Registration No. 33-36317
Rule 497(e)
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NEW JERSEY
DAILY MUNICIPAL
INCOME FUND, INC.
600 Fifth Avenue, New York, NY 10020
(212) 830-5220
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STATEMENT OF ADDITIONAL INFORMATION
February 28, 2000
AS SUPPLEMENTED ON OCTOBER 31, 2000
RELATING TO THE NEW JERSEY DAILY MUNICIPAL INCOME FUND, INC.
Prospectus Dated February 28, 2000
AND THE
CHASE VISTA SELECT CLASS OF SHARES OF NEW JERSEY DAILY MUNICIPAL
INCOME FUND, INC.
PROSPECTUS DATED FEBRUARY 28, 2000
This Statement of Additional Information (SAI) is not a Prospectus. The SAI
expands upon and supplements the information contained in the current
Prospectuses of New Jersey Daily Municipal Income Fund, Inc. and Chase Vista
Select shares of New Jersey Daily Municipal Income Fund, Inc. (each, the
"Fund"), both dated February 28, 2000, and should be read in conjunction with
each Prospectus.
A Prospectus may be obtained from any Participating Organization or by writing
or calling the Fund toll-free at (800) 221-3079. The audited Financial
Statements of the Fund have been incorporated by reference into the SAI from the
Fund's Annual Report. The Annual Report is available, without charge, upon
request by calling the toll-free number provided. The material relating to
purchase, redemption and pricing of shares has been incorporated by reference to
each Prospectus.
If you wish to invest in Chase Vista Select shares of the New Jersey Daily
Municipal Income Fund, Inc. you should obtain a separate prospectus by writing
to Chase Vista Service Center, P.O. Box 219392, Kansas City, Missouri 64121-9392
or by calling (800) 34-VISTA.
This Statement of Additional Information is incorporated by reference into each
Prospectus in its entirety.
Table of Contents
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Fund History........................................ 2 Capital Stock and Other Securities......................20
Description of the Fund and Its Investments Purchase, Redemption and Pricing of Shares..............21
and Risks......................................... 2 Taxation of the Fund....................................22
Management of the Fund..............................13 Underwriters............................................23
Control Persons and Principal Holders of Calculation of Performance Data.........................23
Securities........................................15 Financial Statements....................................24
Investment Advisory and Other Services..............16 Description of Ratings..................................25
Brokerage Allocation and Other Practices............20 Taxable Equivalent Yield Tables.........................26
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I. FUND HISTORY
The Fund was incorporated on July 24, 1990 in the state of Maryland.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
The Fund is an open-end, management investment company that is a short-term,
tax-exempt money market fund. The Fund's investment objectives are to seek a
high level of current income exempt from regular Federal tax and New Jersey
gross income tax consistent with preserving capital, maintaining liquidity and
stabilizing principal. No assurance can be given that these objectives will be
achieved.
The following discussion expands upon the description of the Fund's investment
strategies in the Prospectus.
The Fund's assets will be invested primarily in (i) high quality debt
obligations issued by or on behalf of the State of 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 (ii) Participation Certificates (which, in the opinion of Battle Fowler
LLP, counsel to the Fund, cause the Fund to be treated as the owner of the
underlying Municipal Obligations for Federal income tax purposes) in Municipal
Obligations purchased from banks, insurance companies or other financial
institutions ("Participation Certificates").
The Fund may hold uninvested cash reserves pending investment. The Fund's
investments may include "when-issued" Municipal Obligations, stand-by
commitments and taxable repurchase agreements. Although the Fund will attempt to
invest 100% of its assets in Municipal Obligations and in Participation
Certificates, the Fund reserves the right to invest up to 20% of the value of
its total assets in securities, the interest income on which is subject to
regular Federal, state and local income tax. The Fund may 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 may not be changed
unless approved by the holders of a majority of the outstanding shares of the
Fund that would be affected by such a change. As used herein, the term "majority
of the outstanding shares" of the Fund means, respectively, the vote of the
lesser of (i) 67% or more of the shares of the Fund present at a meeting, if the
holders of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Fund.
The Fund may only purchase United States dollar-denominated securities that have
been determined by the Fund's Board of Directors to present minimal credit risks
and that are Eligible Securities at the time of acquisition. The term Eligible
Securities means: (i) securities which have or are deemed to have remaining
maturities of 397 days or less and rated in the two highest short-term rating
categories by any two nationally recognized statistical rating organizations
("NRSROs") or in such categories by the only NRSRO that has rated the Municipal
Obligations (collectively, the "Requisite NRSROs"); or (ii) unrated securities
determined by the Fund's Board of Directors to be of comparable quality. In
addition, securities which have or are deemed to have remaining maturities of
397 days or less but that at the time of issuance were long-term securities
(i.e. with maturities greater than 366 days) are deemed unrated and may be
purchased if such had received a long-term rating from the Requisite NRSROs in
one of the three highest rating categories. Provided, however, that such may not
be purchased if it (i) does not satisfy the rating requirements set forth in the
preceding sentence and (ii) has received a long-term rating from any NRSRO that
is not within the three highest long-term rating categories. A determination of
comparability by the Board of Directors is made on the basis of its credit
evaluation of the issuer, which may include an evaluation of a letter of credit,
guarantee, insurance or other credit facility issued in support of the
securities. While there are several organizations that currently qualify as
NRSROs, two examples of NRSROs are Standard & Poor's Rating Services, a division
of The McGraw-Hill Companies, ("S&P") and Moody's Investors Service, Inc.
("Moody's"). The two highest ratings by S&P and Moody's are "AAA" and "AA" by
S&P in the case of long-term bonds and notes or "Aaa" and "Aa" by Moody's in the
case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by Moody's in the
case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2" by Moody's in
the case of tax-exempt commercial paper. The highest rating in the case of
variable and floating demand notes is "VMIG-1" by Moody's or "SP-1/AA" by S&P.
Such instruments may produce a lower yield than would be available from less
highly rated instruments.
Subsequent to its purchase by the Fund, a rated security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Fund. If this occurs, the Board of Directors of the Fund shall promptly reassess
whether the security presents minimal credit risks and shall cause the Fund to
take such action as the Board of Directors determines is in the best interest of
the Fund and its shareholders. However,
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reassessment is not required if the security is disposed of or matures within
five business days of the Manager becoming aware of the new rating and provided
further that the Board of Directors is subsequently notified of the Manager's
actions.
In addition, in the event that a security (i) is in default, (ii) ceases to be
an Eligible Security under Rule 2a-7 of the Investment Company Act of 1940 (the
"1940 Act") or (iii) is determined to no longer present minimal credit risks, or
an event of insolvency occurs with respect to the issues of a portfolio security
or the provider of any Demand Feature or Guarantee, the Fund will dispose of the
security absent a determination by the Fund's Board of Directors that disposal
of the security would not be in the best interests of the Fund. Disposal of the
security shall occur as soon as practicable consistent with achieving an orderly
disposition by sale, exercise of any demand feature or otherwise. In the event
of a default with respect to a security which immediately before default
accounted for 1/2 of 1% or more of the Fund's total assets, the Fund shall
promptly notify the SEC of such fact and of the actions that the Fund intends to
take in response to the situation.
All investments by the Fund will mature or will be deemed to mature within 397
days or less from the date of acquisition and the average maturity of the Fund
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.
The Fund intends to qualify as a "regulated investment company" under Subchapter
M of the Code. The Fund will be restricted in that at the close of each quarter
of the taxable year, at least 50% of the value of its total assets must be
represented by cash, government securities, regulated investment company
securities and other securities. The other securities must be 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 or regulated investment company securities. The
limitations described in this paragraph regarding qualification as a "regulated
investment company" are not fundamental policies and may be revised to the
extent applicable Federal income tax requirements are revised. (See "Federal
Income Taxes" herein.)
Description Of Municipal Obligations
As used herein, "Municipal Obligations" include the following as well as
"Variable Rate Demand Instruments" and "Participation Certificates".
1. Municipal Bonds with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition. Municipal Bonds are debt
obligations of states, cities, counties, municipalities and municipal
agencies (all of which are generally referred to as "municipalities"). They
generally have a maturity at the time of issue of one year or more and are
issued to raise funds for various public purposes such as construction of a
wide range of public facilities, to refund outstanding obligations and to
obtain funds for institutions and facilities.
The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by
the issuer's pledge of its faith, credit and taxing power for the payment
of principal and interest. Issuers of general obligation bonds include
states, counties, cities, towns and other governmental units. The principal
of, and interest on revenue bonds are payable from the income of specific
projects or authorities and generally are not supported by the issuer's
general power to levy taxes. In some cases, revenues derived from specific
taxes are pledged to support payments on a revenue bond.
In addition, certain kinds of "private activity bonds" are issued by public
authorities to provide funding for various privately operated industrial
facilities (hereinafter referred to as "industrial revenue bonds" or
"IRBs"). Interest on IRBs is generally exempt, with certain exceptions,
from regular Federal income tax pursuant to Section 103(a) of the Code,
provided the issuer and corporate obligor thereof continue to meet certain
conditions. (See "Federal Income Taxes" herein.) IRBs are, in most cases,
revenue bonds and do not generally constitute the pledge of the credit of
the issuer of such bonds. The payment of the principal and interest on IRBs
usually depends solely on the ability of the user of the facilities
financed by the bonds or other guarantor to meet its financial obligations
and, in certain instances, the pledge of real and personal property as
security for payment. If there is no established secondary market for the
IRBs, the IRBs or the Participation Certificates in IRBs purchased by the
Fund will be supported by letters of
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credit, guarantees or insurance that meet the definition of Eligible
Securities at the time of acquisition and provide the demand feature which
may be exercised by the Fund at any time to provide liquidity. Shareholders
should note that the Fund may invest in IRBs acquired in transactions
involving a Participating Organization. In accordance with Investment
Restriction 6 herein, the Fund is permitted to invest up to 10% of the
portfolio in high quality, short-term Municipal Obligations (including
IRBs) meeting the definition of Eligible Securities at the time of
acquisition that may not be readily marketable or have a liquidity feature.
2. Municipal Notes with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition. The principal kinds of
Municipal Notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes and project notes. Notes sold in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuing municipality or agency. Project notes
are issued by local agencies and are guaranteed by the United States
Department of Housing and Urban Development. Project notes are also secured
by the full faith and credit of the United States. The Fund's investments
may be concentrated in Municipal Notes of 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. They are paid from general revenues
of municipalities or are refinanced with long-term debt. In most cases
Municipal Commercial Paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions which may be called upon in the
event of default by the issuer of the commercial paper.
4. Municipal Leases, which may take the form of a lease or an installment
purchase or conditional sale contract, issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications
equipment and other capital assets. Municipal Leases frequently have
special risks not normally associated with general obligation or revenue
bonds. Leases and installment purchase or conditional sale contracts (which
normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. The debt-issuance
limitations of many state constitutions and statutes are deemed to be
inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses. These clauses provide that the governmental
issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis. To reduce this risk,
the Fund will only purchase Municipal Leases subject to a non-appropriation
clause where the payment of principal and accrued interest is backed by an
unconditional irrevocable letter of credit, a guarantee, insurance or other
comparable undertaking of an approved financial institution. These types of
Municipal Leases may be considered illiquid and subject to the 10%
limitation of investments in illiquid securities set forth under
"Investment Restrictions" contained herein. The Board of Directors may
adopt guidelines and delegate to the Manager the daily function of
determining and monitoring the liquidity of Municipal Leases. In making
such determination, the Board and the Manager may consider such factors as
the frequency of trades for the obligation, the number of dealers willing
to purchase or sell the obligations and the number of other potential
buyers and the nature of the marketplace for the obligations, including the
time needed to dispose of the obligations and the method of soliciting
offers. If the Board determines that any Municipal Leases are illiquid,
such lease will be subject to the 10% limitation on investments in illiquid
securities.
5. Any other Federal tax-exempt, and to the extent possible, New Jersey gross
income tax-exempt obligations issued by or on behalf of states and
municipal governments and their authorities, agencies, instrumentalities
and political subdivisions whose inclusion in the Fund would be consistent
with the Fund's investment objectives, policies and risks described herein
and permissible under Rule 2a-7 under the 1940 Act.
Subsequent to its purchase by the Fund, a rated Municipal Obligation may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Fund. If this occurs, the Board of Directors of the Fund shall promptly
reassess whether the Municipal Obligation presents minimal credit risks and
shall cause the Fund to take such action as the Board of Directors determines is
in the best interest of the Fund and its shareholders. However, reassessment is
not required if the Municipal Obligation is disposed of or matures within five
business days of the Manager becoming aware of the new rating and provided
further that the Board of Directors is subsequently notified of the Manager's
actions.
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In addition, in the event that a Municipal Obligation (i) is in default, (ii)
ceases to be an Eligible Security under Rule 2a-7 of the 1940 Act or (iii) is
determined to no longer present minimal credit risks, or an event of insolvency
occurs with respect to the issues of a portfolio security or the provider of any
Demand Feature or Guarantee, the Fund will dispose of the security absent a
determination by the Fund's Board of Directors that disposal of the security
would not be in the best interests of the Fund. Disposal of the security shall
occur as soon as practicable consistent with achieving an orderly disposition by
sale, exercise of any demand feature or otherwise. In the event of a default
with respect to a security which immediately before default accounted for 1/2 of
1% or more of the Fund's total assets, the Fund shall promptly notify the SEC of
such fact and of the actions that the Fund intends to take in response to the
situation.
Variable Rate Demand Instruments and Participation Certificates
Variable rate demand instruments that the Fund will purchase are tax-exempt
Municipal Obligations. They provide for a periodic adjustment in the interest
rate paid on the instrument and permit the holder to demand payment of the
unpaid principal balance plus accrued interest at specified intervals upon a
specified number of days notice either from the issuer or by drawing on a bank
letter of credit, a guarantee or insurance issued with respect to such
instrument.
The variable rate demand instruments in which the Fund may invest are payable on
demand on not more than thirty calendar days' notice and may be exercised at any
time or at specified intervals not exceeding 397 days depending upon the terms
of the instrument. Variable rate demand instruments that can not be disposed of
properly within seven days in the ordinary course of business are illiquid
securities. The terms of the instruments provide that interest rates are
adjustable at intervals ranging from daily to up to 397 days. The adjustments
are based upon the "prime rate"* of a bank or other appropriate interest rate
adjustment index as provided in the respective instruments. The Fund decides
which variable rate demand instruments it will purchase in accordance with
procedures prescribed by its Board of Directors to minimize credit risks. A fund
utilizing the amortized cost method of valuation under Rule 2a-7 of the 1940 Act
may purchase variable rate demand instruments only if (i) the instrument is
subject to an unconditional demand feature, exercisable by the Fund in the event
of a default in the payment of principal or interest on the underlying
securities, that is an Eligible Security or (ii) the instrument is not subject
to an unconditional demand feature but does qualify as an Eligible Security and
has a long-term rating by the Requisite NRSROs in one of the two highest rating
categories, or if unrated, is determined to be of comparable quality by the
Fund's Board of Directors. The Fund's Board of Directors may determine that an
unrated variable rate demand instrument meets the Fund's high quality criteria
if it is backed by a letter of credit or guarantee or is insured by an insurer
that meets the quality criteria for the Fund stated herein or on the basis of a
credit evaluation of the underlying obligor. If an instrument is ever not deemed
to be an Eligible Security, the Fund either will sell it in the market or
exercise the demand feature.
The variable rate demand instruments that the Fund may invest in include
Participation Certificates purchased by the Fund from banks, insurance companies
or other financial institutions in fixed or variable rate, tax-exempt Municipal
Obligations (expected to be concentrated in IRBs) owned by such institutions or
affiliated organizations. The Fund will not purchase Participation Certificates
in fixed rate tax-exempt Municipal Obligations without obtaining an opinion of
counsel that the Fund will be treated as the owner thereof for Federal income
tax purposes. A Participation Certificate gives the Fund an undivided interest
in the Municipal Obligation in the proportion that the Fund's participation
interest bears to the total principal amount of the Municipal Obligation and
provides the demand repurchase feature described below. Where the institution
issuing the participation does not meet the Fund's eligibility criteria, the
participation is backed by an irrevocable letter of credit or guaranty of a bank
(which may be the bank issuing the Participation Certificate, a bank issuing a
confirming letter of credit to that of the issuing bank, or a bank serving as
agent of the issuing bank with respect to the possible repurchase of the
certificate of participation) or insurance policy of an insurance company that
the Board of Directors of the Fund has determined meets the prescribed quality
standards for the Fund. The Fund has the right to sell the Participation
Certificate back to the institution. Where applicable, the Fund can draw on the
letter of credit or insurance after no more than 30 days notice either at any
time or at specified intervals not exceeding 397 days (depending on the terms of
the
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* 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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participation), for all or any part of the full principal amount of the Fund's
participation interest in the security plus accrued interest. The Fund intends
to exercise the demand only (i) upon a default under the terms of the bond
documents, (ii) as needed to provide liquidity to the Fund in order to make
redemptions of Fund shares or (iii) to maintain a high quality investment
portfolio. The institutions issuing the Participation Certificates will retain a
service and letter of credit fee (where applicable) and a fee for providing the
demand repurchase feature, in an amount equal to the excess of the interest paid
on the instruments over the negotiated yield at which the participations were
purchased by the Fund. The total fees generally range from 5% to 15% of the
applicable prime rate or other interest rate index. With respect to insurance,
the Fund will attempt to have the issuer of the Participation Certificate bear
the cost of the insurance. However, the Fund retains the option to purchase
insurance if necessary, in which case the cost of insurance will be an expense
of the Fund subject to the expense limitation (see "Expense Limitation" herein).
The Manager has been instructed by the Fund's Board of Directors to continually
monitor the pricing, quality and liquidity of the variable rate demand
instruments held by the Fund, including the Participation Certificates, on the
basis of published financial information and reports of the rating agencies and
other bank analytical services to which the Fund may subscribe. Although these
instruments may be sold by the Fund, the Fund intends to hold them until
maturity, except under the circumstances stated above (see "Federal Income
Taxes" herein).
Because the Fund may concentrate in 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 or change
affecting one of the securities would also affect the other securities. This
includes, for example, securities the interest upon which is paid from revenues
of similar type projects, or securities the issuers of which are located in the
same state.
While the value of the underlying variable rate demand instruments may change
with changes in interest rates generally, the variable rate nature of the
underlying variable rate demand instruments should minimize changes in value of
the instruments. Accordingly, as interest rates decrease or increase, the
potential for capital appreciation and the risk of potential capital
depreciation is less than would be the case with a portfolio of fixed income
securities. The portfolio may contain variable maximum rates set by state law,
which limit the degree to which interest on such variable rate demand
instruments may fluctuate; to the extent state law contains such limits,
increases or decreases in value may be somewhat greater than would be the case
without such limits. Additionally, the portfolio may contain variable rate
demand Participation Certificates in fixed rate Municipal Obligations. The fixed
rate of interest on these Municipal Obligations will be a ceiling on the
variable rate of the Participation Certificate. In the event that interest rates
increase so that the variable rate exceeds the fixed rate on the Municipal
Obligations, the Municipal Obligations can no longer be valued at par and may
cause the Fund to take corrective action, including the elimination of the
instruments from the portfolio. Because the adjustment of interest rates on the
variable rate demand instruments is made in relation to movements of the
applicable banks' "prime rates", or other interest rate adjustment index, the
variable rate demand instruments are not comparable to long-term fixed rate
securities. Accordingly, interest rates on the variable rate demand instruments
may be higher or lower than current market rates for fixed rate obligations of
comparable quality with similar maturities.
Because of the variable rate nature of the instruments, the Fund's yield will
decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have declined. On the
other hand, during periods where prevailing interest rates have increased, the
Fund's yield will increase and its shareholders will have reduced risk of
capital depreciation.
For purposes of determining whether a variable rate demand instrument held by
the Fund matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (i) the period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (ii) the period remaining until the instrument's next interest
rate adjustment. The maturity of a variable rate demand instrument will be
determined in the same manner for purposes of computing the Fund's
dollar-weighted average portfolio maturity. If a variable rate demand instrument
ceases to be an Eligible Security it will be sold in the market or through
exercise of the repurchase demand feature to the issuer.
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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 received on
these Municipal Obligations are each fixed at the time the buyer enters into the
commitment although delivery and payment of the Municipal Obligations normally
take place within 45 days after the date of the Fund's commitment to purchase.
Although the Fund only makes 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 will not normally expect to do so, from sale of the when-issued
securities themselves (which may have a value greater or lesser than the Fund's
payment obligations). Sale of securities to meet such obligations may result in
the realization of capital gains or losses, which are not exempt from Federal
income tax.
Stand-by Commitments
When the Fund purchases Municipal Obligations, it may also acquire stand-by
commitments from banks and other financial institutions. Under a stand-by
commitment, a bank or broker-dealer agrees to purchase at the Fund's option a
specified Municipal Obligation at a specified price with same day settlement. A
stand-by commitment is the equivalent of a "put" option acquired by the Fund
with respect to a particular Municipal Obligation held in its portfolio.
The amount payable to the Fund upon its exercise of a stand-by commitment
normally will be (i) the acquisition cost of the Municipal Obligation (excluding
any accrued interest that the Fund paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the security, plus (ii) all interest accrued on the
security since the last interest payment date during the period the security was
owned by the Fund. Absent unusual circumstances relating to a change in market
value, the Fund will 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 will be substantially the same as the market
value of the underlying Municipal Obligation.
The Fund's right to exercise a stand-by commitment will be unconditional and
unqualified. A stand-by commitment will not be transferable by the Fund,
although it can sell the underlying Municipal Obligation to a third party at any
time.
The Fund expects stand-by commitments to generally be available without the
payment of any direct or indirect consideration. However, if necessary and
advisable, the Fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund's portfolio will not exceed 1/2 of 1% of
the value of the Fund's total assets calculated immediately after the
acquisition of each stand-by commitment.
The Fund will enter into stand-by commitments only with banks and other
financial institutions that, in the Manager's opinion, present minimal credit
risks. If the issuer of the Municipal Obligation does not meet the eligibility
criteria, the issuer of the stand-by commitment will have received a rating
which meets the eligibility criteria or, if not rated, will present a minimal
risk of default as determined by the Board of Directors. The Fund's reliance
upon the credit of these banks and broker-dealers will be supported by the value
of the underlying Municipal Obligations held by the Fund that were subject to
the commitment.
-7-
<PAGE>
The Fund intends to acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The purpose of this practice is to permit the Fund to be fully
invested in securities the interest on which is exempt from Federal income tax
while preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions and to purchase at a later date
securities other than those subject to the stand-by commitment. The acquisition
of a stand-by commitment will not affect the valuation or assumed maturity of
the underlying Municipal Obligations which will continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund will be valued at zero in determining net asset value. In those cases in
which the Fund pays directly or indirectly for a stand-by commitment, its cost
will be reflected as unrealized depreciation for the period during which the
commitment is held by the Fund. Stand-by commitments will not affect the
dollar-weighted average maturity of the Fund's portfolio. The maturity of a
security subject to a stand-by commitment is longer than the stand-by repurchase
date.
The stand-by commitments the Fund may enter into are subject to certain risks.
These include the ability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, the fact that the commitment
is not marketable by the Fund, and that the maturity of the underlying security
will generally be different from that of the commitment.
In addition, the Fund may apply to the Internal Revenue Service for a ruling, or
seek from its counsel an opinion, that interest on Municipal Obligations subject
to stand-by commitments will be exempt from Federal income taxation (see
"Federal Income Taxes" herein). In the absence of a favorable tax ruling or
opinion of counsel, the Fund will not engage in the purchase of securities
subject to stand-by commitments.
Taxable Securities
Although the Fund will attempt to invest 100% of its net assets in tax-exempt
Municipal Obligations, the Fund may invest up to 20% of the value of its total
assets in securities of the kind described below. The interest income from such
securities is subject to regular Federal or New Jersey state income tax, under
any one or more of the following circumstances: (i) pending investment of
proceeds of sales of Fund shares or of portfolio securities, (ii) pending
settlement of purchases of portfolio securities, and (iii) to maintain liquidity
for the purpose of meeting anticipated redemptions. In addition, the Fund may
temporarily invest more than 20% in such taxable securities when, in the opinion
of the Manager, it is advisable to do so because of adverse market conditions
affecting the market for Municipal Obligations. The kinds of taxable securities
in which the Fund may invest are limited to the following short-term,
fixed-income securities (maturing in 397 days or less from the time of
purchase): (i) obligations of the United States Government or its agencies,
instrumentalities or authorities, (ii) commercial paper meeting the definition
of Eligible Securities at the time of acquisition, (iii) certificates of deposit
of domestic banks with assets of $1 billion or more, and (iv) repurchase
agreements with respect to any Municipal Obligations or other securities which
the Fund is permitted to own.
Repurchase Agreements
The Fund may invest in instruments subject to repurchase agreements with
securities dealers or member banks of the Federal Reserve System. Under the
terms of a typical repurchase agreement, the Fund will acquire an underlying
debt instrument for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase and the Fund to resell the
instrument at a fixed price and time, thereby determining the yield during the
Fund's holding period. This results in a fixed rate of return insulated from
market fluctuations during such period. A repurchase agreement is subject to the
risk that the seller may fail to repurchase the security. Repurchase agreements
may be deemed to be loans under the 1940 Act. All repurchase agreements entered
into by the Fund shall be fully collateralized at all times during the period of
the agreement in that the value of the underlying security shall be at least
equal to the amount of the loan, including the accrued interest thereon.
Additionally, the Fund or its custodian shall have possession of the collateral,
which the Fund's Board believes will give it a valid, perfected security
interest in the collateral. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs in connection with the disposition of the
collateral. The Fund's Board believes that the collateral underlying repurchase
agreements may be more susceptible to claims of the seller's creditors than will
be the case with securities owned by the Fund. It is expected that repurchase
agreements will give rise to income which will not qualify as tax-exempt income
when distributed by the Fund. The Fund will not invest in a repurchase agreement
maturing in more than seven days if any such investment, together with illiquid
securities held by the Fund, exceeds 10% of the Fund's total net assets. (See
Investment Restriction Number 6 herein.) Repurchase agreements are subject to
the same risks described herein for stand-by commitments.
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New Jersey Risk Factors
This summary is included for the purpose of providing a general description of
the credit and financial condition of the State of New Jersey.
State Finance
-------------
New Jersey's economic base is diversified, consisting of a variety of
manufacturing, construction and service industries, supplemented by rural areas
with selective commercial agriculture.
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
experienced a protracted recovery that in 1994 began to generate internal
momentum due to increases in employment and income levels. Unemployment in New
Jersey has continued to recede while home-building and retail sales have
continued to increase steadily from 1992 lows. New Jersey has benefited, and
will continue to benefit, from national growth. At the end of calendar year
1999, New Jersey's recovery was in its eighth year and appears to be
sustainable. It is expected that the employment and income growth that has and
is taking place will lead to further growth in consumer outlays. Reasons for
continued optimism in New Jersey include increasing employment levels, a low
jobless rate, and a higher-than-national level of per capita personal income.
While growth in the State is likely to be slower than the nation, the advantages
of location that have served New Jersey well for many years will still be there.
Structural changes that have been going on for years can be expected to
continue, with job creation concentrated most heavily in the service industries.
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 30th.
The budget for Fiscal Year 2000 became effective June 30, 1999. The Fiscal Year
1999 budget produced a Fund Balance in the General Fund of approximately $276.1
million at the end of Fiscal Year 1999.
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 1997, 1998, 1999 and 2000 in the amounts of
$446.9 million, $483.7 million, $501.1 million and $518.7 million, respectively.
For Fiscal Year 2001, the State has made appropriations of $530.0 million for
principal and interest payments for general obligation bonds. The aggregate
outstanding general obligation bonded indebtedness of the State as of June 30,
1999 was $3.6 billion.
The State's Master Lease Program is used primarily to finance various
departmental equipment needs at tax-exempt rates by issuing Certificates of
Participation. Beginning in Fiscal Year 1996 the State modified the Master Lease
Program and began using a line of credit as the preferred method of financing
various departmental equipment needs. As of June 30, 1999, outstanding
Certificates of Participation totaled $219.23 million and the States'
outstanding balance on its line of credit totaled $52.7 million.
As of February 17, 2000, S&P, Moody's and Fitch IBCA, Inc. ("Fitch") rate the
State's long-term general obligation debt "AA+", "Aa1" and "AA+", respectively.
The State's Certificates of Participation are rated AA- by S&P and A1 by
Moody's. 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.
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<PAGE>
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, 1999, there was outstanding in excess of
$761.01 million of moral obligation bonded indebtedness issued by such entities,
for which the maximum annual debt service was approximately $93.0 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." As of June 30, 1999, the total of these
obligations, including the "moral obligation" debt was approximately $9.8
billion.
At any given time, there are various numbers of claims and cases pending against
the University of Medicine and Dentistry and it's employees, seeking recovery of
monetary damages that are primarily paid out of the Self Insurance Reserve Fund
created pursuant to the Tort Claims Act. An independent study estimated an
aggregate potential exposure of $90.8 million for claims pending, as of December
31, 1997. In addition, at any given time, there are various numbers of contract
and other claims against the University of Medicine and Dentistry seeking
recovery of monetary damages or other relief which, if granted, would require
the expenditure of funds. 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
claims that the State failed to properly conduct remediation and health screens
concerning chromium contamination, challenges to constitutionality of annual
A-901 hazardous and solid waste licensure renewal fees collected by the State,
challenges to the State's "family cap" on welfare benefits, challenges to the
State's funding mechanism for school districts within the State, challenges to
the State's provision of early childhood education services, challenges to the
State's use of assessments made against certain property and casualty insurers,
challenges to the State's Medicaid reimbursement procedures, and challenges to
the State's highway and tunnel development funding mechanisms.
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 makes 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
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<PAGE>
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.
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.
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<PAGE>
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. They may not be changed unless approved by a majority
of the outstanding shares "of each series of the Fund's shares that would be
affected by such a change." The term "majority of the outstanding shares" of the
Fund means the vote of the lesser of (i) 67% or more of the shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Fund. The Fund may not:
1. Make portfolio investments other than as described under "Description of
the Fund and Its Investments and Risks". Any other form of Federal
tax-exempt investment must meet the Fund's high quality criteria, as
determined by the Board of Directors, and be consistent with the Fund's
objectives and policies.
2. Borrow money. This restriction shall not apply to borrowings from banks for
temporary or emergency (not leveraging) purposes. This includes the meeting
of redemption requests that might otherwise require the untimely
disposition of securities, in an amount up to 15% of the value of the
Fund's total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the borrowing
was made. While borrowings exceed 5% of the value of the Fund's total
assets, the Fund will not make any investments. Interest paid on borrowings
will reduce net income.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in
an amount up to 15% of the value of its total assets and only to secure
borrowings for temporary or emergency purposes.
4. Sell securities short or purchase securities on margin, or engage in the
purchase and sale of put, call, straddle or spread options or in writing
such options. However, securities subject to a demand obligation and
stand-by commitments may be purchased as set forth under "Description of
the Fund and Its Investments and Risks" herein.
-12-
<PAGE>
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, exceeds 10% of the Fund's net assets.
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests. This shall
not prevent the Fund from investing in Municipal Obligations secured by
real estate or interests in real estate.
8. Make loans to others, except through the purchase of portfolio investments,
including repurchase agreements, as described under "Description of the
Fund and Its Investments and Risks" herein.
9. Purchase more than 10% of all outstanding voting securities of any one
issuer or invest in companies for the purpose of exercising control.
10. Invest more than 25% of its assets in the securities of "issuers" in any
single industry. The Fund may invest more than 25% of its assets in
Participation Certificates and there shall be no limitation on the purchase
of those Municipal Obligations and other obligations issued or guaranteed
by the United States Government, its agencies or instrumentalities. When
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating
the issuing entity and a security is backed only by the assets and revenues
of the entity, the entity will be deemed to be the sole issuer of the
security. Similarly, in the case of an industrial revenue bond, if that
bond is backed only by the assets and revenues of the non-government user,
then such non-government user will 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
will be considered a separate security and will be treated as an issue of
such government, other entity or bank. Immediately after the acquisition of
any securities subject to a Demand Feature or Guarantee (as such terms are
defined in Rule 2a-7 of the 1940 Act), with respect to 75% of the total
assets of the Fund, not more than 10% of the Fund's assets may be invested
in securities that are subject to a Guarantee or Demand Feature from the
same institution. However, the Fund may only invest more than 10% of its
assets in securities subject to a Guarantee or Demand Feature issued by a
Non-Controlled Person (as such term is defined in Rule 2a-7 of the 1940
Act).
11. Invest in securities of other investment companies. The Fund may purchase
unit investment trust securities where such unit trusts meet the investment
objectives of the Fund and then only up to 5% of the Fund's net assets,
except as they may be acquired as part of a merger, consolidation or
acquisition of assets.
12. Issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security in connection with a permitted borrowing.
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or in the amount of the Fund's assets will not constitute a
violation of such restriction.
III. MANAGEMENT OF THE FUND
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, employs the Manager to serve as investment manager
of the Fund. The Manager provides persons satisfactory to the Fund's Board of
Directors to serve as officers of the Fund. Such officers, as well as certain
other employees and directors of the Fund, may be directors or officers of Reich
& Tang Asset Management, Inc., the sole general partner of the Manager or
employees of the Manager or its affiliates. Due to the services performed by the
Manager, the Fund currently has no employees and its officers are not required
to devote their full-time to the affairs of the Fund.
The directors and officers of the Fund and their principal occupations during
the past five years are set forth below. Unless otherwise specified, the address
of each of the following persons is 600 Fifth Avenue, New York, New York 10020.
Mr. Duff may be deemed an "interested person" of the Fund, as defined in the
1940 Act, on the basis of his affiliation with Reich & Tang Asset Management
L.P.
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<PAGE>
Steven W. Duff, 46 - President and Director of the Fund, has been President of
the Mutual Funds Division of the Manager since September 1994. Mr. Duff is also
President and a Director/Trustee of 13 other funds in the Reich & Tang Fund
Complex, Director of Pax World Money Market Fund, Inc., Executive Vice President
of Reich & Tang Equity Fund, Inc., President of Back Bay Funds, Inc., and
President and Chief Executive Officer of Tax Exempt Proceeds Fund, Inc.
Dr. W. Giles Mellon, 69 - Director of the Fund, has been Professor of Business
Administration and Area Chairman of Economics in the Graduate School of
Management, Rutgers University since 1966. His address is Rutgers University
Graduate School of Management, 92 New Street, Newark, New Jersey 07102. Dr.
Mellon is a Director/Trustee of 15 other funds in the Reich & Tang Fund Complex.
Robert Straniere, 58 - Director of the Fund, has been a member of the New York
State Assembly and a partner with The Straniere Law Firm since 1981. His address
is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is also a
Director/Trustee of 15 other funds in the Reich & Tang Fund Complex, and a
Director of Life Cycle Mutual Funds, Inc.
Dr. Yung Wong, 61 - 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/Trustee of 15 other funds in the Reich
& Tang Fund Complex . Dr. Wong is also a Trustee of Eclipse Financial Asset
Trust.
Molly Flewharty, 49 - Vice President of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. which she was associated with from
December 1977 to September 1993. Ms. Flewharty is also Vice President of 18
other funds in the Reich & Tang Fund Complex.
Lesley M. Jones, 51 - Vice President of the Fund, has been Senior Vice President
of the Mutual Funds Division of the Manager since September 1993. Ms. Jones was
formerly Senior Vice President of Reich & Tang, Inc. which she was associated
with from April 1973 to September 1993. Ms. Jones is also a Vice President of 14
other funds in the Reich & Tang Fund Complex.
Dana E. Messina, 43 - Vice President of the Fund, has been Executive Vice
President of the Mutual Funds Division of the Manager since January 1995 and was
Vice President from September 1993 to January 1995. Ms. Messina was formerly
Vice President of Reich & Tang, Inc. with which she was associated with from
December 1980 to September 1993. Ms. Messina is also Vice President of 15 other
funds in the Reich & Tang Fund Complex.
Bernadette N. Finn, 52 - Vice President and Secretary of the Fund, has been Vice
President of the Mutual Funds Division of the Manager since September 1993. Ms.
Finn was formerly Vice President and Assistant Secretary of Reich & Tang, Inc.
which she was associated with from September 1970 to September 1993. Ms. Finn is
also Vice President and Secretary of 4 other funds, and a Secretary of 14
additional funds in the Reich & Tang Fund Complex.
Richard De Sanctis, 43 - Treasurer of the Fund, has been Treasurer of the
Manager since September 1993. Mr. De Sanctis is also Treasurer of 17 other funds
in the Reich & Tang Fund Complex, and is Vice President and Treasurer of
Cortland Trust, Inc.
Rosanne Holtzer, 35 - Assistant Treasurer of the Fund, has been Vice President
of the Mutual Funds division of the Manager since December 1997. Ms. Holtzer was
formerly Manager of Fund Accounting for the Manager with which she has been
associated with from June 1986. Ms. Holtzer is also Assistant Treasurer of 18
other funds in the Reich & Tang Fund Complex.
The Fund paid an aggregate remuneration of $6,000 to its directors with respect
to the period ended October 31, 1999, all of which consisted of directors' fees
paid to the three disinterested directors, pursuant to the terms of the
Investment Management Contract (see "Manager" herein).
Directors of the Fund not affiliated with the Manager receive from the Fund an
annual retainer of $1,000 and a fee of $250 for each Board of Directors meeting
attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Directors who are affiliated with the Manager do
not receive compensation from the Fund. (See "Compensation Table".)
-14-
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
AGGREGATE COMPENSATION PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION FROM
NAME OF PERSON, FROM THE FUND BENEFITS ACCRUED AS PART BENEFITS UPON RETIREMENT FUND AND FUND COMPLEX PAID
POSITION OF FUND EXPENSES TO DIRECTORS*
<S> <C> <C> <C> <C>
Dr. W. Giles Mellon, $2,000 0 0 $59,500 (16 Funds)
Director
Robert Straniere, $2,000 0 0 $59,500 (16 Funds
Director
Dr. Yung Wong, $2,000 0 0 $59,500 (16 Funds)
Director
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ending October 31, 1999. The total number of Funds in the same
Fund complex from which the directors receive compensation is listed in
parenthesis. A fund is considered to be in the same complex if, among other
things, it shares a common investment adviser with the Fund.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On January 31, 2000 there were 103,641,286 Class A shares of the Fund
outstanding,7,658,720 Class B shares outstanding, and 48, 702, 358 Chase Vista
Select shares outstanding. As of January 31, 2000,the amount of shares owned by
all officers and directors of the Fund, as a group, was less than 1% of the
outstanding shares. Set forth below is certain information as to persons who
owned 5% or more of the Fund's outstanding shares as of January 31, 2000:
Nature of
Name and Address % of Class Ownership
---------------- ---------- ---------
Class A Shares
Bankers Trust Company 27.39% Record
1 South Street - 18th Floor
Baltimore, MD 21202
Attn: Mike Joseph
Neuberger & Berman 25.31% Record
55 Water Street
New York, NY 10041
Attn: Rob Staib
Morgan Stanley Deanwitter 5.31% Beneficial
As Agent for Susan C. Blake
1251 Avenue of the Americas
New York, NY 10020
Class B Shares
Lewco Securities Corp. 23.06% Record
34 Exchange Place
Jersey City, NJ 07311
Spear, Leeds & Kellogg 22.66% Beneficial
As Agent for Lowell Millar
120 Broadway
New York, NY 10271
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<PAGE>
Nature of
Name and Address % of Class Ownership
---------------- ---------- ---------
Spear, Leeds & Kellogg 6.19% Beneficial
As Agent for James A. Couflos
120 Broadway
New York, NY 10271
Morgan Stanley Deanwitter 5.40% Beneficial
As Agent for Paul R. Slone
1251 Avenue of the Americas
New York, NY 10020
Spear, Leeds & Kellogg 5.01% Beneficial
As Agent for Lowell Millar & Jennifer Millar
120 Broadway
New York, NY 10271
Chase Vista Select Shares
Vista Mutual Fund 100.00% Record
IFTC/Vista Mutual Funds
801 Pennsylvania
Kansas City, NJ 64105
V. INVESTMENT ADVISORY AND OTHER SERVICES
The Investment Manager for the Fund is Reich & Tang Asset Management L.P., a
Delaware limited partnership with principal offices at 600 Fifth Avenue, New
York, New York 10020. The Manager was, as of January 31, 2000, investment
manager, adviser, or supervisor with respect to assets aggregating in excess of
$14.7 billion. In addition to the Fund, the Manager acts as investment manager
and administrator of eighteen other investment companies and also advises
pension trusts, profit-sharing trusts and endowments.
Nvest Companies, L.P. (Nvest Companies) is the limited partner and owner of a
99.5% interest in the Manager. Reich & Tang Asset Management, Inc. (RTAM) is the
sole general partner and owner of the remaining 0.5% interest of the Manager, as
well as being an indirect wholly-owned subsidiary of Nvest Companies. Nvest
Companies is a publicly traded company of which approximately 13% of its
outstanding partnership interests is owned, directly and indirectly, by Reich &
Tang, Inc.
CDC Asset Management ("CDC AM"), the investment management arm of France's
Caisse des Depots Group, has completed its acquisition of Nvest, L.P. and Nvest
Companies. As a result, CDC AM owns, directly or indirectly, a controlling
interest in the Manager. CDC AM is 60% owned by CDC Finance, a wholly-owned
subsidiary of Caisse des depots et Consignations ("CDC"). Founded in 1816, CDC
is a major diversified financial institution. In addition to its 60% ownership
of CDC AM through CDC Finance, CDC owns 40% of CNP Assurances, the leading
French insurance company, which itself owns 20% of CDC AM. CDC also owns 35% of
Caisse National des Caisses d'Epargne, which also owns 20% of CDC AM. CDC is
100% owned by the French state.
Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through seventeen subsidiaries,
divisions and affiliates offering a wide array of investment styles and products
to institutional clients. Its business units, in addition to the Manager,
include
16
<PAGE>
AEW Capital Management, L.P., Back Bay Advisors, L.P.; Capital Growth Management
Limited Partnerships; Greystone Partners, L.P.; Harris Associates, L.P.; Jurika
& Voyles, L.P.; Kobrick Funds, LLP, Loomis, Sayles & Company, L.P.; New England
Funds, L.P.; Nvest Associates, Inc.; Snyder Capital Management, L.P.; Vaughan,
Nelson, Scarborough & McCullough, L.P.; and Westpeak Investment Advisors, L.P.
These affiliates in the aggregate are investment advisors or managers to more
than 80 other registered investment companies.
The Nvest-CDC AM transaction involved a change of ownership of Nvest Companies,
which may be deemed to have caused a "change of control" of the Manager, even
though operations did not change as a result. As required by the 1940 Act, the
Fund's shareholders approved a new Investment Management Contract for the Fund
to assure that there was no interruption in the services that the Manager
provides to the Fund. The new Investment Management Contract was approved by the
shareholders on October 10, 2000 and is effective as of October 30, 2000.
On July 25, 2000, the Board of Directors, including a majority of the directors
who are not interested persons (as defined in the 1940 Act) of the Fund or the
Manager, approved the Investment Management Contract for an initial term of two
years, extending to April 30, 2002. The contract may be continued in force after
the initial term for successive twelve-month periods beginning each May 1,
provided that such majority vote of the Fund's outstanding voting securities or
by a majority of the directors who are not parties to the Investment Management
Contract or interested persons of any such party, by votes cast in person at a
meeting called for the purpose of voting on such matter.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund.
The Manager provides persons satisfactory to the Board of Directors of the Fund
to serve as officers of the Fund. Such officers, as well as certain other
employees and directors of the Fund, may be directors or officers of NEIC, the
sole general partner of the Manager, or employees of the Manager or its
affiliates.
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.
Under the Investment Management Contract, the Manager receives from the Fund a
fee (the "Management Fee") equal to .30% per annum of the Fund's average daily
net assets. The fees are accrued daily and paid monthly. The Manager, at its
discretion, may voluntarily waive all or a portion of the Management Fee.
For the Fund's fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997, the fee paid to the Manager under the Investment Management Contract
was $488,550, $723,784 and $572,090, respectively. The Fund's net assets at the
close of business on October 31, 1999 totaled $153,594,069. The Manager at its
discretion 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.
Pursuant to the Administrative Services Contract with the Fund, the Manager also
performs clerical, accounting supervision, office service and related functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of accounting related services by Investors Fiduciary Trust Company,
the Fund's bookkeeping or recordkeeping agent, (ii) prepare reports to and
filings with regulatory authorities, and (iii) perform such other services as
the Fund may from time to time request of the Manager. The personnel rendering
such services may be employees of the Manager, of its affiliates or of other
organizations. For its services under the Administrative Services Contract, the
Manager receives from the Fund a fee (the "Administrative Services Fee") equal
to .21% per annum of the Fund's average daily net assets. For the Funds' fiscal
years ended October 31, 1999, October 31, 1998 and October 31, 1997, the Manager
received a fee of $341, 985, $506,649 and $400,463.
Investment management fees and operating expenses which are attributable to all
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 and Chase Vista
Select shareholders pursuant to the Plan shall be compensated by the Distributor
from its own resources which includes the shareholder servicing fee and past
profits, and the Manager from its own resources which includes the Management
Fee and past profits. Expenses incurred in the distribution of Class B shares
and the servicing of Class B shares shall be paid by the Manager.
-17-
<PAGE>
Expense Limitation
The Manager has agreed, pursuant to the Investment Management Contract, (see
"Distribution and Service Plan" herein) to reimburse the Fund for its expenses
(exclusive of interest, taxes, brokerage and extraordinary expenses) which in
any year exceed the limits on investment company expenses prescribed by any
state in which the Fund's shares are qualified for sale. For the purpose of this
obligation to reimburse expenses, the Fund's annual expenses are estimated and
accrued daily, and any appropriate estimated payments are made to it on a
monthly basis. Subject to the obligations of the Manager to reimburse the Fund
for its excess expenses as described above, the Fund has, under the Investment
Management Contract, confirmed its obligation for payment of all its other
expenses. This includes all operating expenses, taxes, brokerage fees and
commissions, commitment fees, certain insurance premiums, interest charges and
expenses of the custodian, transfer agent and dividend disbursing agent's fees,
telecommunications expenses, auditing and legal expenses, bookkeeping agent
fees, costs of forming the corporation and maintaining corporate existence,
compensation of directors, officers and employees of the Fund and costs of other
personnel performing services for the Fund who are not officers of the Manager
or its affiliates, costs of investor services, shareholders' reports and
corporate meetings, SEC registration fees and expenses, state securities laws
registration fees and expenses, expenses of preparing and printing the Fund's
prospectus for delivery to existing shareholders and of printing application
forms for shareholder accounts, and the fees and reimbursements payable to the
Manager under the Investment Management Contract and the Distributor under the
Shareholder Servicing Agreement.
The Fund may from time to time hire its own employees or contract to have
management services performed by third parties (including Participating
Organizations) as discussed herein. The management of the Fund intends to do so
whenever it appears advantageous to the Fund. The Fund's expenses for employees
and for such services are among the expenses subject to the expense limitation
described above.
Distribution And Service Plan
The Fund's distributor is Reich & Tang Distributors, Inc., a Delaware
corporation with principal officers at 600 Fifth Avenue, New York, New York
10020. Pursuant to Rule 12b-1 under the 1940 Act, the SEC requires that an
investment company which bears any direct or indirect expense of distributing
its shares must do so only in accordance with a plan permitted by the Rule. The
Fund's Board of Directors has adopted a distribution and service plan (the
"Plan") and, pursuant to the Plan, the Fund has entered into a Distribution
Agreement and a Shareholder Servicing Agreement (with respect to the Class A and
Chase Vista Select shares) with Reich & Tang Distributors, Inc., (the
"Distributor"), as distributor of the Fund's shares.
The Class A and Chase Vista Select shares will be offered to investors who
desire certain additional shareholder services from Participating Organizations.
These Participating Organizations are compensated by the Fund's Manager and
Distributor for such services. For its services under the Shareholder Servicing
Agreement (with respect to the Class A and Chase Vista Select shares), the
Distributor receives from the Fund a fee equal to .20% per annum of the Fund's
average daily net assets of the Class A and Chase Vista Select shares of the
Fund (the "Shareholder Servicing Fee"). The fee is accrued daily and paid
monthly and any portion of the fee may be deemed to be used by the Distributor
for purposes of distribution of the Fund's Class A and Chase Vista Select shares
and for payments to Participating Organizations with respect to servicing their
clients or customers who are Class A and Chase Vista Select shareholders of the
Fund. The Class B shareholders will not receive the benefit of such services
from Participating Organizations and, therefore, will not be assessed a
Shareholder Servicing Fee.
With respect to the Class A shares, for the Fund's fiscal year ended October 31,
1999, the amount payable to the Distributor under the Distribution Plan and
Shareholder Servicing Agreement adopted thereunder pursuant to Rule 12b-1 under
the 1940 Act totaled $292,760. During the same period, the Manager made total
payments under the Plan to or on behalf of Participating Organizations of
$596,017. Of the total amount paid pursuant to the Plan, $8,936 was utilized for
compensation to sales personnel, $1,722 on Travel & Entertainment for sales
personnel, $3,720 on Prospectus printing and $575 on Miscellaneous expenses. For
the Fund's fiscal year ended October 31, 1998, the amount payable to the
Distributor under the Distribution Plan and Shareholder Servicing Agreement
adopted thereunder pursuant to Rule 12b-1 under the 1940 Act, totaled $478,895.
During the same period, the Manager made total payments under the plan to or on
behalf of Participating Organizations of $1,000,600. Of the total amount paid
pursuant to the Plan, $7,090 was utilized for compensation to sales personnel,
$4,686 on Travel & Entertainment for sales personnel, $8,884 on Prospectus
printing and $902 on Miscellaneous expenses. For the Fund's fiscal year ended
October 31, 1997, the amount payable to the Distributor under the Distribution
Plan and Shareholder Servicing Agreement
-18-
<PAGE>
adopted thereunder pursuant to Rule 12b-1 under the 1940 Act totaled $380,685.
During the same period, the Manager made total payments under the plan to or on
behalf of Participating Organizations of $789,346. Of the total amount paid
pursuant to the Plan, $11,728 was utilized for compensation to sales personnel,
$3,054 on Travel & Entertainment for sales personnel, $21,109 on Prospectus
printing and $819 on Miscellaneous expenses. The excess of such payments over
the total payments the Distributor received from the Fund under the Plan
represents distribution and servicing expenses funded by the Manager from its
own resources including the management fee. For the fiscal year ended October
31, 1999, the total amount spent pursuant to the Plan for Class A shares was
.42% of the average daily net assets of the Fund, of which .20% of the average
daily net assets was paid by the Fund to the Distributor, pursuant to the
Shareholder Servicing Agreement, and an amount representing .22% was paid by the
Manager (which may be deemed an indirect payment by the Fund).
With respect to the Chase Vista Select shares for the Fund's fiscal year ended
October 31, 1999, the amount payable to the Distributor under the Distribution
Plan and Shareholder Servicing Agreement adopted thereunder pursuant to Rule
12b-1 under the 1940 Act totaled $26,134. During the same period, the Manager
made total payments under the Plan to or on behalf of Participating
Organizations of $52,257. Of the total amount paid pursuant to the Plan, $0 was
utilized for compensation to sales personnel, $0 on Travel & Entertainment for
sales personnel, $0 on Prospectus printing and $0 on Miscellaneous expenses. For
the fiscal year ended October 31, 1999, the total amount spent pursuant to the
Plan for Chase Vista Select shares was .40% of the average daily net assets of
the Fund, of which .20% of the average daily net assets was paid by the Fund to
the Distributor, pursuant to the Shareholder Servicing Agreement, and an amount
representing .20% was paid by the Manager (which may be deemed an indirect
payment by the Fund).
Under the Distribution Agreement, the Distributor, for nominal consideration
(i.e., $1.00) and as agent for the Fund, will solicit orders for the purchase of
the Fund's shares, provided that any subscriptions and orders will not be
binding on the Fund until accepted by the Fund as principal.
The Plan and the Shareholder Servicing Agreement provide that, the Distributor
will pay for (i) telecommunications expenses, including the cost of dedicated
lines and CRT terminals, incurred by the Participating Organizations and
Distributor in carrying out their obligations under the Shareholder Servicing
Agreement with respect to the Class A and Chase Vista Select shares and (ii)
preparing, printing and delivering the Fund's prospectus to existing
shareholders of the Fund and preparing and printing subscription application
forms for shareholder accounts.
The Plan provides that the Manager may make payments from time to time from its
own resources, which may include the management fee, and past profits for the
following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements for performing shareholder servicing and related
administrative functions on behalf of the Class A and Chase Vista Select shares
of the Fund, (ii) to compensate certain Participating Organizations for
providing assistance in distributing the Fund's shares, and (iii) to pay the
costs of printing and distributing the Fund's Prospectus to prospective
investors, and to defray the cost of the preparation and printing of brochures
and other promotional materials, mailings to prospective shareholders,
advertising, and other promotional activities, including the salaries and/or
commissions of sales personnel in connection with the distribution of the Fund's
shares. The Distributor may also make payments from time to time from its own
resources, which may include the Shareholder Servicing Fee and past profits for
the purpose enumerated in (i) above. The Distributor determines the amount of
such payments made pursuant to the Plan, provided that such payments will not
increase the amount which the Fund is required to pay to the Manager or the
Distributor for any fiscal year under the Investment Management Contract or the
Shareholder Servicing Agreement in effect for that year.
In accordance with Rule 12b-1, the Plan provides that all written agreements
relating to the Plan entered into between either the Fund or the Distributor and
Participating Organizations or other organizations must be in a form
satisfactory to the Fund's Board of Directors. In addition, the Plan requires
the Fund and the Distributor to prepare, at least quarterly, written reports
setting forth all amounts expended for distribution purposes by the Fund and the
Distributor pursuant to the Plan and identifying the distribution activities for
which those expenditures were made.
The Plan provides that it will remain in effect until July 31, 2000. Thereafter
it may continue in effect for successive annual periods commencing August 1,
provided it is approved by the shareholders or by the Board of Directors. This
includes a majority of directors who are not interested persons of the Fund and
who have no direct or indirect interest in the operation of the Plan or in the
agreements related to the Plan. The Plan further provides that it may not be
amended to increase materially the costs which may be spent by the Fund
-19-
<PAGE>
for distribution pursuant to the Plan without shareholder approval, and the
other material amendments must be approved by the directors in the manner
described in the preceding sentence. The Plan may be terminated at any time by a
vote of a majority of the disinterested directors of the Fund or the Fund's
shareholders.
Custodian And Transfer Agent
State Street Kansas City, 801 Pennsylvania, Kansas City, Missouri 64105, is
custodian for the Fund's cash and securities. Reich & Tang Services, Inc., an
affiliate of the Fund's Manager, located at 600 Fifth Avenue, New York, NY
10020, is transfer agent and dividend agent for the shares of the Fund. The
custodian and transfer agents do not assist in, and are not responsible for,
investment decisions involving assets of the Fund.
Counsel and Independent Accountants
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Battle Fowler LLP, 75 East 55th Street, New York, New York 10022.
Matters in connection with New Jersey law are passed upon by Sills Cummis Radin
Tischman Epstein & Gross, P.A., The Legal Center, One Riverfront Plaza, Newark,
New Jersey 07102.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, independent certified public accountants, have been selected as
independent accountants for the Fund.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
The Fund's purchases and sales of portfolio securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Thus, the Fund will select a broker
for such a transaction based upon which broker can effect the trade at the best
price and execution available. Purchases from underwriters of portfolio
securities include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price. The Fund purchases Participation
Certificates in variable rate Municipal Obligations with a demand feature from
banks or other financial institutions at a negotiated yield to the Fund based on
the applicable interest rate adjustment index for the security. The interest
received by the Fund is net of a fee charged by the issuing institution for
servicing the underlying obligation and issuing the Participation Certificate,
letter of credit, guarantee or insurance and providing the demand repurchase
feature.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. No preference in purchasing portfolio securities will
be given to banks or dealers that are Participating Organizations.
Investment decisions for the Fund are made independently from those for any
other investment companies or accounts that may be or become managed by the
Manager or its affiliates. If, however, the Fund and other investment companies
or accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In some cases, this policy might adversely
affect the price paid or received by the Fund or the size of the position
obtainable for the Fund. In addition, when purchases or sales of the same
security for the Fund and for other investment companies managed by the Manager
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantage available to large denomination purchasers or
sellers.
No portfolio transactions are executed with the Manager or its affiliates acting
as principal. In addition, the Fund will not buy bankers' acceptances,
certificates of deposit or commercial paper from the Manager or its affiliates.
VII. CAPITAL STOCK AND OTHER SECURITIES
The authorized capital stock of the Fund consists of twenty billion shares of
stock having a par value of one tenth of one cent ($.001) per share. The Fund's
Board of Directors is authorized to divide the shares into separate series of
stock, one for each of the portfolios that may be created. Each share of any
series of
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<PAGE>
shares when issued has 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 three classes of common stock,
Class A, Class B and Chase Vista Select. Each share, regardless of class,
represents an interest in the same portfolio of investments and has identical
voting, dividend, liquidation and other rights, preferences, powers,
restrictions, limitations, qualifications, designations and terms and
conditions, except: (i) the Class A, Class B and Chase Vista Select shares have
different class designations, (ii) only the Class A and Chase Vista Select
shares are assessed a service fee pursuant to the Rule 12b-1 Distribution and
Service Plan of the Fund of .20% of each Class' shares' average daily net
assets, (iii) only the holders of the Class A and Chase Vista Select shares are
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
permits stockholders to exchange their shares only for shares of the same class
of an investment company that participates on an exchange privilege program with
the Fund. Payments that are made under the Plan will be calculated and charged
daily to the appropriate class prior to determining daily net asset value per
share and dividends/distributions.
Under its amended Articles of Incorporation, the Fund has the right to redeem
for cash shares of stock owned by any shareholder to the extent and at such
times as the Fund's Board of Directors determines to be necessary or appropriate
to prevent an undue concentration of stock ownership which would cause the Fund
to become a "personal holding company" for Federal income tax purposes. In this
regard, the Fund may also exercise its right to reject purchase orders.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so. In
that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. Unless specifically requested by an
investor, the Fund will not issue certificates evidencing Fund shares.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
or special meetings only (i) for the election (or re-election) of directors,
(ii) for approval of the revised investment advisory contracts with respect to a
particular class or series of stock, (iii) for approval of the Fund's
distribution agreement with respect to a particular class or series of stock,
and (iv) upon the written request of shareholders entitled to cast not less than
25% of all the votes entitled to be cast at such meeting. Annual and other
meetings may be required with respect to such additional matters relating to the
Fund as may be required by the 1940 Act, including the removal of Fund
director(s) and communication among shareholders, any registration of the Fund
with the SEC or any state, or as the directors may consider necessary or
desirable. Each director serves until his successor is elected or qualified or
until such director sooner dies, resigns, retires or is removed by the vote of
the shareholders.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
The material relating the purchase, redemption and pricing of Fund shares for
each class of shares is located in the Shareholder Information section of each
Prospectus and is hereby incorporated by reference.
Net Asset Value
The Fund does not determine net asset value per share of each Class on any day
in which the New York Stock Exchange is closed for trading. Those days include:
New Year's Day, Martin Luther King Jr. 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 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. If fluctuating interest
rates cause
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<PAGE>
the market value of the Fund's portfolio to deviate more than 1/2 of 1% from the
value determined on the basis of amortized cost, the Board of Directors will
consider whether any action should be initiated, as described in the following
paragraph. Although the amortized cost method provides certainty in valuation,
it may result in periods during which the value of an instrument is higher or
lower than the price an investment company would receive if the instrument were
sold.
The Fund's Board of Directors has established procedures to stabilize the Fund's
net asset value at $1.00 per share of each Class. These procedures include a
review of the extent of any deviation of net asset value per share, based on
available market rates, from the Fund's $1.00 amortized cost per share of each
Class. Should that deviation exceed 1/2 of 1%, the Board will consider whether
any action should be initiated to eliminate or reduce material dilution or other
unfair results to shareholders. Such action may include redemption of shares in
kind, selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
remaining maturity greater than 397 days, will limit portfolio investments,
including repurchase agreements, to those United States dollar-denominated
instruments that the Fund's Board of Directors determines present minimal credit
risks, and will comply with certain reporting and record keeping procedures. The
Fund has also established procedures to ensure compliance with the requirement
that portfolio securities are Eligible Securities. (See "Description of the Fund
and its Investments and Risks" herein.)
IX. TAXATION OF THE FUND
Federal Income Taxes
The purchase of Fund shares will be the purchase of an asset. Dividends paid by
the Fund that are designated by the Fund and derived from Municipal Obligations
and Participation Certificates, will be exempt from regular Federal income tax,
provided the Fund complies with Section 852(b)(5) of the Internal Revenue Code,
but may be subject to Federal alternative minimum tax. These dividends are
referred to as exempt interest dividends. Income exempt from Federal income tax
may be subject to state and local income tax.
The Fund may invest a portion of its assets in taxable securities the interest
income on which is subject to Federal, state and local income tax. Dividends
paid from taxable income, if any, and distributions of any realized short-term
capital gains (from tax-exempt or taxable obligations) are taxable to
shareholders as ordinary income, whether received in cash or reinvested in
additional shares of the Fund.
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 to
determine the amount of Social Security benefits includible in gross income.
Interest on certain personal private activity bonds 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 tax-exempt interest)
exceed their alternative minimum taxable income (determined without this tax
item). In certain cases Subchapter S corporations with accumulated earnings and
profits from Subchapter C years will be subject to a tax on tax-exempt interest.
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. The Fund will inform shareholders of the amount and nature
of its income and gains in a written notice mailed to shareholders not later
than 60 days after the close of the Fund's taxable year.
The sale, exchange or redemption of shares will generally be the taxable
disposition of an asset that may result in a taxable gain or loss for the
shareholder if the shareholder receives more or less than it paid for its
shares. An exchange pursuant to the exchange privilege is treated as a sale on
which the shareholder may realize a taxable gain or loss.
With respect to variable rate demand instruments, including Participation
Certificates therein, the Fund is relying on the opinion of Battle Fowler LLP,
counsel to the Fund, that it will be treated for Federal income tax purposes as
the owner of an interest in the underlying Municipal Obligations and that the
interest thereon will be exempt from regular Federal income taxes to the Fund to
the same extent as the interest on the underlying Municipal Obligations. Battle
Fowler LLP has pointed out that the Internal Revenue Service has announced it
will not ordinarily issue advance rulings on the question of the ownership of
securities or participation interests therein subject to a put and could reach a
conclusion different from that reached by counsel.
-22-
<PAGE>
The United States Supreme Court has held that there is no constitutional
prohibition against the Federal government's taxing the interest earned on state
or other municipal bonds. The decision does not, however, affect the current
exemption from taxation of the interest earned on the Municipal Obligations.
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: (i) such fund is an investment company registered with the
SEC 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 (ii) 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 Radin Tischman
Epstein & Gross, P.A., special New Jersey tax counsel to the Fund, (i) assuming
that the Fund constitutes a qualified investment fund, (a) distributions paid by
the Fund to a New Jersey resident individual shareholder will not be subject to
the New Jersey gross income tax to the extent that the distributions are
attributable to income received as interest on or gain from New Jersey Municipal
Obligations or Territorial Municipal Obligations, and (b) gain from the sale of
shares in the Fund by a New Jersey resident individual shareholder will not be
subject to New Jersey gross income tax and (ii) 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
interest earned on Federal obligations.
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.
X. UNDERWRITERS
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a sales charge. The Distributor does not receive an
underwriting commission. In effecting sales of Fund shares under the
Distribution Agreement, the Distributor, for nominal consideration (i.e., $1.00)
and as agent for the Fund, solicits orders for the purchase of the Fund's
shares, provided that any subscriptions and orders are not binding on the Fund
until accepted by the Fund as principal.
The Glass-Steagall Act and other applicable laws and regulations prohibit banks
and other depository institutions from engaging in the business of underwriting,
selling or distributing most types of securities. In the opinion of the Manager,
however, based on the advice of counsel, these laws and regulations do not
prohibit such depository institutions from providing other services for
investment companies such as the shareholder servicing and related
administrative functions referred to above. The Fund's Board of Directors will
consider appropriate modifications to the Fund's operations, including
discontinuance of any payments then being made under the Plan to banks and other
depository institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to provide the
above-mentioned services. It is not anticipated that the discontinuance of
payments to such an institution will result in loss to shareholders or change in
the Fund's net asset value. In addition, state securities laws on this issue may
differ from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register ad dealers pursuant to state
law.
XI. CALCULATION OF PERFORMANCE DATA
The Fund calculates a seven-day yield quotation using a standard method
prescribed by the rules of the SEC. Under that method, the Fund's yield figure,
which is based on a chosen seven-day period, is computed as follows: the Fund's
return for the seven-day period is obtained by dividing the net change in the
value of a
-23-
<PAGE>
hypothetical account having a balance of one share at the beginning of the
period by the value of such account at the beginning of the period (expected to
always be $1.00). This is multiplied by (365/7) with the resulting annualized
figure carried to the nearest hundredth of one percent. For purposes of the
foregoing computation, the determination of the net change in account value
during the seven-day period reflects (i) dividends declared on the original
share and on any additional shares, including the value of any additional shares
purchased with dividends paid on the original share, and (ii) fees charged to
all shareholder accounts. Realized capital gains or losses and unrealized
appreciation or depreciation of the Fund's portfolio securities are not included
in the computation. Therefore, annualized yields may be different from effective
yields quoted for the same period.
The Fund's "effective yield" for each Class is obtained by adjusting its
"current yield" to give effect to the compounding nature of the Fund's
portfolio, as follows: the unannualized base period return is compounded and
brought out to the nearest one hundredth of one percent by adding one to the
base period return, raising the sum to a power equal to 365 divided by 7, and
subtracting one from the result, i.e., effective yield = [(base period return +
1)365/7] - 1.
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day. The Fund's yield for any given period is not an indication, or
representation by the Fund, of future yields or rates of return on the Fund's
shares, and may not provide a basis for comparison with bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors who
purchase the Fund's shares directly may realize a higher yield than Participant
Investors because they will not be subject to any fees or charges that may be
imposed by Participating Organizations.
The Fund may from time to time advertise its tax equivalent current yield. The
tax equivalent yield for each Class is computed based upon a 30-day (or one
month) period ended on the date of the most recent balance sheet included in
this Statement of Additional Information. It is computed by dividing that
portion of the yield of the Fund (as computed pursuant to the formulae
previously discussed) which is tax exempt by one minus a stated income tax rate
and adding the quotient to that portion, if any, of the yield of the Fund that
is not tax exempt. The tax equivalent yield for the Fund may also fluctuate
daily and does not provide a basis for determining future yields.
The Fund may from time to time advertise a tax equivalent effective yield table
which shows the yield that an investor needs to receive from a taxable
investment in order to equal a tax-free yield from the Fund. This is calculated
by dividing that portion of the Fund's effective yield that is tax-exempt by 1
minus a stated income tax rate and adding the quotient to that portion, if any,
of the Fund's effective yield that is not tax-exempt. See "Taxable Equivalent
Yield Table" herein.
The Fund's Class A shares' yield for the seven day period ended January 31, 2000
was 2.45%, which is equivalent to an effective yield of 2.48%. The Fund's Class
B shares' yield for the seven day period ended January 31, 2000 was 2.65%, which
is equivalent to an effective yield of 2.69%. The Fund's Chase Vista Select
shares' yield for the seven day period ended January 31, 2000 was 2.45%, which
is equivalent to an effective yield of 2.48%.
XII. FINANCIAL STATEMENTS
The audited financial statements for the fiscal year ended October 31, 1999 and
the report therein of PricewaterhouseCoopers LLP are herein incorporated by
reference to the Fund's Annual Report. The Semi-Annual and Annual Reports are
available upon request and without charge.
-24-
<PAGE>
DESCRIPTION OF RATINGS*
Description of Moody's Investors Service, Inc.'s Two Highest Municipal Bond
Ratings:
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Con. ( c ): Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These are bonds
secured by (i) earnings of projects under construction, (ii) earnings of
projects unseasoned in operating experience, (iii) rentals which begin when
facilities are completed, or (iv) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Description of Moody's Investors Service, Inc.'s Two Highest Ratings of State
and Municipal Notes and Other Short-Term Loans:
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used are as follows:
MIG-1: Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2: Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
Description of Standard & Poor's Rating Services Two Highest Debt Ratings:
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only to a small degree.
Plus ( + ) or Minus ( - ): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
Provisional Ratings: The letter "p" indicates 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.
-25-
<PAGE>
INDIVIDUAL TAXABLE EQUIVALENT YIELD TABLE
(Based on Tax Rates Effective Until December 31, 2000)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
-----------------------------------------------------------------------------------------------------------------------------
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------- ------------ ---
Single $0- $20,001 - $26,251 - -- $35,001- $40,001- $63,551- $75,001- $132,601- $288,351
Return $20,000 $26,250 $35,000 -- $40,000 $63,550 $75,000 $132,600 $288,350 and over
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
Joint $0- $20,001- $43,851 - $50,001 - $70,001- $80,001- $105,951- $150,001- $161,451- $283,351
Return $20,000 $43,850 $50,000 $70,000 $80,000 $105,950 $150,000 $161,450 $283,350 and over
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
------------------------------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
------------------------------------------------------------------------------------------------------------------------------------
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
Federal
Tax Rate 15.00% 15.00% 28.00% 28.00% 28.00% 28.00% 31.00% 31.00% 36.00% 39.60%
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
State
Tax Rate 1.40% 1.75% 1.75% 2.45% 3.50% 5.53% 5.53% 6.37% 6.37% 6.37%
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
Combined
Marginal
Tax Rate 16.19% 16.49% 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 Exempt Equivalent Taxable Investment Yield
Yield Required to Match Tax Exempt Yield
------------ -----------------------------------------------------------------------------------------------------------------------
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
2.00% 2.39% 2.39% 2.83% 2.85% 2.88% 2.94% 3.07% 3.10% 3.34% 3.54%
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
2.50% 2.98% 2.99% 3.53% 3.56% 3.60% 3.68% 3.84% 3.87% 4.17% 4.42%
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
3.00% 3.58% 3.59% 4.24% 4.27% 4.32% 4.41% 4.60% 4.64% 5.01% 5.30%
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
3.50% 4.18% 4.19% 4.95% 4.98% 5.04% 5.15% 5.37% 5.42% 5.84% 6.19%
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
4.00% 4.77% 4.79% 5.65% 5.70% 5.76% 5.88% 6.14% 6.19% 6.68% 7.07%
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
4.50% 5.37% 5.39% 6.36% 6.41% 6.48% 6.62% 6.90% 6.97% 7.51% 7.96%
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
5.00% 5.97% 5.99% 7.07% 7.12% 7.20% 7.35% 7.67% 7.74% 8.34% 8.84%
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
5.50% 6.56% 6.59% 7.77% 7.83% 7.92% 8.09% 8.44% 8.51% 9.18% 9.73%
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
6.00% 7.16% 7.18% 8.48% 8.54% 8.64% 8.82% 9.20% 9.29% 10.01% 10.61%
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
6.50% 7.76% 7.78% 9.19% 9.25% 9.36% 9.56% 9.97% 10.06% 10.85% 11.49%
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
7.00% 8.35% 8.38% 9.90% 9.97% 10.07% 10.29% 10.74% 10.84% 11.68% 12.38%
------------ ----------- ----------- --------------------- ----------- ------------ ---------- ------------ ----------- ------------
</TABLE>
To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, to section three, to see the equivalent taxable yields
for each of the tax free income yields given.
-26-
<PAGE>
CORPORATE TAXABLE EQUIVALENT YIELD TABLE
(Based on Tax Rates Effective Until December 31, 2000)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
Corporate $0- $50,001- $75,001- $100,001- $335,001- $10,000,001- $15,000,001- $18,333,334-
Return $50,000 $75,000 $100,000 $335,000 $10,000,000 $15,000,000 $18,333,333 and over
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
--------------------------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
--------------------------------------------------------------------------------------------------------------------------------
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
Federal
Tax Rate 15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00%
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
State
Tax Rate 7.50% 7.50% 7.50% 9.00% 9.00% 9.00% 9.00% 9.00%
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
Combined
Marginal 21.38% 30.63% 38.95% 44.49% 39.94% 40.85% 43.58% 40.85%
Tax Rate
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
--------------------------------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
--------------------------------------------------------------------------------------------------------------------------------
------------- ------------------------------------------------------------------------------------------------------------------
Tax Exempt Equivalent Taxable Investment Yield
Yield Required to Match Tax Exempt Yield
------------- ------------------------------------------------------------------------------------------------------------------
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
2.00% 2.54% 2.88% 3.28% 3.60% 3.33% 3.38% 3.54% 3.38%
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
2.50% 3.18% 3.60% 4.10% 4.50% 4.16% 4.23% 4.43% 4.23%
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
3.00% 3.82% 4.32% 4.91% 5.40% 5.00% 5.07% 5.32% 5.07%
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
3.50% 4.45% 5.05% 5.73% 6.31% 5.83% 5.92% 6.20% 5.92%
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
4.00% 5.09% 5.77% 6.55% 7.21% 6.66% 6.76% 7.09% 6.76%
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
4.50% 5.72% 6.49% 7.37% 8.11% 7.49% 7.61% 7.98% 7.61%
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
5.00% 6.36% 7.21% 8.19% 9.01% 8.33% 8.45% 8.86% 8.45%
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
5.50% 7.00% 7.93% 9.01% 9.91% 9.16% 9.30% 9.75% 9.30%
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
6.00% 7.63% 8.65% 9.83% 10.81% 9.99% 10.14% 10.63% 10.14%
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
6.50% 8.27% 9.37% 10.65% 11.71% 10.82% 10.99% 11.52% 10.99%
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
7.00% 8.90% 10.09% 11.47% 12.61% 11.66% 11.83% 12.41% 11.83%
------------- ----------- ------------- ------------ -------------- -------------- -------------- --------------- --------------
</TABLE>
To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, to section three, to see the equivalent taxable yields
for each of the tax free income yields given.
-27-
