of $447.0
million for principal and interest payments for general obligation bonds. The
aggregate outstanding general obligation bonded indebtedness of the State as of
June 30, 1996 was $3.688 billion.
On May 16, 1996, the State issued an additional $526.8 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 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, 1995, there was outstanding in excess of
$735.91 million of moral obligation bonded indebtedness issued by such entities,
for which the maximum annual debt service was over $67.94 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 $4.82 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 $66.5 million for claims pending, as of December 31, 1994.
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.
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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 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.
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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 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.
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(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 10% of the Fund's net assets.
(7) Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests, 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 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.
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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 of each Class in
the respective Prospectuses is herein incorporated by reference.
NET ASSET VALUE
The Fund does not determine net asset value per share of each Class 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. The net asset value of a Class is computed
by dividing the value of the Fund's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued but excluding capital stock and surplus) by the total number of shares
outstanding for such Class.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, except that if fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Directors will consider whether any action should be initiated, as
described in the following paragraph. Although the amortized cost method
provides certainty in valuation, it may result in periods during which the value
of an instrument is higher or lower than the price an investment company would
receive if the instrument were sold.
The Fund's Board of Directors has established procedures to stabilize the Fund's
net asset value at $1.00 per share of each Class. These procedures include a
review of the extent of any deviation of net asset value per share, based on
available market rates, from the Fund's $1.00 amortized cost per share of each
Class. Should that deviation exceed 1/2 of 1%, the Board will consider whether
any action should be initiated to eliminate or reduce material dilution or other
unfair results to shareholders. Such action may include redemption of shares in
kind, selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
remaining maturity greater than 397 days, will limit portfolio investments,
including repurchase agreements, to those United States dollar-denominated
instruments that the Fund's Board of Directors determines present minimal credit
risks, and will comply with certain reporting and
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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 Class A shares' yield for the seven-day period ending January 31,
1997 was 2.62% which is equivalent to an effective yield of 2.65%. The Fund's
Class B shares' yield for the seven-day period ending January 31, 1997 was 2.83%
which is equivalent to an effective yield of 2.87%.
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"). As of January 31, 1997, the Manager was
investment manager, adviser or supervisor with respect to assets aggregating
approximately $9.5 billion. The Manager acts as manager or administrator of
fifteen other investment companies and also advises pension trusts, profit
sharing trusts and endowments.
New England Investment Companies, L.P. ("NEICLP") is the limited partner and
owner of a 99.5% interest in the Manager. Reich & Tang Asset Management, Inc. (a
wholly-owned subsidiary of NEICLP) is the sole 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.
On August 30, 1996, The New England Mutual Life Insurance Company (the "New
England") and Metropolitan Life Insurance Company ("MetLife") merged, with
MetLife being the continuing company. The Manager remains a wholly-owned
subsidiary of NEICLP, but Reich & Tang Asset Management, Inc., its sole general
partner, is now an indirect subsidiary of MetLife. Also, MetLife New England
Holdings, Inc., a wholly-owned subsidiary of MetLife, owns 51% of the
outstanding limited partnership interest of NEICLP and may be deemed a
"controlling person" of the Manager. Reich & Tang, Inc. owns approximately 16%
of the outstanding partnership units of NEICLP.
MetLife is a mutual life insurance company with assets of $142.2 billion at
March 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance
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companies in terms of total life insurance in force, which exceeded $1.2
trillion at March 31, 1996 for MetLife and its insurance affiliates. MetLife and
its affiliates provide insurance or other financial services to approximately 36
million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through twelve subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units include, AEW Capital Management, L.P.,
Back Bay Advisors, L.P., Graystone Partners, L.P., Harris Associates, L.P.,
Jurika & Voyles, L.P., Loomis, Sayles & Co., L.P., MC Management, L.P., New
England Funds, L.P., New England Funds Management L.P., Reich & Tang Asset
Management, L.P., Vaughan-Nelson, Scarborough & McConnell L.P. and Westpeak
Investment Advisors, L.P. These affiliates in the aggregate are investment
advisors or managers to 43 other registered investment companies.
The merger between The New England and MetLife resulted in an "assignment" of
the Investment Management Contract relating to the Fund. Under the 1940 Act,
such an assignment caused the automatic termination of this agreement. On
November 28, 1995, the Board of Directors, including a majority of the directors
who are not interested persons (as defined in the 1940 Act) of the Fund or the
Manager, approved a new Investment Management Contract effective August 30,
1996, which has a term which extends to July 31, 1998, and may be continued in
force thereafter for successive twelve-month periods beginning each August 1,
provided that such continuance is specifically approved annually by majority
vote of the Fund's outstanding voting securities or by its Board of Directors,
and in either case by a majority of the directors who are not parties to the
Investment Management Contract or interested persons of any such party, by votes
cast in person at a meeting called for the purpose of voting on such matter.
The new Investment Management Contract was approved by a majority of the
shareholders of the Fund on July 12, 1996, and contains the same terms and
conditions governing the Manager's investment management responsibilities as the
Fund's previous Investment Management Contract with the Manager, except as to
the date of execution and termination.
The merger and the change in control of the Manager is not expected to have any
impact upon the Manager's performance of its responsibilities and obligations
under the new Investment Management Contract.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund. The Manager provides persons satisfactory to the Board of Directors of
the Fund to serve as officers of the Fund. Such officers, as well as certain
other employees and directors of the Fund, may be directors or officers of Reich
& Tang Asset Management, Inc., the sole general partner of the Manager, or
employees of the Manager or its affiliates.
The 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.
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, 1996, the fee payable to the
Manager under the Investment Management Contract was $475,005, none of which was
waived. The Fund's net assets at the close of business on October 31, 1996
totaled $151,786,977. For the Fund's fiscal year ended October 31, 1995, the fee
payable to the Manager under the Investment Management Contract was $355,223,
none of which was waived. The Fund's net assets at the close of business on
October 31, 1995 totaled $130,127,560. 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.
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The Manager may waive its rights to any portion of the management fee and may
use any portion of the management fee for purposes of shareholder and
administrative services and distribution of the Fund's shares.
Investment management fees and operating expenses which are attributable to both
Classes of the Fund will be allocated daily to each Class based on the
percentage of outstanding shares at the end of the day. Additional shareholder
services provided by Participating Organizations to Class A shareholders
pursuant to the Plan shall be compensated by the Distributor from its
shareholder servicing fee, the Manager from its management fee and the Fund
itself. Expenses incurred in the distribution of Class B shares and the
servicing of Class B shares shall be paid by the Manager.
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 1940 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, 43 - President and a Director of the Fund, is President of the
Mutual Funds division of the Manager. Mr. Duff was formerly Director of Mutual
Fund Administration of NationsBank 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., Cortland Trust, 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 and Chief Executive Officer
of Tax Exempt Proceeds Fund, Inc., Executive Vice President of Reich & Tang
Equity Fund, Inc.
Dr. W. Giles Mellon, 66 - Director of the Fund, is Professor of Business
Administration and Area Chairman of Economics in the Graduate School of
Management, Rutgers University with which he has been associated since 1966. His
address is Rutgers University Graduate School of Management, 92 New Street,
Newark, New Jersey 07102. Dr. Mellon is also a Director of AEW Commercial
Mortgage Securities Fund, Inc., 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 Florida Daily Municipal Income Fund,
Institutional Daily Income Fund and Pennsylvania Daily Municipal Income Fund.
Dr. Yung Wong, 58 - Director of the Fund, was Director of Shaw Investment
Management (UK) Limited from 1994 to October 1995 and formerly General Partner
of Abacus Partners Limited Partnership (a general partner of a venture capital
investment firm) from 1984 to 1994. His address is 29 Alden Road, Greenwich,
Connecticut 06831. Dr. Wong 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 AEW Commercial Mortgage Securities Fund, Inc.,
California Daily Tax Free Income Fund, Inc.,
16
<PAGE>
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, and Pennsylvania Daily
Municipal Income Fund.
Robert Straniere, 55 - Director of the Fund, has been a member of the New York
State Assembly and a partner with the Straniere & Straniere Law Firm since 1981.
His address is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is
also a Director of AEW Commercial Mortgage Securities Fund, Inc., California
Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., LifeCycle Funds, 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 Florida Daily Municipal Income Fund, Institutional Daily Income
Fund and Pennsylvania Daily Municipal Income Fund.
Lesley M. Jones, 48 - Vice President of the Fund, is Senior Vice President of
the Mutual Funds division of the Manager since September 1993. Ms. Jones was
formerly Senior Vice President of Reich & Tang, Inc. which she was associated
with from April 1973 to September 1993. Ms. Jones is also a Vice President of
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., and Short Term Income Fund, Inc.
Bernadette N. Finn, 49 - Secretary of the Fund, is Vice President of the Mutual
Funds division 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., Florida Daily Municipal 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, Tax Exempt Proceeds Fund, Inc. and a Vice President and
Secretary of Delafield Fund, Inc., Institutional Daily Income Fund, Reich & Tang
Equity Fund, Inc. and Short Term Income Fund, Inc.,
Molly Flewharty, 46 - Vice President of the Fund, is Vice President of the
Mutual Funds division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. which she was associated with from
December 1977 to September 1993. Ms. Flewharty is also Vice President of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield
Fund, Inc., Florida Daily Municipal Income Fund, Institutional Daily Income
Fund, Michigan Daily Tax Free Income Fund, Inc., New York Daily Tax Free Income
Fund, Inc., North Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily
Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short Term Income Fund,
Inc. and Tax Exempt Proceeds Fund, Inc.
Dana E. Messina, 40 - Vice President of the Fund, is Executive Vice President of
the Mutual Funds division of the Manager since January 1995 and was Vice
President from September 1993 to January 1995. Ms. Messina was formerly Vice
President of Reich & Tang, Inc. 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., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income
Fund, Reich & Tang Equity Fund, Inc., Short Term Income Fund, Inc. and Tax
Exempt Proceeds Fund, Inc.
Richard De Sanctis, 40 - Treasurer of the Fund, is Vice President and Treasurer
of the Manager 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. from 1989 to December
1990. 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., Short
Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc., and is Vice President
and Treasurer of Cortland Trust, Inc.
17
<PAGE>
The Fund paid an aggregate remuneration of $6,000 to its directors with respect
to the period ended October 31, 1996, 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>
<S> <C> <C> <C> <C>
COMPENSATION TABLE
(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 Part Benefits upon Fund and Fund Complex Paid
Fiscal Year of Fund Expenses Retirement to Directors*
W. Giles Mellon, $2,000.00 $52,250 (13 Funds)
Director 0 0
Robert Straniere, $2,000.00 $52,250 (13 Funds)
Director 0 0
Yung Wong, $2,000.00 $52,250 (13 Funds)
Director 0 0
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ending October 31, 1996 (and, with respect to certain of the
funds in the Fund Complex, estimated to be paid during the fiscal year ending
October 31, 1996). The parenthetical number represents the number of
investment companies (including the Fund) from which such person receives
compensation that are considered part of the same Fund complex as the Fund,
because, among other things, they have a common investment advisor.
COUNSEL AND AUDITORS
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Battle Fowler LLP, 75 East 55th Street, New York, New York 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 1940 Act, the Securities and Exchange
Commission has required that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan permitted by the Rule. The Fund's Board of Directors has adopted a
distribution and service plan (the "Plan") and, pursuant to the Plan, the Fund
and the Distributor have entered into a Distribution Agreement and a Shareholder
Servicing Agreement (with respect to Class A shares only) 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.
Effective January 26, 1995, a majority of the Fund's Board of Directors,
including independent directors, approved the creation of a second class of
shares of the Fund's outstanding common stock. In furtherance of this action,
the Board of Directors has reclassified the common stock of the Fund into Class
A and Class B shares. The Class A shares will be offered to investors who desire
certain additional shareholder services from Participating Organizations that
are compensated by the Fund's Manager and Distributor for such services. For its
services under the Shareholder Servicing Agreement (with respect to Class A
shares only), the Distributor receives from the Fund a fee equal to .20% per
annum of the Fund's average daily net assets (the "Shareholder Servicing Fee").
The fee is accrued daily and paid monthly and any portion of the fee may be
deemed to be used by the Distributor for purposes of distribution of the Fund's
Class A shares only and for payments to Participating Organizations with respect
to servicing their clients or customers who are Class A shareholders of the
Fund. The Class B shareholders
18
<PAGE>
will not receive the benefit of such services from Participating Organizations
and, therefore, will not be assessed a Shareholder Servicing Fee.
The following information applies to only Class A shares of the Fund. For the
Fund's fiscal year ended October 31, 1996, 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 1940 Act, totaled $303,547,
of which $94,933 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 $598,171. For the Fund's fiscal year ended October 31, 1995,
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 1940 Act, totaled $236,815, of which $217,216 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 $477,601. 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 1940
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 with respect of Class A shares and
(ii) preparing, printing and delivering the Fund's prospectus to existing
shareholders of the Fund and preparing and printing subscription application
forms for shareholder accounts, 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 Class A shares 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; and (iv) to defray
the cost of the preparation and printing of brochures and other promotional
materials, mailings to prospective shareholders, advertising, and other
promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's shares. The
Distributor may also make payments from time to time from its own resources,
which may include the Shareholder Servicing Fee with respect to Class A shares
and past profits for the purposes enumerated in (i) above. The Distributor, in
its sole discretion, will determine the amount of such payments made pursuant to
the Plan, provided that such payments will not increase the amount which the
Fund is required to pay to the Manager and 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 Class A shareholders or by the Board of
Directors, including a majority of directors who are not interested persons of
the Fund and who have no direct or indirect interest in the operation of the
Plan or in the agreements related to the Plan. The Board of Directors initially
approved the Plan on October 19, 1990 and most recently approved the Plan on
July 8, 1996 to be effective until August 31, 1997. 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 Class A shareholders.
19
<PAGE>
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 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. The Fund is subdivided into two classes of common stock, Class A
and Class B. Each share, regardless of class, will represent an interest in the
same portfolio of investments and will have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that: (i) the
Class A and Class B shares will have different class designations; (ii) only the
Class A shares will be assessed a service fee pursuant to the Rule 12b-1
Distribution and Service Plan of the Fund of .25% of the Class A shares' average
daily net assets; (iii) only the holders of the Class A shares would be entitled
to vote on matters pertaining to the Plan and any related agreements in
accordance with provisions of Rule 12b-1; and (iv) the exchange privilege will
permit stockholders to exchange their shares only for shares of the same class
of an investment company that participates on an exchange privilege program with
the Fund. Payments that are made under the Plan will be calculated and charged
daily to the appropriate class prior to determining daily net asset value per
share and dividends/distributions. On January 31, 1997, there were 183,227,061
Class A shares of the Fund outstanding, and 369,738 Class B shares of the Fund
outstanding.. As of January 31, 1997, 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, 1997:
Nature of
Name and address % of Class Ownership
Class A Shares
Reich & Tang Services L.P. 74.20% Record
as Agent for Various
Beneficial Owners
600 Fifth Avenue
New York, NY 10020
Investors Fiduciary Trust Company 13.95% Record
210 West 10th Street
Kansas City, MO 64105
Neuberger & Berman 8.15% Record
as Agent for Customers
11 Broadway
New York, NY 10004
Class B Shares
Donadio Irrevocable Trust 99.07% Beneficial
600 Fifth Avenue
New York, N.Y. 10020
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.
20
<PAGE>
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-Laws of the Fund provide for annual
meetings only (a) for the election of directors, (b) for approval of revised
investment advisory contracts with respect to a particular class or series of
stock, (c) for approval of revisions to the Fund's distribution agreement with
respect to a particular class or series of stock, and (d) upon the written
request of holders of shares entitled to cast not less than 25% of all the votes
entitled to be cast at such meeting. Annual and other meetings may be required
with respect to such additional matters relating to the Fund as may be required
by the 1940 Act, including the removal of Fund 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 re-election of such
Director or of a successor to such Director, and until the election and
qualification of his or her successor, elected at such 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 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. 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. The amount of such interest
received will have to be disclosed on the shareholders' Federal income tax
returns. Taxpayers are required to include as an item of tax preference for
purposes of the Federal alternative minimum tax all tax-exempt interest on
"private activity" bonds (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). 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
21
<PAGE>
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.
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 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.
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
22
<PAGE>
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 AGENTS
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105 is custodian for its cash and securities. Reich & Tang Services L.P., 600
Fifth Avenue, New York, New York 10020 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 Evergreen shares of the Fund. DST Systems, Inc., 127
West 10th Street, Kansas City, Missouri 64105, is the transfer agent and
dividend agent for the Vista Select shares of the Fund. The Fund's custodian and
transfer agents do not assist in, and are not responsible for, investment
decisions involving assets of the Fund.
23
<PAGE>
DESCRIPTION OF RATINGS*
Description of Moody's Investors Service, Inc.'s two highest municipal bond
ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Con. (...) - Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Description of Moody's Investors Service, Inc.'s two highest ratings of state
and municipal notes and other short-term loans:
Moody's ratings for state and municipal notes and other short-term loans will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used will be as follows:
MIG-1 - Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of Funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2 - Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
Description of Standard & Poor's Rating Services two highest debt ratings:
AAA - Debt rated AAA has the highest rating assigned by 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 Rating Services two highest commercial paper
ratings:
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2 - Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Description of Moody's Investors Service, Inc.'s two highest commercial paper
ratings:
Moody's employs the following designations, both judged to be investment grade,
to indicate the relative repayment capacity of rated issues: Prime-1, highest
quality; Prime-2, higher quality.
- --------------------------------------------------------------------------------
* As described by the rating agencies.
24
<PAGE>
<TABLE>
<CAPTION>
TAXABLE EQUIVALENT YIELD TABLE
===============================================================================================================
1. If Your Taxable Income Bracket Is . . .
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Single $24,651- -- $35,001- $40,001- $59,151- $75,001- $124,651- $271,051
Return $35,000 -- $40,000 $59,750 $75,000 $124,650 $271,050 and over
- ----------------------------------------------------------------------------------------------------------------
Joint $41,200- $50,001- $70,001- $80,001- $ 99,601- $150,001- $151,751- $271,051
Return $50,000 $70,000 $80,000 $99,600 $150,000 $151,750 $271,050 and over
================================================================================================================
2. Then Your Combined Income Tax Bracket Is . . .
- ----------------------------------------------------------------------------------------------------------------
Federal
Tax Rate 28.00% 28.00% 28.00% 28.00% 31.00% 31.00% 36.00% 39.60%
- ----------------------------------------------------------------------------------------------------------------
State
Tax Rate 1.750% 2.450% 3.500% 5.525% 5.525% 6.370% 6.370% 6.370%
- ----------------------------------------------------------------------------------------------------------------
Combined
Marginal
Tax Rate 29.26% 29.76% 30.52% 31.98% 34.81% 35.40% 40.08% 43.45%
================================================================================================================
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
- ------------------------------------------------------------------------------------------------------------
Tax Equivalent Taxable Investment Yield
Exempt Requires to Match Tax Exempt Yield
Yield
- ------------------------------------------------------------------------------------------------------------
2.00% 2.83% 2.85% 2.88% 2.94% 3.07% 3.10% 3.34% 3.54%
- ------------------------------------------------------------------------------------------------------------
2.50% 3.53% 3.56% 3.60% 3.68% 3.84% 3.87% 4.17% 4.42%
- ------------------------------------------------------------------------------------------------------------
3.00% 4.24% 4.27% 4.32% 4.41% 4.60% 4.64% 5.01% 5.30%
- ------------------------------------------------------------------------------------------------------------
3.50% 4.95% 4.98% 5.04% 5.15% 5.37% 5.42% 5.84% 6.19%
- ------------------------------------------------------------------------------------------------------------
4.00% 5.65% 5.70% 5.76% 5.88% 6.14% 6.19% 6.68% 7.07%
- ------------------------------------------------------------------------------------------------------------
4.50% 6.36% 6.41% 6.48% 6.62% 6.90% 6.97% 7.51% 7.96%
- ------------------------------------------------------------------------------------------------------------
5.00% 7.07% 7.12% 7.20% 7.35% 7.67% 7.74% 8.34% 8.84%
- ------------------------------------------------------------------------------------------------------------
5.50% 7.78% 7.83% 7.92% 8.09% 8.44% 8.51% 9.18% 9.73%
- ------------------------------------------------------------------------------------------------------------
6.00% 8.48% 8.54% 8.64% 8.82% 9.20% 9.29% 10.01% 10.61%
- ------------------------------------------------------------------------------------------------------------
6.50% 9.19% 9.25% 9.36% 9.56% 9.97% 10.06% 10.85% 11.49%
- ------------------------------------------------------------------------------------------------------------
7.00% 9.90% 9.97% 10.07% 10.29% 10.74% 10.84% 11.68% 12.38%
- ------------------------------------------------------------------------------------------------------------
To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, in section three, to see the equivalent taxable yields
for each of the tax free income yields given.
</TABLE>
25
<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, 1996, 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 five years in the period then ended. These financial
statements and selected financial information are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and selected financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of October 31, 1996, by correspondence with the custodian and brokers.
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, 1996,
the results of its operations, the changes in its net assets and the selected
financial information for the periods indicated, in conformity with generally
accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
December 6, 1996
- --------------------------------------------------------------------------------
26
<PAGE>
- --------------------------------------------------------------------------------
NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
STATEMENT OF NET ASSETS
OCTOBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- ------ ------- ------
Other Tax Exempt Investments (30.27%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,732,000 Berkeley Heights, NJ BAN (b) 11/07/97 3.65% $ 1,732,658
2,408,000 Berkeley Heights, NJ BAN (b) 11/08/96 3.69 2,408,027
2,008,300 Berkeley Township, NJ BAN (b) 07/14/97 3.95 2,013,351
3,000,000 Borough of Fair Lawn, Bergen County, NJ BAN (b) 08/01/97 3.80 3,003,231
2,000,000 Burlington County, NJ BAN (b) 06/13/97 3.75 2,005,317
3,000,000 Hackensack, NJ BAN (b) 12/19/96 3.44 3,000,948
2,059,500 Montgomery Township, County of Somerset, NJ BAN (b) 12/13/96 3.44 2,060,643
2,000,000 New Jersey State Refunding Bonds - Series D 02/15/97 3.40 2,005,605 Aa AA+
4,400,000 New Jersey State Transportation Trust Fund Authority
(Trans System) - Series A
FSA Insured 06/15/97 3.61 4,410,474 Aaa AAA
3,700,000 New Providence Borough County of Union, New Jersey BAN (b) 05/09/97 3.70 3,709,215
3,000,000 Ocean County, NJ BAN 06/20/97 3.80 3,007,310 MIG-1
3,000,000 Princeton, NJ BAN 08/27/97 3.75 3,013,590 Aaa AAA
3,500,000 Township of Bloomfield, County of Essex, NJ BAN
(Gen. Improvement & Water Utility Notes) (b) 06/05/97 3.75 3,501,994
1,995,350 Township of Hopewell, County of Mercer NJ BAN (b) 08/25/97 3.80 2,001,602
3,055,000 Township of Nutley, NJ BAN (b) 07/31/97 3.96 3,060,464
2,000,000 Township of Parsippany - Troy Hills BAN 10/31/97 3.71 2,009,620 MIG-1
3,000,000 Township of Parsippany - Troy Hills BAN 11/01/96 4.00 3,000,000 MIG-1
- ----------- -----------
45,858,150 Total Other Tax Exempt Investments 45,944,049
- ----------- -----------
<CAPTION>
Other Variable Rate Demand Instruments (c) (59.53%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 4,900,000 Camden County Improvement Authority RB
(Parkview Redevelopment Housing Project) - Series 1996
Guaranteed By General Electric Credit Corp. 07/01/26 3.50% $ 4,900,000 A1+
8,855,000 Clipper New Jersey Housing and Mortgage Finance
Agency Home Buyer RB - Series 1996 10/01/21 3.55 8,855,000 VMIG-1
1,500,000 Glouchester County, NJ PCFA (Monsanto Company Project) 12/01/22 3.45 1,500,000 P1 A1
5,400,000 Mercer County, NJ Improvement Authority
Pooled Government Loan Program Bond
LOC Credit Suisse 11/01/98 3.15 5,400,000 VMIG-1 A1+
4,100,000 New Jersey EDA
(400 International Drive Rockefeller Corporation) (b)
LOC Morgan Guaranty Trust Company 09/01/05 3.50 4,100,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
27
<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>
$ 2,600,000 New Jersey EDA Dock Facility Refunding RB
(Bayonne/IMTT-Bayonne Project)
LOC First National Bank of Chicago 12/01/27 3.40% $ 2,600,000 VMIG-1
800,000 New Jersey EDA Dock Facility Refunding RB
(Bayonne/IMTT-Bayonne Project) - Series 1993B
LOC ABN Amro Bank N.V. 12/01/27 3.35 800,000 VMIG-1
2,005,000 New Jersey EDA Economic Growth Bonds - Series 1994A
LOC National Westminster Bank PLC 08/01/14 3.30 2,005,000 P1 A1+
3,000,000 New Jersey EDA Gas Facilities RB (National Utility Investors NUI)
AMBAC Insured 06/01/26 3.55 3,000,000 VMIG-1 A1+
3,300,000 New Jersey EDA Manufacturing Facility RB
(Commerce Center Project)
LOC Bank of America 08/01/17 3.85 3,300,000 A1
3,000,000 New Jersey EDA PCRB (Public Service Electric & Gas) - Series A
MBIA Insured 09/01/12 3.30 3,000,000 VMIG-1
2,000,000 New Jersey EDA School RB (Peddie School) - Series 1994B 02/01/19 3.40 2,000,000 A1
1,000,000 New Jersey EDA VRRB (Peddie School) - Series 1996 02/01/26 3.65 1,000,000 A1
1,000,000 New Jersey EDA Variable Rate Demand RB Sewage Facility
LOC PNC Bank 07/01/01 3.85 1,000,000 P1 A1
2,600,000 New Jersey Sports & Exposition Authority SCB - Series C
MBIA Insured 09/01/24 3.30 2,600,000 VMIG-1 A1+
300,000 New Jersey State Dock Facility (Bayonne/IMTT-Bayonne Project)
LOC Rabobank Nederland 12/01/27 3.30 300,000 VMIG-1
2,085,000 New Jersey State EDA (Block Drug Corporation) - Series A
LOC Trust Co. Bank of Atlanta 06/01/09 3.60 2,085,000 P1
1,650,000 New Jersey State EDA (Block Drug Corporation) - Series B
LOC Trust Co. Bank of Atlanta 06/01/99 3.60 1,650,000 P1
3,250,000 New Jersey State EDA (Campus 130 Association)
LOC The Bank of New York 12/01/11 3.90 3,250,000 P1 A1
1,000,000 New Jersey State EDA (Church & Dwight Corp.) - Series 1991
LOC Bank of Nova Scotia 12/01/08 3.20 1,000,000 P1
4,000,000 New Jersey State EDA (Crompton & Knowles)
LOC ABN Amro Bank N.V. 07/01/97 3.55 4,000,000 P1 A1+
2,600,000 New Jersey State EDA (Curtiss-Wright Flight Systems)
LOC Bank of Nova Scotia 01/01/02 3.25 2,600,000 A1+
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements
28
<PAGE>
- --------------------------------------------------------------------------------
NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
STATEMENT OF NET ASSETS (CONTINUED)
OCTOBER 31, 1996
================================================================================
<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>
$ 1,791,500 New Jersey State EDA (Hartz & Rex Associates)
LOC Citibank 01/01/12 3.63% $ 1,791,500 Aa3
2,725,000 New Jersey State EDA Industrial & Economic Development
(FMC Corporation)
LOC Wachovia Bank & Trust Co., N.A. 06/01/22 3.60 2,725,000 P1 A2
2,890,000 New Jersey State EDA STPCO II
LOC Barclays Bank PLC 07/01/06 3.30 2,890,000 A1+
1,400,000 New Jersey State Turnpike Authority - Series A
FGIC Insured 01/01/18 3.40 1,400,000 VMIG-1 A1+
6,000,000 Port Authority of New York & New Jersey
Special Obligation RB (Versatile Structure) 04/01/24 3.55 6,000,000 VMIG-1 A1+
9,600,000 Port Authority of New York & New Jersey
Versatile Structured Obligations - Series 1 08/01/28 3.60 9,600,000 VMIG-1
3,000,000 Port Authority of New York & New Jersey
Versatile Structured Obligations - Series 2
LOC Morgan Guaranty Trust Company 05/01/19 3.50 3,000,000 VMIG-1 A1+
2,000,000 Union County, NJ PCFA (Exxon Project) - Series 1994 07/01/33 3.50 2,000,000 P1 A1+
- ----------- -----------
90,351,500 Total Other Variable Rate Demand Instruments 90,351,500
- ----------- -----------
<CAPTION>
Put Bonds (d) (3.89%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,500,000 NJ EDA Thermal Energy Facility, RB (b) 12/12/96 3.60% $ 1,500,000
1,900,000 Puerto Rico Industrial Medical & Environmental Bond
LOC Morgan Guaranty Trust Company 12/01/96 3.80 1,900,000 VMIG-1
2,500,000 Puerto Rico Industrial Medical & Environmental PCFA RB
(Reynolds Metals Corporation)
LOC ABN Amro Bank N.V. 09/01/97 3.80 2,500,000 VMIG-1 A1+
- ----------- -----------
5,900,000 Total Put Bonds 5,900,000
- ----------- -----------
<CAPTION>
Tax Exempt Commercial Paper (d) (8.89%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3,000,000 New Jersey EDA Exempt Facilities RB (Keystone)
LOC Union Bank of Switzerland 11/15/96 3.40% $ 3,000,000 A1+
1,500,000 New Jersey EDA Exempt Facilities RB (Keystone)
LOC Union Bank of Switzerland 12/04/96 3.45 1,500,000 A1+
5,000,000 New Jersey State EDA Exempt Facility (RB) Keystone Project
LOC Union Bank of Switzerland 11/13/96 3.40 5,000,000 A1+
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements
29
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poor's
------ ---- ----- ------ ------- ------
Tax Exempt Commercial Paper (Continued)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,000,000 New Jersey State EDA Exempt Facility RB
(Chambers Cogeneration)
LOC Swiss Bank Corp. 12/10/96 3.50% $ 3,000,000 VMIG-1 A1+
1,000,000 New Jersey State EDA Exempt Facility RB
(Chambers Cogeneration) - Series 1992
LOC Swiss Bank Corp. 12/12/96 3.40 1,000,000 VMIG-1 A1+
- ----------- -----------
13,500,000 Total Tax Exempt Commercial Paper 13,500,000
- ----------- -----------
Total Investments (102.58%)(Cost $ 155,695,549 +) 155,695,549
Liabilities in Excess of Cash and Other Assets (2.58%) ( 3,908,572)
------------
Net Assets (100.00%) $151,786,977
============
Net Asset Value, offering and redemption price per share:
Class A Shares, 151,435,803 Shares Outstanding (Note 3) $ 1.00
===========
Class B Shares, 367,215 Shares Outstanding (Note 3) $ 1.00
===========
+ Aggregate cost for federal income tax purposes is identical.
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 is the next put date.
KEY:
BAN = Bond Anticipation Note RB = Revenue Bond
EDA = Economic Development Authority SCB = State Contract Bond
GO = General Obligation TAN = Tax Anticipation Note
PCFA = Pollution Control Finance Authority TRAN = Tax and Revenue Anticipation Note
PCRB = Pollution Control Revenue Bond VRRB = Variable Rate Revenue Bond
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
30
<PAGE>
- --------------------------------------------------------------------------------
NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Income:
Interest.................................................... $ 5,420,641
------------
Expenses: (Note 2)
Investment management fee................................... 475,005
Administration fee.......................................... 331,405
Shareholder servicing fee (Class A)......................... 303,547
Custodian fee............................................... 16,625
Shareholder servicing and related shareholder expenses...... 98,634
Legal, compliance and filing fees........................... 24,025
Audit and accounting........................................ 57,228
Directors' fees............................................. 6,431
Other....................................................... 9,420
------------
Total expenses............................................ 1,322,320
Less: Expenses paid indirectly (Note 2)................... ( 4,701)
Less: Fees waived and expenses reimbursed (Note 2)........ ( 94,933)
------------
Net expenses.............................................. 1,222,686
------------
Net investment income........................................... 4,197,955
<CAPTION>
<S> <C>
REALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments......................... ( 13,169)
------------
Increase in net assets from operations.......................... $ 4,184,786
============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements
31
<PAGE>
- --------------------------------------------------------------------------------
NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED OCTOBER 31, 1996 AND 1995
================================================================================
<TABLE>
<CAPTION>
1996 1995
--------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income......................................... $ 4,197,955 $ 3,579,590
Net realized gain (loss) on investments....................... ( 13,169) 1,012
-------------- -----------
Increase in net assets from operations........................ 4,184,786 3,580,602
Dividends to shareholders from net investment income:
Class A................................................... ( 4,019,301)* ( 3,579,590)*
Class B................................................... ( 178,654)* --
Capital share transactions (Note 3):
Class A................................................... 21,305,371 24,197,289
Class B................................................... 367,215 --
--------------- -----------
Total increase (decrease)................................. 21,659,417 24,198,301
Net assets:
Beginning of year............................................. 130,127,560 105,929,259
--------------- -------------
End of year................................................... $ 151,786,977 $130,127,560
=============== =============
* Designated as exempt-interest dividends for federal income tax purposes.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
32
<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. The Fund is a short term, tax exempt money market fund. The Fund
has two classes of stock authorized, Class A and Class B. The Class A shares are
subject to a service fee pursuant to the Distribution and Service Plan. The
Class B shares are not subject to a service fee. Additionally, the Fund may
allocate among its classes certain expenses, to the extent allowable to specific
classes, including transfer agent fees, government registration fees, certain
printing and postage costs, and administrative and legal expenses. Class
specific expenses of the Fund were limited to distribution fees and minor
transfer agent expenses. In all other respects the Class A and Class B shares
represent the same interest in the income and assets of the Fund. Distribution
for Class B shares commenced on February 9, 1996 and all Fund shares outstanding
before February 9, 1996 were designated as Class A shares. The Fund's 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) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results
could differ from those estimates.
e) 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
- --------------------------------------------------------------------------------
33
<PAGE>
- --------------------------------------------------------------------------------
================================================================================
2. Investment Management Fees and Other Transactions with Affiliates
(Continued).
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, 1996.
Pursuant to an Administrative Services Agreement, the Fund pays to the Manager
an annual fee of .21% of the Fund's average daily net assets. Prior to December
1, 1995, the administration fee was .20%.
Pursuant to a Distribution Plan adopted under Securities and Exchange Commission
Rule 12b-1, the Fund and Reich & Tang Distributors L.P. (the Distributor) have
entered into a Distribution Agreement and a Shareholder Servicing Agreement,
only with respect to Class A shares of the Fund. For its services under the
Shareholder Servicing Agreement, the Distributor receives from the Fund with
respect only to the Class A shares, 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, 1996 the Distributor voluntarily waived
shareholder servicing fees of $94,933.
Included in the statement of operations under the captions "custodian fee" and
"shareholder servicing and related shareholder expenses" are expense offsets of
$4,701.
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 "Shareholder servicing
and related shareholder expenses" are fees of $54,326 paid to Reich & Tang
Services L.P., an affiliate of the Manager as servicing agent for the Fund.
3. Capital Stock.
At October 31, 1996, 20,000,000,000 shares of $.001 par value stock were
authorized and capital paid in amounted to $151,803,018. Transactions in capital
stock, all at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
Class A Class B
----------------------------------------- ----------------
Year Year February 9, 1996
Ended Ended (Commencement of Offering)
October 31, 1996 October 31, 1995 to October 31, 1996
---------------- ---------------- -------------------
<S> <C> <C> <C>
Sold.................................. 361,208,660 246,436,643 31,823,128
Issued on reinvestment of dividends... 3,618,935 2,746,946 1,413
Redeemed.............................. ( 343,522,224) ( 224,986,300) ( 31,457,326)
------------- -------------- -------------
Net increase ......................... 21,305,371 24,197,289 367,215
============= ============== =============
</TABLE>
4. Sales of Securities.
Accumulated undistributed net realized losses at October 31, 1996 amounted to
$16,041. This amount represents tax basis capital losses which may be carried
forward to offset future capital gains. Such losses expire October 31, 1999
through October 31, 2004.
- --------------------------------------------------------------------------------
34
<PAGE>
- --------------------------------------------------------------------------------
NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
5. Concentration of Credit Risk.
The Fund invests primarily in obligations of political subdivisions of the State
of New Jersey and, is subject to the credit risk associated with the
non-performance of such issuers. Approximately 40% 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.
6. Selected Financial Information.
Reference is made to page 2 of the Prospectus for Selected Financial
Information.
35
