NORTH CAROLINA DAILY MUNICIPAL INCOME FUND INC, 485APOS, 1998-10-30

NORTH CAROLINA DAILY MUNICIPAL INCOME FUND INC
485APOS, 1998-10-30

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As filed with the Securities and Exchange Commission on October 30, 1998
Registration No. 33-41462

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20449

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 8 [X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]

Amendment No. 9 [X]
(Check appropriate box or boxes)

NORTH CAROLINA DAILY MUNICIPAL INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)

c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (212) 830-5200

BERNADETTE N. FINN
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Name and Address of Agent for Service)

Copy to:MICHAEL ROSELLA, ESQ.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022

It is proposed that this filing will become effective: (check appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a) (2)
[ ] on (date) pursuant to paragraph (a) (2) of Rule 485

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

<PAGE>

NORTH CAROLINA DAILY MUNICIPAL INCOME FUND, INC.
Registration Statement on Form N-1A

CROSS REFERENCE SHEET -
Pursuant to Rule 404(c)

PART A
Item No. Prospectus Heading
- -------- ------------------

1. Front and Back Cover Pages . . . . . . Cover Page; Back Page

2. Risk/Return Summary: Investments, Risk/Return Summary: Investments,
Risks, and Performance . . . . . . . . Risks, and Performance

3. Risk/Return Summary: Fee Table. . . . Fee Table

4. Investment Objectives, Principal Investment Objectives, Principal
Investment Strategies, and Related Investment Strategies, and Related
Risks. . . . . . . . . . . . . . . . Risks

5. Management's Discussion of
Fund Performance . . . . . . . . . . . Not Applicable

6. Management, Organization, and Capital Management, Organization, and
Structure . . . . . . . . . . . . . . Capital Structure

7. Shareholder Information. . . . . . . Shareholder Information

8. Distribution Arrangements . . . . . . Distribution Arrangements

9. Financial Highlights Information . . Financial Highlights

<PAGE>

PART B Caption in Statement of
Item No. Additional Information
- -------- ----------------------

10. Cover Page and Table of Contents. . . . Cover Page and Table of Contents

11. Fund History. . . . . . . . . Fund History

12. Description of the Fund and Its Description of the Fund and Its
Investments and Risks. . . . . . . Investments and Risks

13. Management of the Fund . . . . . . Management of the Fund

14. Control Persons and Principal Control Persons and Principal
Holders of Securities. . . . . . . Holders of Securities

15. Investment Advisory and Investment Advisory and
Other Services . . . . . . . . . . Other Services

16. Brokerage Allocation and other Brokerage Allocation and other
Practices. . . . . . . . . . . . . Practices

17. Capital Stock and Capital Stock and
Other Securities . . . . . . . . . Other Securities

18. Purchase, Redemption and Purchase, Redemption and
Pricing of Shares Pricing of Shares

19. Taxation of the Fund . . . . . . . Taxation of the Fund

20. Underwriters . . . . . . . . . . . Underwriters

21. Calculations of Performance Data. . . Calculations of Performance Data

22. Financial Statements. . . . . . . Financial Statements

<PAGE>
- --------------------------------------------------------------------------------
NORTH CAROLINA DAILY MUNICIPAL PROSPECTUS
INCOME FUND, INC. January 2, 1999

Class A Shares; Class B Shares

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

A money market fund whose investment objectives are to seek as high a level
of current income exempt from regular Federal income tax and, to the extent
possible, from North Carolina State income tax, as is believed to be
consistent with preservation of capital, maintenance of liquidity and
stability of principal.

The Securities and Exchange Commission has not approved or passed upon
the adequacy of this prospectus. Any representation to the contrary
is a criminal offense

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

CONTENTS
- --------
Risk/Return Summary............................2 Management, Organization and Capital
Fee Table......................................3 Structure..................................6
Investment Objectives, Principal Shareholder Information......................7
Investment Strategies, Policies Distribution Arrangements...................15
and Related Risks............................4 Financial Highlights........................17

- ----------------------------------------------------------------------------------------------------------------
</TABLE>

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I. RISK/RETURN SUMMARY: INVESTMENTS, RISKS, AND PERFORMANCE

Investment Objectives

The Fund seeks as high a level of current income exempt from regular Federal
income tax and, to the extent possible, North Carolina State income tax, as is
believed to be consistent with preservation of capital, maintenance of
liquidity, and stability of principal. However, current income may be subject to
the Federal alternative minimum tax. There can be no assurance that the Fund
will achieve its investment objectives.

Principal Investment Strategies

The Fund intends to achieve its investment objectives by investing principally
in short-term, high quality, debt obligations of (i) North Carolina, and its
political subdivisions, (ii) Puerto Rico and other United States Territories,
and their political subdivisions, and (iii) other states.

The Fund is a money market fund and seeks to maintain an investment portfolio
with a dollar-weighted average maturity of 90 days or less, to value its
investment portfolio at amortized cost and to maintain a net asset value of
$1.00 per share.

The Fund intends to concentrate (e.g. 25% or more of the Fund's net assets) in
North Carolina municipal obligations, including participation certificates
therein.

Principal Risks

Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund. The value of the
Fund's shares and the securities held by the Fund can each decline in value.

An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other governmental agency.

Because the Fund intends to concentrate (e.g. 25% or more of the Fund's net
assets) in North Carolina municipal obligations, including participation
certificates therein, investors should also consider the greater risk of the
Portfolio's concentration versus the safety that comes with a less concentrated
investment portfolio. In addition, investment in the Fund should be made with an
understanding of the risks which an investment in North Carolina municipal
obligations may entail. Payment of interest and preservation of capital are
dependent upon the continuing ability of North Carolina issuers and/or
obligators of state, municipal and public authority debt obligations to meet
their payment obligations. Risk factors affecting the State of North Carolina
are described in "North Carolina Risk Factors" in the Statement of Additional
Information.

Risk/Return Bar Chart

The following bar chart may assist you in your decision to invest in a portfolio
of the Fund. The bar chart shows the change in the average annual returns of the
Fund over the last 7 calendar years. While analyzing this information, please
note that the Fund's past performance is not an indicator of how the Fund will
perform in the future. The Fund's current 7-day yield may be obtained by calling
the Fund toll-free at 1-800-__________.

[Insert Bar Chart and Footnotes]

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FEE TABLE

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

Annual Fund Operating Expenses Class A shares Class B shares

(expenses that are deducted from Fund assets)

Management Fees 0.40% 0.40%

Distribution and Service (12b-1) Fees 0.25% 0.00%

Other Expenses ____% ____%

Administration Fees 0.21% 0.21%

Fees

Total Annual Fund Operating Expenses ____% ____%

</TABLE>

The Manager voluntarily waived a portion of the Administrative Fees with respect
to both Class A and B shares. After such waivers, the Administrative Fees for
Class A were ___% and for Class B were ___%, and the actual Total Fund Operating
Expenses for Class A were ___% and for Class B were ___%. This fee waiver
arrangement may be terminated at any time at the option of the Fund.

Example
- -------

This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.

Assume that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. Also assume that
your investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

1 year 3 years 5 years 10 years

Class A: $_______ $_______ $_______ $_______

Class B: $_______ $_______ $_______ $_______

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II. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS

Investment Objectives

The Fund is a short-term, tax-exempt money market fund whose investment
objectives are to seek as high a level of current income exempt from regular
Federal income tax and, to the extent possible, from North Carolina State income
tax, consistent with preserving capital, maintaining liquidity and stabilizing
principal.

The investment objectives of the Fund described in this section may only be
changed upon the approval of the holders of a majority of the outstanding shares
of the Fund that would be affected by such a change.

Principal Investment Strategies

Generally

The Fund will invest primarily (i.e., at least 80%) in short-term, high quality,
debt obligations which include:

(i) North Carolina Municipal Obligations issued by or on behalf of the
State of North Carolina or any North Carolina local governments, or
their instrumentalities, authorities or districts;

(ii) Territorial Municipal Obligations issued by or on behalf of Puerto Rico
and the Virgin Islands or their instrumentalities, authorities,
agencies and political subdivisions; and

(iii) Municipal Obligations issued by or on behalf of other states, their
authorities, agencies, instrumentalities and political subdivisions.
These debt obligations are collectively referred to throughout this
Prospectus as Municipal Obligations.

The Fund will also invest in participation certificates in Municipal
Obligations. These "Participation Certificates" are purchased by the Fund from
banks, insurance companies or other financial institutions and in the opinion of
Battle Fowler LLP, counsel to the Fund, cause the Fund to be treated as the
owner of the underlying Municipal Obligations for Federal income tax purposes.

The Fund may invest more than 25% of its assets in Participation Certificates in
North Carolina Municipal Obligations and other North Carolina Municipal
Obligations.

Although the Fund will attempt to invest 100% of its total assets in Municipal
Obligations and Participation Certificates, the Fund reserves the right to
invest up to 20% of its total assets in taxable securities whose interest income
is subject to regular Federal, state and local income tax. The kinds of taxable
securities in which the Fund may invest are limited to short-term, fixed income
securities as more fully described in "Taxable Securities" in the Statement of
Additional Information.

Included in the same 20% of total assets, in taxable securities, the Fund may
also purchase securities and Participation Certificates whose interest income
may be subject to the Federal alternative minimum tax.

To the extent suitable North Carolina Municipal Obligations are not available
for investment by the Fund, the Fund may purchase Municipal Obligations issued
by other states, their agencies and instrumentalities. The interest income from
these Municipal Obligations will be exempt from regular Federal Income tax (in
the opinion of bond counsel to the issuers at the day of issuance), but will be
subject to the North Carolina Income Tax.

The Fund will invest at least 65% of its total assets in North Carolina
Municipal Obligations, although the exact amount may vary from time to time. As
a temporary defensive measure the Fund may, from time to time, invest in
securities that are inconsistent with its principal investment strategies in an
attempt to respond to adverse market, economic, political or other conditions as
determined by the Manager. Such a temporary defensive position may cause the
Fund to not achieve its investment objectives.

With respect to 75% of its total assets, the Fund shall invest not more than 10%
of its total assets in Municipal Obligations or Participation Certificates
issued by a

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<PAGE>

single issuer. The Fund shall not invest more than 5% of its total assets in
Municipal Securities or Participation Certificates issued by a single issuer
unless the Municipal Obligations are of the highest quality.

With respect to 75% of its total assets, the Fund shall invest not more than 10%
of its total assets in Municipal Obligations or Participation Certificates
backed by a demand feature or guarantee from the same institution.

The Fund's investments may also include "when-issued" Municipal Obligations and
stand-by commitments.

The Fund's investment manager considers the following factors when buying and
selling securities for the portfolio: (i) availability of cash, (ii) redemption
requests, (iii) yield management, and (iv) credit management.

In order to maintain a share price of $1.00, the Fund must comply with certain
industry regulations. The Fund will only invest in securities which are
denominated in United States dollars. Other requirements pertain to the maturity
and credit quality of the securities in which the Fund may invest. The Fund will
only invest in securities which have or are deemed to have a remaining maturity
of 397 days or less. Also, the average maturity for all securities contained in
each individual portfolio of the Fund, on a dollar-weighted basis, will be 90
days or less.

The Fund will only invest in either securities which have been rated (or whose
issuers have been rated) in the highest short-term rating category by nationally
recognized statistical rating organizations, or are unrated securities but which
have been determined by the Fund's Board of Directors to be of comparable
quality.

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

For a more detailed description of (i) the securities that the Fund will invest
in, (ii) fundamental investment restrictions, and (iii) industry regulations
governing credit quality and maturity, please refer to the Statement of
Additional Information.

Risks

The Fund complies with industry-standard requirements on the quality, maturity
and diversification of its investments which are designed to help maintain a
$1.00 share price. A significant change in interest rates or a default on the
Fund's investments could cause its share price (and the value of your
investment) to change.

The Fund's management believes that by maintaining the Fund's investment
portfolio in liquid, short-term, high quality investments, including
Participation Certificates and other variable rate demand instruments that have
high quality credit support from banks, insurance companies or other financial
institutions, the Fund is largely insulated from the credit risks that may exist
on long-term North Carolina Municipal Obligations. The Fund is exposed to the
credit risk of the credit or liquidity support provider. Changes in the credit
quality of the provider could affect the value of the security and your
investment in the Fund.

The primary purpose of investing in a portfolio of North Carolina Municipal
Obligations is the special tax treatment accorded North Carolina resident
individual investors. Exempt-interest dividends derived from North Carolina
Municipal Obligations will be exempt from the North Carolina Income Tax.
Exempt-interest dividends derived from Territorial Municipal Obligations also
should be exempt from the North Carolina Income Tax provided the Fund complies
with North Carolina law. Other distributions from the Fund may be subject to
North Carolina Income tax. (See " Tax Consequences" herein.)

Because of the Fund's concentration in investments in North Carolina Municipal
Obligations, the safety of an investment in the Fund will depend substantially
upon the

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<PAGE>

financial strength of North Carolina and its political subdivisions. Payment of
interest and preservation of principal, however, are dependent upon the
continuing ability of the North Carolina issuers and/or obligors of state,
municipal and public authority debt obligations to meet their obligations
thereunder. Investors should consider the greater risk of the Fund's
concentration versus the safety that comes with a less concentrated investment
portfolio and should compare yields available on portfolios of North Carolina
issues with those of more diversified portfolios, including out-of-state issues,
before making an investment decision.

Because the Fund may concentrate in Participation Certificates which may be
secured by bank letters of credit or guarantees, an investment in the Fund
should be made with an understanding of the characteristics of the banking
industry and the risks which such an investment may entail. This includes
extensive governmental regulations, changes in the availability and cost of
capital funds, and general economic conditions (see "Variable Rate Demand
Instruments and Participation Certificates" in the Statement of Additional
Information) which may limit both the amounts and types of loans and other
financial commitments which may be made and interest rates and fees which may be
charged. The profitability of this industry is largely dependent upon the
availability and cost of capital funds for the purpose of financing lending
operations under prevailing money market conditions. Also, general economic
conditions play an important part in the operations of this industry and
exposure to credit losses arising from possible financial difficulties of
borrowers might affect a bank's ability to meet its obligations under a letter
of credit.

As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Manager is in the process of working with the Fund's service
providers to prepare for the year 2000. Based on information currently
available, the Manager does not expect that the Fund will incur material costs
to be year 2000 compliant. Although the Manager does not anticipate that the
year 2000 issue will have a material impact on the Fund's ability to provide
service at current levels, there can be no assurance that steps taken in
preparation for the year 2000 will be sufficient to avoid an adverse impact on
the Fund.

III. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE

The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"). The Manager's principal business office is located at 600 Fifth
Avenue, New York, NY 10020. As of July 31, 1998, the Manager was the investment
manager, advisor or supervisor with respect to assets aggregating in excess of
$11.29 billion. The Manager has been an investment adviser since 1970 and
currently is manager of seventeen other registered investment companies and also
advises pension trusts, profit-sharing trusts and endowments.

Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund. Pursuant to the Investment Management Contract, the Fund pays the
Manager a fee equal to .40% per annum of the Fund's average daily net assets for
managing the Fund's investment portfolio and performing related services.

Pursuant to the Administrative Services Contract, the Manager performs clerical,
accounting supervision and office service functions for the Fund. The Manager
provides the Fund with the personnel to perform all other clerical and
accounting type functions not performed by the Manager. For its services under
the Administrative Services Contract, the Fund pays the Manager a fee equal to
.21% per annum of the Fund's average daily net assets. The Manager, at its
discretion, may voluntarily waive all or a portion of the administrative
services fee. Any portion of the total fees received by the Manager may be used
to provide shareholder services and for distribution of Fund shares.

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<PAGE>

In addition, Reich & Tang Distributors Inc., the Distributor, receives a
servicing fee equal to .25% per annum of the average daily net assets of the
Class A shares of the Fund under the Shareholder Servicing Agreement. The fees
are accrued daily and paid monthly. Investment management fees and operating
expenses, which are attributable to both Classes of shares of the Fund, will be
allocated daily to each Class of shares based on the percentage of shares
outstanding for each Class at the end of the day.

IV. SHAREHOLDER INFORMATION

The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent, who
accepts orders for purchases and redemptions from Participating Organizations
and from investors directly.

Pricing of Fund Shares

The net asset value of each Class of the Fund's shares is determined as of 12
noon, New York City time, on each Fund Business Day. Fund Business Day means
weekdays (Monday through Friday) except days on which the New York Stock
Exchange is closed for trading. 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 intends to maintain a stable net
asset value at $1.00 per share although there can be no assurance that this will
be achieved.

The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium. If fluctuating interest
rates cause the market value of the Fund's portfolio to deviate more than 1/2 of
1% from the value determined on the basis of amortized cost, the Board of
Directors will consider whether any action should be initiated. Although the
amortized cost method provides certainty in valuation, it may result in periods
during which the value of an instrument is higher or lower than the price an
investment company would receive if the instrument were sold.

Shares are issued as of the first determination of the Fund's net asset value
per share for each Class made after acceptance of the investor's purchase order.
In order to maximize earnings on its portfolio, the Fund normally has its assets
as fully invested as is practicable. Many securities in which the Fund invests
require the immediate settlement in funds of Federal Reserve member banks on
deposit at a Federal Reserve Bank (commonly known as "Federal Funds"). The Fund
does not accept a purchase order until an investor's payment has been converted
into Federal Funds and is received by the Fund's transfer agent. Orders
accompanied by Federal Funds and received after 12 noon, New York City time, on
a Fund Business Day will result in the issuance of shares on the following Fund
Business Day. Fund shares begin accruing income on the day the shares are issued
to an investor. The Fund reserves the right to reject any purchase order for its
shares. Certificates for Fund shares will not be issued to an investor.

Purchase of Fund Shares

Investors purchasing shares through a Participating Organization with which they
have an account become Class A shareholders. All other investors, and investors
who have accounts with Participating Organizations but do not wish to invest in
the Fund through them, may invest in the Fund directly as Class B shareholders
of the Fund. Class B shareholders do not receive the benefit of the servicing
functions performed by a Participating Organization. Class B shares may also be
offered to investors who purchase their shares through Participating
Organizations who, because they may not be legally permitted to receive such as
fiduciaries, do not receive compensation from the Distributor or the Manager.

The minimum initial investment in the Fund for both classes of shares is (i)
$1,000 for purchases through

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<PAGE>

Participating Organizations - this may be satisfied by initial investments
aggregating $1,000 by a Participating Organization on behalf of their customers
whose initial investments are less than $1,000; (ii) $1,000 for securities
brokers, financial institutions and other industry professionals that are not
Participating Organizations and (iii) $5,000 for all other investors. Initial
investments may be made in any amount in excess of the applicable minimums. The
minimum amount for subsequent investments is $100 unless the investor is a
client of a Participating Organization whose clients have made aggregate
subsequent investments of $100.

Each shareholder, except certain Participant Investors, will receive from the
Fund a personalized monthly statement (i) listing the total number of Fund
shares owned as of the statement closing date, (ii) purchase and redemptions of
Fund shares and (iii) the dividends paid on Fund shares (including dividends
paid in cash or reinvested in additional Fund shares).

Investments Through Participating

Organizations - Purchase of Class A Shares

Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks and financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the Distributor with respect to investment of their
customer accounts in the Fund. When instructed by its customer to purchase or
redeem Fund shares, the Participating Organization, on behalf of the customer,
transmits to the Fund's transfer agent a purchase or redemption order, and in
the case of a purchase order, payment for the shares being purchased.

Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Fund shares for the customers'
accounts. Also, Participating Organizations may send their customers periodic
account statements showing the total number of Fund shares owned by each
customer as of the statement closing date, purchases and redemptions of Fund
shares by each customer during the period covered by the statement and the
income earned by Fund shares of each customer during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Participant Investors whose Participating Organizations have not undertaken to
provide such statements will receive them from the Fund directly.

Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly, may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Fund directly. A Participant Investor should read
this Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Fund shares may be purchased
and redeemed through the Participating Organization.

In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 12 noon, New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day only if the Federal Funds required in connection with the orders are
received by the Fund's transfer agent before 4:00 p.m., New York City time, on
that day. Orders for which Federal Funds are received after 4:00 p.m., New York
City time, will result in share issuance the following Fund Business Day.
Participating Organizations are responsible for instituting procedures to insure
that purchase orders by their respective clients are processed expeditiously.

Initial Direct Purchases of Class B Shares

Investors who wish to invest in the Fund directly may obtain a current
prospectus and the subscription order form necessary to open an account by
telephoning the Fund at the following numbers:

Within New York 212-830-5220

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<PAGE>

Outside New York (TOLL FREE) 800-221-3079

Mail

Investors may send a check made payable to "North Carolina Daily Municipal
Income Fund, Inc." along with a completed subscription order form to:

North Carolina Daily Municipal
Income Fund, Inc.
Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020

Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member of the Federal Reserve System
will normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a non-member bank may take substantially
longer to convert into Federal Funds. An investor's purchase order will not be
accepted until the Fund receives Federal Funds.

Bank Wire

To purchase shares of the Fund using the wire system for transmittal of money
among banks, investors should first obtain a new account number by telephoning
the Fund at 212-830-5220 (within New York) or at 800-221-3079 (outside New York)
and then instruct a member commercial bank to wire money immediately to:

Investors Fiduciary Trust Company
ABA # 101003621
Reich & Tang Funds
DDA # 890752-954-6
For North Carolina Daily Municipal
Income Fund, Inc.
Account of (Investor's Name)
Fund Account # 0827
SS#/Tax ID#

The investor should then promptly complete and mail the subscription order form.

Investors planning to wire funds should instruct their bank early in the day so
the wire transfer can be accomplished before 12 noon, New York City time, on the
same day. There may be a charge by the investor's bank for transmitting the
money by bank wire, and there also may be a charge for use of Federal Funds. The
Fund does not charge investors in the Fund for its receipt of wire transfers.
Payment in the form of a "bank wire" received prior to 12 noon, New York City
time, on a Fund Business Day will be treated as a Federal Funds payment received
on that day.

Personal Delivery

Deliver a check made payable to "North Carolina Daily Municipal Income Fund,
Inc." along with a completed subscription order form to:

Reich & Tang Mutual Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020

Electronic Funds Transfers (EFT), Pre-authorized Credit and Direct Deposit
Privilege

You may purchase shares of the Fund (minimum of $100) by having salary, dividend
payments, interest payments or any other payments designated by you, federal
salary, social security, or certain veteran's, military or other payments from
the federal government, automatically deposited into your Fund account. You can
also have money debited from your checking account. To enroll in any one of
these programs, you must file with the Fund a completed EFT Application,
Pre-authorized Credit Application, or a Direct Deposit Sign-Up Form for each
type of payment that you desire to include in the Privilege. The appropriate
form may be obtained from your broker or the Fund. You may elect at any time to
terminate your participation by notifying in writing the appropriate depositing
entity and/or federal agency. Death or legal incapacity will automatically
terminate your participation in the Privilege. Further, the Fund may terminate
your participation upon 30 days' notice to you.

Subsequent Purchases of Shares

Subsequent purchases can be made by bank wire, as indicated above, or by mailing
a check to:

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<PAGE>

North Carolina Daily Municipal
Income Fund, Inc.
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232

There is a $100 minimum for subsequent purchases of shares. All payments should
clearly indicate the shareholder's account number.

Provided that the information on the subscription form on file with the Fund is
still applicable, a shareholder may reopen an account without filing a new
subscription order form at any time during the year the shareholder's account is
closed or during the following calendar year.

Redemption of Shares

A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share of each
Class upon receipt by the Fund's transfer agent of the redemption order (and any
supporting documentation which it may require). Normally, payment for redeemed
shares is made on the same Fund Business Day after the redemption is effected,
provided the redemption request is received prior to 12 noon, New York City
time. However, redemption payments will not be effected unless the check
(including a certified or cashier's check) used for investment has been cleared
for payment by the investor's bank, which could take up to 15 days after
investment. Shares redeemed are not entitled to participate in dividends
declared on the day a redemption becomes effective.

A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee.

When a signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature. It should be signed and guaranteed by
an eligible guarantor institution which includes a domestic bank, a domestic
savings and loan institution, a domestic credit union, a member bank of the
Federal Reserve system or a member firm of a national securities exchange,
pursuant to the Fund's transfer agent's standards and procedures.

Written Requests

Shareholders may make a redemption in any amount by sending a written request to
the Fund addressed to:

North Carolina Daily Municipal
Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020

All previously issued certificates submitted for redemption must be endorsed by
the shareholder and all written requests for redemption must be signed by the
shareholder, in each case with signature guaranteed.

Normally the redemption proceeds are paid by check and mailed to the shareholder
of record.

Checks

By making the appropriate election on their subscription order form,
shareholders may request a supply of checks which may be used to effect
redemptions from the Class of shares of the Fund in which they invest. The
checks, which will be issued in the shareholder's name, are drawn on a special
account maintained by the Fund with the Fund's agent bank. Checks may be drawn
in any amount of $250 or more. When a check is presented to the Fund's agent
bank, it instructs the Fund's transfer agent to redeem a sufficient number of
full and fractional shares in the shareholder's account to cover the amount of
the check. The use of a check to make a withdrawal enables a shareholder in the
Fund to receive dividends on the shares to be redeemed up to the Fund Business
Day on which the check clears. Checks provided by the Fund may not be certified.
Fund shares purchased by

-10-
<PAGE>

check may not be redeemed by check until the check has cleared, which can take
up to 15 days following the date of purchase.

There is no charge to the shareholder for checks provided by the Fund. The Fund
reserves the right to impose a charge or impose a different minimum check amount
in the future, if the Board of Directors determines that doing so is in the best
interests of the Fund and its shareholders.

Shareholders electing the checking option are subject to the procedures, rules
and regulations of the Fund's agent bank governing checking accounts. Checks
drawn on a jointly owned account may, at the shareholder's election, require
only one signature. Checks in amounts exceeding the value of the shareholder's
account at the time the check is presented for payment will not be honored.
Since the dollar value of the account changes daily, the total value of the
account may not be determined in advance and the account may not be entirely
redeemed by check. In addition, the Fund reserves the right to charge the
shareholder's account a fee up to $20 for checks not honored as a result of an
insufficient account value, a check deemed not negotiable because it has been
held longer than six months, an unsigned check and/or a post-dated check. The
Fund reserves the right to terminate or modify the check redemption procedure at
any time or to impose additional fees following notification to the Fund's
shareholders.

Corporations and other entities electing the checking option are required to
furnish a certified resolution or other evidence of authorization in accordance
with the Fund's normal practices. Individuals and joint tenants are not required
to furnish any supporting documentation. Appropriate authorization forms will be
sent by the Fund or its agents to corporations and other shareholders who select
this option. As soon as the authorization forms are filed in good order with the
Fund's agent bank, it will provide the shareholder with a supply of checks.

Telephone

The Fund accepts telephone requests for redemption from shareholders who elect
this option on their subscription order form. The proceeds of a telephone
redemption may be sent to the shareholders at their addresses or, if in excess
of $1,000, to their bank accounts, both as set forth in the subscription order
form or in a subsequent written authorization. The Fund may accept telephone
redemption instructions from any person with respect to accounts of shareholders
who elect this service and thus such shareholders risk possible loss of
principal and interest in the event of a telephone redemption not authorized by
them. The Fund will employ reasonable procedures to confirm that telephone
redemption instructions are genuine, and will require that shareholders electing
such option provide a form of personal identification. Failure by the Fund to
employ such reasonable procedures may cause the Fund to be liable for the losses
incurred by investors due to unauthorized or fraudulent telephone redemptions.

A shareholder making a telephone withdrawal should call the Fund at
212-830-5220; outside New York at 800-221-3079, and state: (i) the name of the
shareholder appearing on the Fund's records; (ii) the shareholder's account
number with the Fund; (iii) the amount to be withdrawn; (iv) whether such amount
is to be forwarded to the shareholder's designated bank account or address; and
(v) the name of the person requesting the redemption. Usually the proceeds are
sent to the designated bank account or address on the same Fund Business Day the
redemption is effected, provided the redemption request is received before 12
noon, New York City time. Proceeds are sent the next Fund Business Day if the
redemption request is received after 12 noon, New York City time. The Fund
reserves the right to terminate or modify the telephone redemption service in
whole or in part at any time and will notify shareholders accordingly.

There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are given
in proper form to the Fund's transfer agent, a check for the proceeds of a
redemption will be sent to the shareholders' address of record. If a

-11-
<PAGE>

shareholder elects to redeem all the shares of the Fund he owns, all dividends
accrued to the date of such redemption will be paid to the shareholder along
with the proceeds of the redemption.

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

The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization. The Participating Organization
will be responsible for notifying the Participant Investor of the proposed
mandatory redemption. During the notice period a shareholder or Participating
Organization who receives such a notice may avoid mandatory redemption by
purchasing sufficient additional shares to increase his total net asset value to
the minimum amount.

Specified Amount Automatic
Withdrawal Plan

Shareholders may elect to withdraw shares and receive payment from the Fund of a
specified amount of $50 or more automatically on a monthly or quarterly basis.
The monthly or quarterly withdrawal payments of the specified amount are made by
the Fund on the 23rd day of the month. Whenever such 23rd day of a month is not
a Fund Business Day, the payment date is the Fund Business Day preceding the
23rd day of the month. In order to make a payment, a number of shares equal in
aggregate net asset value to the payment amount are redeemed at their net asset
value on the Fund Business Day immediately preceding the date of payment. To the
extent that the redemptions to make plan payments exceed the number of shares
purchased through reinvestment of dividends and distributions, the redemptions
reduce the number of shares purchased on original investment, and may ultimately
liquidate a shareholder's investment.

The election to receive automatic withdrawal payments may be made at the time of
the original subscription by so indicating on the subscription order form. The
election may also be made, changed or terminated at any later time by sending a
signature guaranteed written request to the transfer agent. Because the
withdrawal plan involves the redemption of Fund shares, such withdrawals may
constitute taxable events to the shareholder but the Fund does not expect that
there will be any realized capital gains.

Dividends and Distributions

The Fund declares dividends equal to all its net investment income (excluding
capital gains and losses, if any, and amortization of market discount) on each
Fund Business Day and pays dividends monthly. There is no fixed dividend rate.
In computing these dividends, interest earned and expenses are accrued daily.

Net realized capital gains, if any, are distributed at least annually and in no
event later than 60 days after the end of the Fund's fiscal year.

All dividends and distributions of capital gains are automatically invested, at
no charge, in additional Fund shares of the same Class of shares immediately
upon payment thereof unless a shareholder has elected by written notice to the
Fund to receive either of such distributions in cash.

-12-
<PAGE>

Because Class A shares bear the service fee under the Fund's 12b-1 Plan, the net
income of and the dividends payable to the Class A shares will be lower than the
net income of and dividends payable to the Class B shares of the Fund. Dividends
paid to each Class of shares of the Fund will, however, be declared and paid on
the same days at the same times and, except as noted with respect to the service
fees payable under the Plan, will be determined in the same manner and paid in
the same amounts.

Exchange Privilege

Shareholders of the Fund are entitled to exchange some or all of their Class of
shares in the Fund for shares of the same Class of certain other investment
companies which retain Reich & Tang Asset Management L.P. as investment adviser
and which participate in the exchange privilege program with the Fund. If only
one Class of shares is available in a particular exchange fund, the shareholder
of the Fund is entitled to exchange their shares for the shares available in
that exchange fund. Currently the exchange privilege program has been
established between the Fund and California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax
Free Income Fund, Inc., Florida Daily Municipal Income Fund, Michigan Daily Tax
Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York
Daily Tax Free Income Fund, Inc., Pennsylvania Daily Municipal Income Fund,
Reich & Tang Equity Fund, Inc. and Short Term Income Fund, Inc. In the future,
the exchange privilege program may be extended to other investment companies
which retain Reich & Tang Asset Management L.P. as investment adviser or
manager.

There is no charge for the exchange privilege or limitation as to frequency of
exchange. The minimum amount for an exchange is $1,000. However, shareholders
who are establishing a new account with an investment company through the
exchange privilege must ensure that a sufficient number of shares are exchanged
to meet the minimum initial investment required for the investment company into
which the exchange is being made. Each Class of shares is exchanged at its
respective net asset value.

The exchange privilege provides shareholders of the Fund with a convenient
method to shift their investment among different investment companies when they
feel such a shift is desirable. The exchange privilege is available to
shareholders resident in any state in which shares of the investment company
being acquired may legally be sold. Shares of the same Class may be exchanged
only between investment company accounts registered in identical names. Before
making an exchange, the investor should review the current prospectus of the
investment company into which the exchange is to be made.

Instructions for exchanges may be made by sending a signature guaranteed written
request to:

North Carolina Daily Municipal
Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020

or, for shareholders who have elected that option, by telephoning the Fund at
212-830-5220 (within New York) or 800-221-3079 (outside New York). The Fund
reserves the right to reject any exchange request and may modify or terminate
the exchange privilege at any time.

Tax Consequences

The purchase of Fund shares will be a purchase of an asset. Dividends paid by
the Fund that are properly designated by the Fund as derived from Municipal
Obligations and Participation Certificates will be exempt from regular Federal
income tax 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.

Dividends paid from taxable income and distributions

-13-
<PAGE>

of 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. The Fund does not expect to realize long-term
capital gains, and thus does not contemplate distributing "capital gain
dividends". The Fund will inform shareholders of the amount and nature of its
income and gains after the close of the Fund's taxable year.

For Social Security recipients, interest on tax-exempt bonds, including "exempt
interest dividends" paid by the Fund, is to be added to adjusted gross income
for purposes of computing the amount of Social Security benefits includible in
gross income. Interest on certain "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) exceeds their alternative minimum taxable income (determined without
this tax item). In certain cases Subchapter S corporations with accumulated
earnings and profits from Subchapter C years will be subject to a tax on
"passive investment income", including tax-exempt interest.

The sale, exchange or redemption of shares will generally be the taxable
disposition of an asset. The redemption of shares may result in the investor's
receipt of more or less than it paid for its shares and, thus may result in a
taxable gain or loss to the investor. An exchange pursuant to the exchange
privilege is treated as a sale on which a 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 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. The Internal Revenue
Service has announced that it will not ordinarily issue advance rulings on the
question of the ownership of securities or participation interests therein
subject to a put and could reach a conclusion different from that reached by
counsel.

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.

North Carolina Income Taxes. The following is based upon the advice of Kennedy
Covington Lobdell and Hickman, L.L.P. special North Carolina counsel to the
Fund. 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. However, assuming that the Fund is a regulated investment company
within the meaning of Section 851 of the Code, has filed with the North Carolina
Department of Revenue its election to be treated as a regulated investment
company and has complied with certain other requirements, exempt interest
dividends received from the Fund and correctly identified by the Fund as derived
from obligations issued by or on behalf of the State of North Carolina or any
political subdivisions need not be included in North Carolina taxable income by
shareholders of the Fund subject to North Carolina taxation. Dividends with
respect to interest on obligations from states other than North Carolina and its
political subdivisions are required to be added to Federal taxable income in
calculating North Carolina taxable income. The portion of distributions from the
Fund that represents capital gain is

-14-
<PAGE>

reportable for North Carolina income tax purposes as capital gain income and not
dividend income. Exempt-interest dividends correctly identified by the Fund as
derived from obligations of Puerto Rico and the Virgin Islands, as well as other
types of obligations that North Carolina is prohibited from taxing under the
Constitution or the laws of the United States of America or the constitution or
laws of North Carolina ("Territorial Municipal Obligations") should be exempt
from the North Carolina Income Taxation provided the Fund complies with
applicable North Carolina law.

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

V. DISTRIBUTION ARRANGEMENTS

Rule 12b-1 Fees

Investors do not pay a sales charge to purchase shares of the Fund. However, the
Fund pays fees in connection with the distribution of shares and for services
provided to the Class A shareholders. The Fund pays these fees from its assets
on an ongoing basis and therefore, over time, the payment of these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.

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 Rule 12b-1. The Fund's
Board of Directors has adopted a distribution and service plan (the "Plan") and,
pursuant to the Plan, the Fund and Reich & Tang Distributors, Inc. (the
"Distributor") have entered into a Distribution Agreement and a Shareholder
Servicing Agreement (with respect to the Class A shares of the Fund only).

Under the Distribution Agreement, the Distributor serves as distributor of the
Fund's shares. For nominal consideration (i.e., $1.00) and as agent for the
Fund, the Distributor solicits orders for the purchase of the Fund's shares,
provided that any orders will not be binding on the Fund until accepted by the
Fund as principal.

Under the Shareholder Servicing Agreement, the Distributor receives, with
respect only to the Class A shares, a service fee equal to .25% per annum of the
Class A shares' average daily net assets (the "Shareholder Servicing Fee") for
providing personal shareholder services and for the maintenance of shareholder
accounts. The fee is accrued daily and paid monthly. Any portion of the fee may
be deemed to be used by the Distributor for payments to Participating
Organizations with respect to their provision of such services to their clients
or customers who are shareholders of the Class A shares of the Fund. The Class B
shareholders will not receive the benefit of such services from Participating
Organizations and, therefore, will not be assessed a Shareholder Servicing Fee.

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

The Plan and the Shareholder Servicing Agreement provide 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 costs,
and to compensate others, including Participating Organizations with whom the
Distributor has entered into written agreements, for performing shareholder
servicing on behalf of the Class A shares of the Fund; (ii) to compensate
certain Participating Organizations for providing assistance in distributing the
Class A shares of the Fund; and (iii) to pay the costs of printing and
distributing the Fund's prospectus to prospective investors, and to defray the
cost of the preparation and printing of brochures and other promotional
materials, mailings to prospective

-15-
<PAGE>

shareholders, advertising, and other promotional activities, including the
salaries and/or commissions of sales personnel in connection with the
distribution of the Fund's Class A shares. The Distributor may also make
payments from time to time from its own resources, which may include the
Shareholding Servicing Fee (with respect to Class A shares) and past profits,
for the purposes enumerated in (i) above. The Distributor will determine the
amount of such payments made pursuant to the Plan, provided that such payments
will not increase the amount which the Fund is required to pay to the Manager
and Distributor for any fiscal year under either the Investment Management
Contract in effect for that year or under the Shareholder Servicing Agreement in
effect for that year.

For the fiscal year ended August 31, 1998, the total amount spent pursuant to
the Plan for Class A shares was .40% of the average daily net assets of the
Fund, of which .25% of the average daily net assets was paid by the Fund to the
Distributor, pursuant to the Shareholder Servicing Agreement.

-16-
<PAGE>

VI. FINANCIAL HIGHLIGHTS

This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by McGladrey and Pullen, LLP, whose report, along
with the Fund's financial statements, is included in the annual report, which is
available upon request.

<TABLE>
<CAPTION>
Year Ended August 31,
---------------------
<S> <C> <C> <C> <C> <C>
Class A 1998 1997 1996 1995 1994
------- ------ ------ ------ ------ ------
Per Share Operating Performance:
(for a share outstanding throughout the
period)

Net asset value, beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- --------- --------- ---------- ---------

Income from investment operations:
Net investment income............... 0.028 0.029 0.030 0.018
Less distributions:
Dividends from net
investment income..... (0.028) (0.029) (0.030) (0.018)
------- ---------- ---------- ---------- ---------

Net asset value, end of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ========== ========== ========== ===========
Total Return............................. 2.82% 2.87% 3.04% 1.86%

Ratios/Supplemental Data
Net assets, end of period (000).......... $197,353 $172,385 $164,256 $122,820

Ratios to average net assets:
Expenses............................ 0.80% 0.80% 0.78% 0.75%
Net investment income............... 2.78% 2.82% 3.01% 1.85%
Management, shareholders servicing
and administration fees waived...... 0.18% 0.20% 0.24% 0.29%

</TABLE>

December 12, 1994
(Commencement of
Class B Operations) to
August 31, 1995
------------------

Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period......... $ 1.00
------------
Income from investment operations:
Net investment income................... 0.024
Less distributions:
Dividends from net investment income..... (0.024)
------------
Net asset value, end of period................ $ 1.00
============
Total Return.................................. 3.48%

Ratios/Supplemental Data
Net assets, end of period (000)............... -0-
Ratios to average net assets:
Expenses................................. 0.51%*
Net investment income.................... 3.40%*
Management, shareholder servicing and
administration fees waived............... 0.20%*

* Annualized
-17-
<PAGE>

A Statement of Additional Information NORTH CAROLINA DAILY
(SAI) dated January 2, 1999, and the MUNICIPAL INCOME
Fund's Annual and Semi-Annual Reports FUND, INC.
include additional information about
the Fund and its investments and are
incorporated by reference into this
prospectus. You may obtain the SAI,
the Annual and Semi-Annual Reports
and material incorporated by reference
without charge by calling the Fund at Reich & Tang Distributors, Inc.
1-800-221-3079. To request other
information, call your financial 600 Fifth Avenue
intermediary or the Fund. New York, NY 10020
(212) 830-5220
[Internet Address: www.__________]

A current SAI has been filed with the
Securities and Exchange Commission.
You may visit the Securities and
Exchange Commission's Internet website
(www.sec.gov) to view the SAI, material
incorporated by reference and other
information. These materials can also be
reviewed and copied at the Commission's
Public Reference Room in Washington D.C.
Information on the operation of the
Public Reference Room may be obtained
by calling the Commission at 1-800-SEC-0330.
In addition, copies of these materials may be
obtained, upon payment of a duplicating fee,
by writing the Public Reference Section of
the Commission, Washington, D.C. 20549-6009.

<PAGE>

- --------------------------------------------------------------------------------
PROSPECTUS January 2, 1999
- --------------------------------------------------------------------------------

EVERGREEN SHARES OF
NORTH CAROLINA DAILY MUNICIPAL [Evergreen Logo]
INCOME FUND, INC.
Class A Shares
================================================================================

The Securities and Exchange Commission has not approved or passed upon
the adequacy of this prospectus. Any representation to the contrary
is a criminal offense

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

CONTENTS
- --------
Risk/Return Summary............................2 Management, Organization and Capital
Fee Table......................................3 Structure..................................6
Investment Objectives, Principal Shareholder Information......................7
Investment Strategies, Policies Distribution Arrangements...................14
and Related Risks............................4 Financial Highlights........................16

- ----------------------------------------------------------------------------------------------------------------
</TABLE>

-1-
<PAGE>

I. RISK/RETURN SUMMARY: INVESTMENTS, RISKS, AND PERFORMANCE

Investment Objectives

Principal Investment Strategies

The Fund intends to concentrate (e.g. 25% or more of the Fund's net assets) in
North Carolina municipal obligations, including participation certificates
therein.

Principal Risks

An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the FDIC or any other governmental agency.

Risk/Return Bar Chart

[Insert Bar Chart and Footnotes]

-2-
<PAGE>

FEE TABLE

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

Annual Fund Operating Expenses Class A shares
- ------------------------------- --------------
(expenses that are deducted from Fund assets)

Management Fees 0.40%

Distribution and Service (12b-1) Fees 0.25%

Other Expenses ____%

Administration Fees 0.21%

Total Annual Fund Operating Expenses ____%

The Manager voluntarily waived a portion of the Administrative Fees with respect
to the Class A shares. After such waiver, the Administrative Fees for Class A
were ___% and the actual Total Fund Operating Expenses for Class A were ___%.
This fee waiver arrangement may be terminated at any time at the option of the
Fund.

Example

This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.

1 year 3 years 5 years 10 years

Class A: $_______ $_______ $_______ $_______

-3-
<PAGE>

II. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS

Investment Objectives

Principal Investment Strategies

Generally

The Fund will invest primarily (i.e., at least 80%) in short-term, high quality,
debt obligations which include:

(i) North Carolina Municipal Obligations issued by or on behalf of the
State of North Carolina or any North Carolina local governments, or
their instrumentalities, authorities or districts;

(ii) Territorial Municipal Obligations issued by or on behalf of Puerto Rico
and the Virgin Islands or their instrumentalities, authorities,
agencies and political subdivisions; and

The Fund may invest more than 25% of its assets in Participation Certificates in
North Carolina Municipal Obligations and other North Carolina Municipal
Obligations.

Included in the same 20% of total assets in taxable securities, the Fund may
also purchase, without limit, securities and Participation Certificates whose
interest income may be subject to the Federal alternative minimum tax.

To the extent suitable North Carolina Municipal Obligations are not available
for investment by the Fund, the Fund may purchase Municipal Obligations issued
by other states, their agencies and instrumentalities. The interest income from
these Municipal Obligations will be exempt from regular Federal income tax (in
the opinion of bond counsel to the issuers at the day of issuance), but will be
subject to the North Carolina Income Tax.

With respect to 75% of its total assets, the Fund shall

-4-
<PAGE>
invest not more than 10% of its total assets in Municipal Obligations or
Participation Certificates issued by a single issuer. The Fund shall not invest
more than 5% of its total assets in Municipal Securities or Participation
Certificates issued by a single issuer unless the Municipal Obligations are of
the highest quality.

The Fund's investments may also include "when-issued" Municipal Obligations and
stand-by commitments.

The Fund's investment manager considers the following factors when buying and
selling securities for the portfolio: (i) availability of cash, (ii) redemption
requests,(iii) yield management, and (iv) credit management.

Risks

Because of the Fund's concentration in investments in

-5-
<PAGE>

North Carolina Municipal Obligations, the safety of an investment in the Fund
will depend substantially upon the financial strength of North Carolina and its
political subdivisions. Payment of interest and preservation of principal,
however, are dependent upon the continuing ability of the North Carolina issuers
and/or obligors of state, municipal and public authority debt obligations to
meet their obligations thereunder. Investors should consider the greater risk of
the Fund's concentration versus the safety that comes with a less concentrated
investment portfolio and should compare yields available on portfolios of North
Carolina issues with those of more diversified portfolios, including
out-of-state issues, before making an investment decision.

III. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE

-6-
<PAGE>

IV. SHAREHOLDER INFORMATION

Evergreen shares have been created for the primary purpose of providing a North
Carolina tax-free money market fund product for shareholders of certain funds
distributed by Evergreen Distributors, Inc. ("EDI"). Shares of the Fund, other
than Evergreen shares, are offered pursuant to a separate prospectus. Evergreen
shares are identical to other shares of the Fund, with respect to investment
objectives and yield, but differ with respect to certain other matters,
including shareholder services and purchase and redemption of shares.

Pricing of Fund Shares

How to Buy Shares

Only Evergreen Class A shares are offered through this Prospectus. You can
purchase shares of the Fund through broker-dealers, banks or other financial
intermediaries, or directly through EDI. The minimum

-7-
<PAGE>

initial investment is $1,000 which may be waived in certain situations. There is
no minimum for subsequent investments. In states where EDI is not registered as
a broker-dealer, shares of the Fund will only be sold through other
broker-dealers or other financial institutions that are registered. Instructions
on how to purchase shares of the Fund are set forth in the Share Purchase
Application.

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

How To Redeem Shares

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

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

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

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

The telephone redemption service is not available to shareholders automatically.
Shareholders wishing to use the telephone redemption service must indicate this
on the Share Purchase Application and choose how the redemption proceeds are to
be paid. Redemption

-8-
<PAGE>

proceeds will either (i) be mailed by check to the shareholder at the address in
which the account is registered or (ii) be wired to an account with the same
registration as the shareholder's account in the Fund at a designated commercial
bank. Evergreen Service Company currently deducts a $5.00 wire charge from all
redemption proceeds wired. This charge is subject to change without notice.
Redemption proceeds will be wired on the same day if the request is made prior
to 12 noon (Eastern time). Such shares, however, will not earn dividends for
that day. Redemption requests received after 12 noon will earn dividends for
that day, and the proceeds will be wired on the following business day. A
shareholder who decides later to use this service, or to change instructions
already given, should fill out a Shareholder Services Form and send it to
Evergreen Service Company, P.O. Box 2121, Boston, Massachusetts 02106-2121 with
such shareholder's signature guaranteed by a bank or trust company (not a Notary
Public), a member firm of a domestic stock exchange or by other financial
institutions whose guarantees are acceptable to Evergreen Service Company.
Shareholders should allow approximately ten days for such form to be processed.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. These procedures include requiring some
form of personal identification prior to acting upon instructions and tape
recording of telephone instructions. If the Fund fails to follow such
procedures, it may be liable for any losses due to unauthorized or fraudulent
instructions. The Fund will not be liable for following telephone instructions
reasonably believed to be genuine. The Fund reserves the right to refuse a
telephone redemption if it is believed advisable to do so. Financial
intermediaries may charge a fee for handling telephone requests. Procedures for
redeeming Fund shares by telephone may be modified or terminated without notice
at any time.

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

Shareholders wishing to use this method of redemption should fill out the
appropriate part of the Share Purchase Application (including the Signature
Card) and mail the completed form to Evergreen Service Company, P.O. Box 2121,
Boston, Massachusetts 02106-2121. Shareholders requesting this service after an
account has been opened must contact Evergreen Service Company since additional
documentation will be required. Currently there is no charge either for checks
or for the clearance of any checks. This service may be terminated or altered at
any time.

-9-
<PAGE>

Shareholder Services

The Fund offers the following shareholder services. For more information about
these services or your account, contact EDI or the toll-free number on the back
of this Prospectus. Some services are described in more detail in the Share
Purchase Application.

Systematic Investment Plan. You may make monthly or quarterly investments into
an existing account automatically in amounts of not less than $25.

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

Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or
when an existing account reaches that size, you may participate in the Fund's
Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share
Purchase Application. Under this plan, you may receive (or designated a third
party to receive) a monthly or quarterly check in a stated amount of not less
than $75. Fund shares will be redeemed as necessary to meet withdrawal payments.
All participants must elect to have their dividends and capital gain
distributions reinvested automatically. In order to make a payment, a number of
shares equal in aggregate net asset value to the payment amount are redeemed at
their net asset value on the Fund Business Day immediately preceding the date of
payment. To the extent that the redemptions to make plan payments exceed the
number of shares purchased through reinvestment of dividends and distributions,
the redemptions reduce the number of shares purchased on original investment,
and may ultimately liquidate a shareholder's investment. Because the withdrawal
plan involves the redemption of Fund shares, such withdrawals may constitute
taxable events to the shareholder, but the Fund does not expect that there will
be any realized capital gains.

Investments Through Employee Benefit and Savings Plan. Certain qualified and
non-qualified benefit and savings plans may make shares of the Fund and the
other Evergreen mutual funds available to their participants. Each Fund's
investment adviser may provide compensation to organizations providing
administrative and recordkeeping services to plans which make shares of the
Evergreen mutual funds available to their participants.

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

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

The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a

-10-
<PAGE>

charge for either sales or redemptions.

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

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

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

There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. If a shareholder elects to redeem all
the shares of the Fund he owns, all dividends accrued to the date of such
redemption will be paid to the shareholder along with the proceeds of the
redemption.

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

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

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

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

Dividends and Distributions

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<PAGE>

dividend rate. In computing these dividends, interest earned and expenses are
accrued daily.

Net realized capital gains, if any, are distributed at least annually and in no
event later than 60 days after the end of the Fund's fiscal year.

Exchange Privilege

Instructions for exchanges may be made by sending a signature guaranteed written
request to:

North Carolina Daily Municipal
Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020

Tax Consequences

The purchase of Fund shares will be a purchase of an asset. Dividends paid by
the Fund that are properly designated by the Fund as derived from Municipal

-12-
<PAGE>

Obligations and Participation Certificates will be exempt from regular Federal
income tax 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.

Dividends paid from taxable income and distributions of 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.
The Fund does not expect to realize long-term capital gains, and thus does not
contemplate distributing "capital gain dividends". The Fund will inform
shareholders of the amount and nature of its income and gains after the close of
the Fund's taxable year.

-13-
<PAGE>

political subdivisions need not be included in North Carolina taxable income by
shareholders of the Fund subject to North Carolina taxation. Dividends with
respect to interest on obligations from states other than North Carolina and its
political subdivisions are required to be added to Federal taxable income in
calculating North Carolina taxable income. The portion of distributions from the
Fund that represents capital gain is reportable for North Carolina income tax
purposes as capital gain income and not dividend income. Exempt-interest
dividends correctly identified by the Fund as derived from obligations of Puerto
Rico and the Virgin Islands, as well as other types of obligations that North
Carolina is prohibited from taxing under the Constitution or the laws of the
United States of America or the constitution or laws of North Carolina
("Territorial Municipal Obligations") should be exempt from the North Carolina
Income Taxation provided the Fund complies with applicable North Carolina law.

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

V. DISTRIBUTION ARRANGEMENTS

Rule 12b-1 Fees

-14-
<PAGE>

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

-15-
<PAGE>

VI. FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Year Ended August 31,
---------------------

<S> <C> <C> <C> <C> <C>
Class A 1998 1997 1996 1995 1994
------- ------ ------ ------ ------ ------
Per Share Operating Performance:
(for a share outstanding throughout the
period)

Net asset value, beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- --------- --------- ---------- ---------

Net asset value, end of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ========== ========== ========== ===========
Total Return............................. 2.82% 2.87% 3.04% 1.86%

Ratios/Supplemental Data
Net assets, end of period (000).......... $197,353 $172,385 $164,256 $122,820

Ratios to average net assets:
Expenses............................ 0.80% 0.80% 0.78% 0.75%
Net investment income............... 2.78% 2.82% 3.01% 1.85%
Management, shareholder servicing
and administration fees waived...... 0.18% 0.20% 0.24% 0.29%

</TABLE>

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<PAGE>

A Statement of Additional Information
(SAI) dated January 2, 1999, and the NORTH CAROLINA DAILY
Fund's Annual and Semi-Annual Reports MUNICIPAL INCOME
include additional information about FUND, INC.
the Fund and its investments and are
incorporated by reference into this
prospectus. You may obtain the SAI,
the Annual and Semi-Annual Reports Evergreen Funds Distributor, Inc.
and material incorporated by reference
without charge by calling the Fund at 230 Park Avenue
1-800-________. To request other New York, NY 10169
information, call your financial [Phone #?]
intermediary or the Fund.

[Internet Address: www.__________]

A current SAI has been filed with the
Securities and Exchange Commission.
You may visit the Securities and
Exchange Commission's Internet website
(www.sec.gov) to view the SAI, material
incorporated by reference and other
information. These materials can also
be reviewed and copied at the Commission's
Public Reference Room in Washington D.C.
Information on the operation of the
Public Reference Room may be obtained
by calling the Commission at
1-800-SEC-0330. In addition, copies
of these materials may be obtained, upon
payment of a duplicating fee, by writing
the Public Reference Section of the
Commission, Washington, D.C. 20549-6009.

<PAGE>

- --------------------------------------------------------------------------------
NORTH CAROLINA
DAILY MUNICIPAL
INCOME FUND, INC.

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

STATEMENT OF ADDITIONAL INFORMATION
January 2, 1999
RELATING TO THE NORTH CAROLINA DAILY MUNICIPAL INCOME FUND, INC.
PROSPECTUS DATED JANUARY 2, 1999
AND THE
EVERGREEN SHARES OF NORTH CAROLINA DAILY MUNICIPAL INCOME FUND, INC.
PROSPECTUS DATED JANUARY 2, 1999

This Statement of Additional Information (SAI) is not a Prospectus. The SAI
expands upon and supplements the information contained in the current Prospectus
of North Carolina Daily Municipal Income Fund, Inc. and Evergreen Shares of
North Carolina Daily Municipal Income Fund, Inc. (each, the "Fund"), dated
January 2, 1999 and should be read in conjunction with each Fund's Prospectus.

A Prospectus may be obtained from any Participating Organization or by writing
or calling the Fund toll-free at 1-(800) ________. The Financial Statements of
the Fund have been incorporated by reference to the Fund's Annual Report. The
Annual Report is available, without charge, upon request by calling the
toll-free number provided.

If you wish to invest in Evergreen Shares of the Fund, you should obtain a
separate Prospectus by writing to State Street Bank and Trust Company, P.O. Box
9021, Boston, Massachusetts 02205-9827 or by calling toll free 1- (800)
807-2840.

This Statement of Additional Information is incorporated by reference into the
respective Prospectus in its entirety.

Table of Contents
- -----------------------------------------------------------------------------------------------------------------------
Fund History................... Capital Stock and Other Securities........................
Description of the Fund and its Investments and Purchase, Redemption and Pricing Shares...................
Risks............................................... Taxation of the Fund......................................
Management of the Fund................................ Underwriters..............................................
Control Persons and Principal Holders of Calculation of Performance Data...........................
Securities.......................................... Financial Statements......................................
Investment Advisory and Other Services................ Description of Ratings....................................
Brokerage Allocation and Other Practices.............. Corporate Taxable Equivalent Yield Table..................
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

-1-
<PAGE>

I. FUND HISTORY

The Fund was incorporated on April 18, 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 North Carolina
State 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
objectives and policies 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 North Carolina, 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"). Dividends paid by the Fund are
"exempt-interest dividends" by virtue of being properly designated by the Fund
as derived from Municipal Obligations and Participation Certificates. They will
be exempt from regular Federal income tax provided the Fund complies with
Section 852(b)(5) of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). Although the Supreme Court has determined that Congress
has the authority to subject the interest on bonds such as the Municipal
Obligations to regular Federal income taxation, existing law excludes such
interest from regular Federal income tax. However, such interest, including
"exempt-interest dividends" may be subject to the Federal alternative minimum
tax.

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

The Fund may hold uninvested cash reserves pending investment. The Fund's
investments may include "when-issued" Municipal Obligations, stand-by
commitments and taxable repurchase agreements. Although the Fund will attempt to
invest 100% of its assets in Municipal Obligations and in Participation
Certificates, the Fund reserves the right to invest up to 20% of the value of
its total assets in securities, the interest income on which is subject to
regular Federal, state and local income tax. The Fund will invest more than 25%
of its assets in participation certificates purchased from banks in industrial
revenue bonds and other North Carolina Municipal Obligations. In view of this
"concentration" in bank participation certificates in North Carolina Municipal
Obligations, an investment in Fund shares should be made with an understanding
of the characteristics of the banking industry and the risks which such an
investment may entail. (See "Variable Rate Demand Instruments and Participation
Certificates" herein.) The investment objectives of the Fund described in the
preceding paragraphs of this section may not be changed unless

-2-
<PAGE>

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 Municipal
Obligations that have been determined by the Fund's Board of Directors to
present minimal credit risks and that are Eligible Securities at the time of
acquisition. The term Eligible Securities means: (i) Municipal Obligations with
remaining maturities of 397 days or less and rated in the two highest short-term
rating categories by any two nationally recognized statistical rating
organizations ("NRSROs") or in such categories by the only NRSRO that has rated
the Municipal Obligations (collectively, the "Requisite NRSROs"); (ii) Municipal
Obligations which are subject to a Demand Feature or Guarantee (as such terms
are defined in Rule 2a-7 of the 1940 Act) and have received a rating from an
NRSRO, or such guarantor has received a rating from an NRSRO, with respect to a
class of debt obligations (or any debt obligation within that class) that is
comparable in priority and security to the Guarantee (unless, the guarantor,
directly or indirectly, controls, is controlled by or is under common control
with the issuer of the security subject to the Guarantee); and the issuer of the
Demand Feature or Guarantee, or another institution, has undertaken promptly to
notify the holder of the security in the event the Demand Feature or Guarantee
is substituted with another Demand Feature or Guarantee; or (iii) unrated
Municipal Obligations determined by the Fund's Board of Directors to be of
comparable quality. In addition, Municipal Obligations with remaining maturities
of 397 days or less but that at the time of issuance were long-term securities
(i.e. with maturities greater than 366 days) are deemed unrated and may be
purchased if such 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 Municipal
Obligations or Participation Certificates. (See "Variable Rate Demand
Instruments and Participation Certificates" herein). While there are several
organizations that currently qualify as NRSROs, two examples of NRSROs are
Standard & Poor's Rating Services, a division of The McGraw-Hill Companies,
("S&P") and Moody's Investors Service, Inc. ("Moody's"). The two highest ratings
by S&P and Moody's are "AAA" and "AA" by S&P in the case of long-term bonds and
notes or "Aaa" and "Aa" by Moody's in the case of bonds; "SP-1" and "SP-2" by
S&P or "MIG-1" and "MIG-2" by Moody's in the case of notes; "A-1" and "A-2" by
S&P or "Prime-1" and "Prime-2" by Moody's in the case of tax-exempt commercial
paper. The highest rating in the case of variable and floating demand notes is
"VMIG-1" by Moody's or "SP-1/AA" by S&P. Such instruments may produce a lower
yield than would be available from less highly rated instruments.

All investments by the Fund will mature or will be deemed to mature within 397
days or less from the date of acquisition and the average maturity of the Fund
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.

With respect to 75% of its total assets, the Fund shall invest not more than 5%
of its total assets in Municipal Obligations or Participation Certificates
issued by a single issuer. However, the Fund shall not invest more than 5% of
its total assets in Municipal Obligations or Participation Certificates issued
by a single issuer, unless Municipal Obligations are First Tier Securities.

The Fund intends to qualify as a "regulated investment company" under Subchapter
M of the Code. The Fund will be restricted in that at the close of each quarter
of the taxable year, at least 50% of the value of its total assets must be
represented by cash, government securities, investment company securities and
other securities. They 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. 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.)

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<PAGE>

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 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 North Carolina 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

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<PAGE>

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, North Carolina
Income tax-exempt obligations issued by or on behalf of states and
municipal governments and their authorities, agencies, instrumentalities
and political subdivisions, whose inclusion in the Fund would be consistent
with the Fund's "Investment Objectives, Policies and Risks" and permissible
under Rule 2a-7 under the 1940 Act.

Subsequent to its purchase by the Fund, a rated Municipal Obligation may cease
to be rated or its rating may be reduced 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.

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.

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<PAGE>

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 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).

In view of the "concentration" of the Fund in Participation Certificates in
North Carolina 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

- --------
* The prime rate is generally the rate charged by a bank to its most
creditworthy customers for short-term loans. The prime rate of a particular bank
may differ from other banks and will be the rate announced by each bank on a
particular day. Changes in the prime rate may occur with great frequency and
generally become effective on the date announced.

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<PAGE>

can no longer be valued at par and may cause the Fund to take corrective action,
including the elimination of the instruments from the portfolio. Because the
adjustment of interest rates on the variable rate demand instruments is made in
relation to movements of the applicable banks' "prime rates", or other interest
rate adjustment index, the variable rate demand instruments are not comparable
to long-term fixed rate securities. Accordingly, interest rates on the variable
rate demand instruments may be higher or lower than current market rates for
fixed rate obligations of comparable quality with similar maturities.

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

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

When-Issued Securities

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

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

Stand-by Commitments

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

The amount payable to the Fund upon its exercise of a stand-by commitment
normally would be (i) the acquisition cost of the Municipal Obligation
(excluding any accrued interest that the Fund paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the security, plus (ii) all interest accrued on
the security since the last interest payment date during the period the security
was owned by the Fund. Absent unusual circumstances relating to a change in
market value, the Fund would value the underlying Municipal Obligation at
amortized cost. Accordingly, the amount payable by a bank ordealer during the
time a stand-by commitment is exercisable would be substantially the same as the
market value of the underlying Municipal Obligation.

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<PAGE>

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

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

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

The Fund intends to acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The purpose of this practice is to permit the Fund to be fully
invested in securities the interest on which is exempt from Federal income tax
while preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions and to purchase at a later date
securities other than those subject to the stand-by commitment. The acquisition
of a stand-by commitment would not affect the valuation or assumed maturity of
the underlying Municipal Obligations which will continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund will be valued at zero in determining net asset value. In those cases in
which the Fund pays directly or indirectly for a stand-by commitment, its cost
will be reflected as unrealized depreciation for the period during which the
commitment is held by the Fund. Stand-by commitments will not affect the
dollar-weighted average maturity of the Fund's portfolio. The maturity of a
security subject to a stand-by commitment is longer than the stand-by repurchase
date.

The stand-by commitments the Fund may enter into are subject to certain risks.
These include the ability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, the fact that the commitment
is not 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 North Carolina 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. (See "Federal Income Taxes" herein.)

Repurchase Agreements

The Fund may invest in instruments subject to repurchase agreements with
securities dealers or member banks of the Federal Reserve System. Under the
terms of a typical repurchase agreement, the Fund 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

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<PAGE>

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 would be the case with securities owned by the Fund. It
is expected that repurchase agreements will give rise to income which will not
qualify as tax-exempt income when distributed by the Fund. The Fund will not
invest in a repurchase agreement maturing in more than seven days if any such
investment, together with illiquid securities held by the Fund, 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.

North Carolina Risk Factors

Because of the Fund's concentration in investments in North Carolina Municipal
Obligations, the safety of an investment in the Fund will depend substantially
upon the financial strength of North Carolina and its political subdivisions.
The North Carolina economy relies in part on activities that may be subject to
cyclical change.

The North Carolina Constitution provides that total expenditures for a fiscal
year shall not exceed the total of receipts and the surplus at the beginning of
the year. In 1996, the North Carolina General Assembly reduced the State's sales
tax on food with a further reduction to 2% effective on July 1, 1998. The
maximum corporate income tax rate for corporations with taxable years beginning
in 1998 was reduced to 7.25% with further reductions in the following two years
to a maximum rate of 6.9% in 2000.

For its fiscal year ended June 30, 1997, the State ended the year with a fund
balance of $1,307.5 million from $12,751.9 million of available funds, based on
unaudited results. The budget adopted for the fiscal year ending June 30, 1997
projects an ending fund balance of $622.2 million. The budget for the fiscal
year ending June 30, 1998 also includes increases of $798.7 million which are
primarily for early childhood education, schools, increases in teacher salaries,
community colleges, public universities and salary increases for state
employees. Funds totaling $156 million were reserved for intangibles tax refunds
to certain taxpayers.

The obligations of the State of North Carolina are currently rated in the
highest category by the principal rating agencies.

North Carolina county and municipal governments are likewise required to have a
balanced budget. Many political subdivisions have been under increasing
financial pressure resulting from increased taxes and expenditure reductions.

There can be no assurance that general economic difficulties or the financial
circumstances of North Carolina or its counties and municipalities will not
adversely affect the market value of North Carolina Municipal Obligations or the
ability of the obligors to pay debt service on such obligations.

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 "Investment
Objectives, Policies 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

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<PAGE>

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 "Investment
Objectives, Policies and Risks" herein.

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

6. Purchase securities subject to restrictions on disposition under the
Securities Act of 1933 ("restricted securities"), except the Fund may
purchase variable rate demand instruments which contain a demand feature.
The Fund will not invest in a repurchase agreement maturing in more than
seven days if any such investment together with securities that are not
readily marketable held by the Fund exceed 10% of the Fund's 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 "Investment Objectives,
Policies and Risks" herein.

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

10. Invest more than 25% of its assets in the securities of "issuers" in any
single industry. 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 would be deemed to be the sole issuer of the
security. Similarly, in the case of an industrial revenue bond, if that
bond is backed only by the assets and revenues of the non-government user,
then such non-government user would be deemed to be the sole issuer. If,
however, in either case, the creating government or some other entity, such
as an insurance company or other corporate obligor, guarantees a security
or a bank issues a letter of credit, such a guarantee or letter of credit
would be considered a separate security and would be treated as an issue of
such government, other entity or bank. Immediately after the acquisition of
any securities subject to a Demand Feature or Guarantee (as such terms are
defined in Rule 2a-7 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, has employed the Manager to serve as investment
manager of the Fund. The Manager provides persons satisfactory to the Fund's
Board of Directors to serve as officers of the Fund. Such officers, as well as
certain other employees and directors of the Fund, may be directors or officers
of Reich & Tang Asset Management, Inc., the sole general partner

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<PAGE>

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.

Steven W. Duff, 44 - President and Director of the Fund, has been President of
the Mutual Funds Division of the Manager since September 1994. Mr. Duff was
formerly Director of Mutual Fund Administration at NationsBank which he was
associated with from June 1981 to August 1994. Mr. Duff is also President and a
Director /Trustee of 13 other funds in the Reich & Tang Fund Complex, President
of Back Bay Funds, Inc., Director of Pax World Money Market Fund, Inc.,
Executive Vice President of Reich & Tang Equity Fund, Inc., and President and
Chief Executive Officer of Tax Exempt Proceeds Fund, Inc.

Dr. W. Giles Mellon, 67 - Director of the Fund, is Professor of Business
Administration and Area Chairman of Economics in the Graduate School of
Management, Rutgers University which he has been associated with since 1966. His
address is Rutgers University Graduate School of Management, 92 New Street,
Newark, New Jersey 07102. Dr. Mellon is also a Director/Trustee of 15 other
funds in the Reich & Tang Fund Complex.

Robert Straniere, 56 - Director of the Fund, has been a member of the New York
State Assembly and a partner with the Straniere & Straniere Law Firm since 1981.
His address is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is
also a Director/Trustee of 15 other funds in the Reich & Tang Fund Complex and
Director of Life Cycle Mutual Funds, Inc.

Dr. Yung Wong, 59 - 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 has been a Director of Republic Telecom Systems
Corporation (a provider of telecommunications equipment) since January 1989 and
of TelWatch, Inc. (a provider of network management software) since August 1989.
Dr. Wong is also 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, 47 - Vice President of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. which she was associated with from
December 1977 to September 1993. Ms. Flewharty is also Vice President of 16
other funds in the Reich & Tang Fund Complex.

Lesley M. Jones, 50 - 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, 41 - Vice President of the Fund, has been Executive Vice
President of the Mutual Funds Division of the Manager since January 1995 and was
Vice President from September 1993 to January 1995. Ms. Messina was formerly
Vice President of Reich & Tang, Inc. with which she was associated with from
December 1980 to September 1993. Ms. Messina is also Vice President of 15 other
funds in the Reich & Tang Fund Complex.

Bernadette N. Finn, 51 - Secretary of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Finn was formerly
Vice President and Assistant Secretary of Reich & Tang, Inc. which she was
associated with from September 1970 to September 1993. Ms. Finn is also
Secretary of 13 other funds in the Reich & Tang Fund Complex, and a Vice
President and Secretary of 5 funds in the Reich & Tang Fund Complex.

Richard De Sanctis, 41 - Treasurer of the Fund, has been Assistant Treasurer of
NEIC since September 1993. Mr. De Sanctis was formerly Controller of Reich &
Tang, Inc., from January 1991 to September 1993 and Vice President and Treasurer
of Cortland Financial Group, Inc. and Vice President of Cortland Distributors,
Inc. from 1989 to December 1990. Mr. De Sanctis is also Treasurer of 17 other
funds in the Reich & Tang Fund Complex and is Vice President and Treasurer of
Cortland Trust, Inc.

Rosanne Holtzer, 33 - Assistant Treasurer of the Fund, has been Vice President
of the Mutual Funds division of the Manager since December 1997. Ms. Holtzer was
formerly Manager of Fund Accounting for the Manager with which she was
associated with from June 1986. Ms. Holtzer is also Assistant Treasurer of 18
other funds in the Reich & Tang Fund Complex.

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<PAGE>

The Fund paid an aggregate remuneration of $6,000 to its directors with respect
to the period ended August 31, 1998, 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.

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<PAGE>

Compensation Table

Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation from
from the Fund Benefits Accrued as Benefits upon Fund and Fund Complex Paid
Part of Fund Expenses Retirement to Directors*
Name of Person,
Position

Dr. W. Giles Mellon, $2,000 0 0 $53,000 (16 Funds)
Director

Robert Straniere,
Director $2,000 0 0 $53,000 (16 Funds)

Dr. Yung Wong, $2,000 0 0 $53,000 (16 Funds)
Director

</TABLE>

* The total compensation paid to such persons by the Fund and Fund Complex
for the fiscal year ending August 31, 1998 (and, with respect to certain of
the funds in the Fund Complex, estimated to be paid during the fiscal year
ending August 31, 1998). The parenthetical number represents the number of
investment companies (including the Fund) from which such person receives
compensation that are considered part of the same Fund complex as the Fund,
because, among other things, they have a common investment advisor.

IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

On November 30, 1998 there were ___________ shares of the Fund outstanding. As
of November 30, 1998, the amount of shares owned by all officers and directors
of the Fund, as a group, was less than 1% of the outstanding shares. Set forth
below is certain information as to persons who owned 5% or more of the Fund's
outstanding shares as of November 30, 1998:

Nature of
Name and address % of Class Ownership
- ---------------- ---------- ---------

[Wachovia Bank of [45.48%] Record
North Carolina, N.A.
P.O. Box 3099
Winston-Salem, N.C. 27102]

[Evergreen Investment Services [6.79%] Record
230 Park Avenue
New York, N.Y. 10169]

[Reich & Tang [5.13%] Record
600 Fifth Avenue
New York, N.Y. 10020]

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 November 30, 1998, investment
manager, adviser, or supervisor with respect to assets aggregating in excess of
[$11.1 billion]. In addition to the Fund, the Manager acts as investment manager
and administrator of fifteen other investment companies and also advises pension
trusts, profit-sharing trusts and endowments.

Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") was the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner

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<PAGE>

and owner of such interest in the Manager due to a restructuring by New England
Investment Companies, Inc. ("NEIC"). Subsequently, effective March 31, 1998,
Nvest Companies, L.P. ("Nvest Companies") due to a change in name of NEICOP,
replaces NEICOP as the limited partner and owner of a 99.5% interest in the
Manager.

Reich & Tang Asset Management, Inc. (an indirect wholly-owned subsidiary of
Nvest Companies) is the sole general partner and owner of the remaining 0.5%
interest of the Manager. Nvest Corporation, a Massachusetts Corporation
(formerly known as New England Investment Companies, Inc.), serves as the
managing general partner of Nvest Companies.

Reich & Tang Asset Management, Inc. is an indirect subsidiary of Metropolitan
Life Insurance Company ("MetLife"). MetLife directly and indirectly owns
approximately 47% of the outstanding partnership interests of Nvest Companies
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc.
owns, directly and indirectly, approximately 13% of the outstanding partnership
interests of Nvest Companies.

MetLife is a mutual life insurance company and is the second largest life
insurance company in the United States in terms of total assets. MetLife
provides a wide range of insurance and investment products and services to
individuals and groups and is the leader among United States life insurance
companies in terms of total life insurance in force. MetLife and its affiliates
provide insurance or other financial services to approximately 36 million people
worldwide.

Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through thirteen subsidiaries, divisions
and affiliates offering a wide array of investment styles and products to
institutional clients. Its business units, in addition to the manager, include
AEW Capital Management, L.P., Back Bay Advisors, L.P., Capital Growth Management
Limited Partnerships; Greystone Partners; L.P. Harris Associates; L.P. Jurika &
Voyles, L.P., Loomis, Sayles & Company, L.P., New England Funds, L.P., Nvest
Associates, Inc., Snyder Capital Management, L.P., Vaughan, Nelson, Scarborough
& McCullough, L.P., and Westpeak Investment Advisors, L.P. These affiliates in
the aggregate are investment advisors or managers to 80 other registered
investment companies.

The recent name change did not result in a change of control of the Manager and
has no impact upon the Manager's performance of its responsibilities and
obligations.

On November 28, 1995, the Board of Directors, including a majority of the
directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved a new Investment Management Contract effective
August 30, 1996, which had a term which extended to July 31, 1998. It is
continued in force thereafter for successive twelve-month periods beginning each
August 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.

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 equal to .40% 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.

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

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<PAGE>

employees of the Manager, of its affiliates or of other organizations. For its
services under the Administrative Services Contract, the Manager receives from
the Fund a fee equal to .21% per annum of the Fund's average daily net assets.
For the Funds' fiscal years ended August 31, 1998, August 31, 1997 and August
31, 1996, the Manager received a fee of $__________ , $__________ and
$__________.

For the Fund's fiscal years ended August 31, 1998, August 31, 1997 and August
31, 1996, the fee paid to the Manager under the Investment Management Contract
was $___________, $773,593, and $738,885, respectively of which $_________, $0
and $21,971 was voluntarily waived. The Fund's net assets at the close of
business on August 31, 1998 totaled $__________. The Manager may waive its
rights to any portion of the management fee and may use any portion of the
Management fee for purposes of shareholder and administrative services and
distribution of the Fund's shares.

The Manager at its discretion may waive its rights to any portion of the
management fee or the administrative services fee and may use any portion of the
management fee for purposes of shareholder and administrative services and
distribution of the Fund's shares. There can be no assurance that such fees will
be waived in the future (see "Distribution and Service Plan" herein).

Investment management fees and operating expenses which are attributable to both
Classes of the Fund will be allocated daily to each Class based on the
percentage of outstanding shares at the end of the day. Additional shareholder
services provided by Participating Organizations to Class A shareholders
pursuant to the Plan shall be compensated by the Distributor from its
shareholder servicing fee, the Manager from its management fee and the Fund
itself. Expenses incurred in the distribution of Class B shares and the
servicing of Class B shares shall be paid by the Manager.

Expense Limitation

The Manager has agreed, 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 has required that an
investment company which bears any direct or indirect expense of distributing
its shares must do so only in accordance with a plan permitted by the Rule. The
Fund's Board of Directors has adopted a distribution and service plan (the
"Plan") and, pursuant to the Plan, the Fund has entered into a Distribution
Agreement and a Shareholder Servicing Agreement (with respect to Class A shares
only) with Reich & Tang Distributors, Inc., (the "Distributor"), as distributor
of the Fund's shares.

Effective December 9, 1994, a majority of the Fund's Board of Directors,
including independent directors, approved the creation of a second class of
shares of the Fund's outstanding common stock. In furtherance of this action,
the Board of Directors has reclassified the common stock of the Fund into Class
A and Class B shares. The Class A shares will be offered to investors who desire
certain additional shareholder services from Participating

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<PAGE>

Organizations that are compensated by the Fund's Manager and Distributor for
such services. For its services under the Shareholder Servicing Agreement (with
respect to the Class A shares only), the Distributor receives from the Fund a
fee equal to .25% per annum of the Fund's average daily net assets of the Class
A 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 shares and for
payments to Participating Organizations with respect to servicing their clients
or customers who are Class A shareholders of the Fund. The Class B shareholders
will not receive the benefit of such services from Participating Organizations
and, therefore, will not be assessed a Shareholder Servicing Fee.

The following information applies only to the Class A shares of the Fund. For
the Fund's fiscal year ended August 31, 1996, 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 $461,803,
none of which was voluntarily waived. During the same period, the Manager made
total payments under the plan to or on behalf of Participating Organizations of
$736,751. For the Fund's fiscal year ended August 31, 1997, 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
$483,495, none of which was voluntarily waived. During the same period, the
Manager made total payments under the plan to or on behalf of Participating
Organizations of $744,502. For the Fund's fiscal year ended August 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 $_________, of which $_______ was voluntarily waived. During the
same period, the Manager made total payments under the Plan to or on behalf of
Participating Organizations of $_________. 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 Distributor from its own
resources, or the Manager from its own resources (which may be deemed to be 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, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses, including the cost of dedicated lines and CRT terminals, incurred by
the Participating Organizations and Distributor in carrying out their
obligations under the Shareholder Servicing Agreement with respect to the Class
A shares and (ii) preparing, printing and delivering the Fund's prospectus to
existing shareholders of the Fund and preparing and printing subscription
application forms for shareholder accounts.

The Plan provides that the Manager may make payments from time to time from
their own resources, which may include the management fee, and past profits for
the following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements for performing shareholder servicing and related
administrative functions on behalf of the Class A shares of the Fund; (ii) to
compensate certain Participating Organizations for providing assistance in
distributing the Fund's 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 with respect to Class A shares
and past profits for the purpose enumerated in (i) above. The Distributor will
determine the amount of such payments made pursuant to the Plan, provided that
such payments will not increase the amount which the Fund is required to pay to
the Manager or the Distributor for any fiscal year under the Investment
Management Contract or the Shareholder Servicing Agreement in effect for that
year.

In accordance with the Rule, the Plan provides that all written agreements
relating to the Plan entered into between either the Fund or the Distributor and
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 August 31, 1998.
Thereafter it may continue in effect for successive annual periods commencing
September 1, provided it is approved by the Class A 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

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<PAGE>

provides that it may not be amended to increase materially the costs which may
be spent by the Fund for distribution pursuant to the Plan without Class A
shareholder approval, and the other material amendments must be approved by the
directors in the manner described in the preceding sentence. The Plan may be
terminated at any time by a vote of a majority of the disinterested directors of
the Fund or the Fund's Class A shareholders.

Custodian And Transfer Agents

Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri
64105, is custodian for the Fund's cash and securities. Reich & Tang Services,
Inc., an affiliate of the Fund's Manager, located at 600 Fifth Avenue, New York,
NY 10020, is transfer agent and dividend agent for the shares of the Fund. State
Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827
is the registrar, transfer agent and dividend disbursing agent for the Evergreen
Shares of the Fund. The custodian and transfer agents do not assist in, and are
not responsible for, investment decisions involving assets of the Fund.

Counsel and Auditors

Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Battle Fowler LLP, 75 East 55th Street, New York, New York 10022.
Matters in connection with North Carolina law are passed upon by Kennedy
Covington Lobdell and Hickman, L.L.P., NationsBank Corporate Center, Suite 4200,
Charlotte, North Carolina 28202.

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

VI. BROKERAGE ALLOCATION AND OTHER PRACTICES

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

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

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

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 shares when issued will have equal dividend, distribution and
liquidation rights within the series for which it was issued and each fractional
share has those rights in proportion to the percentage that the fractional share
represents of a whole share. Shares of all series have identical voting rights,
except where, by law, certain matters must be approved by a majority of the

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<PAGE>

shares of the unaffected series. Shares will be voted in the aggregate. There
are no conversion or preemptive rights in connection with any shares of the
Fund. All shares, when issued in accordance with the terms of the offering, will
be fully paid and nonassessable. Shares are redeemable at net asset value, at
the option of the shareholder. The Fund is subdivided into two classes of common
stock, Class A and Class B. Each share, regardless of class, will represent an
interest in the same portfolio of investments and will have identical voting,
dividend, liquidation and other rights, preferences, powers, restrictions,
limitations, qualifications, designations and terms and conditions, except that:
(i) the Class A and Class B shares will have different class designations; (ii)
only the Class A shares will be assessed a service fee pursuant to the Rule
12b-1 Distribution and Service Plan of the Fund of .25% of the Class A shares'
average daily net assets; (iii) only the holders of the Class A shares will be
entitled to vote on matters pertaining to the Plan and any related agreements in
accordance with provisions of Rule 12b-1; and (iv) the exchange privilege will
permit stockholders to exchange their shares only for shares of the same class
of an investment company that participates on an exchange privilege program with
the Fund. Payments that are made under the Plan will be calculated and charged
daily to the appropriate class prior to determining daily net asset value per
share and dividends/distributions.

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
meetings only (i) for the 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
the next meeting of the shareholders called for the purpose of considering the
election or re-election of such Director or of a successor to such Director, and
until the election and qualification of his or her successor, elected at such a
meeting, or until such Director sooner dies, resigns, retires or is removed by
the vote of the shareholders.

VIII. PURCHASE, REDEMPTION AND PRICING SHARES

The material relating to the purchase and redemption of shares of each Class in
the Prospectus is herein incorporated by reference.

Net Asset Value

The Fund does not determine net asset value per share of each Class on any day
in which the New York Stock Exchange is closed for trading. Those days include:
New Year's Day, Martin Luther King Jr.'s Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.

The net asset value of the Fund's shares is determined as of 12 noon, New York
City time, on each Fund Business Day. The net asset value 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 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.

-18-
<PAGE>

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

IX. TAXATION OF THE FUND

Federal Income Taxes

The Fund has elected to qualify under the Internal Revenue Code of 1986, as
amended (the "Code"), and under North Carolina law as a "regulated investment
company" that distributes "exempt-interest dividends". The Fund intends to
continue to qualify for regulated investment company status so long as such
qualification is in the best interest of its shareholders, because
qualification relieves the Fund of liability for Federal income taxes to the
extent its earnings are distributed in accordance with the applicable provisions
of the Code.

The Fund's policy is to distribute as exempt-interest dividends each year 100%,
and in no event less than 90%, of its tax-exempt interest income, net of certain
deductions. Exempt-interest dividends are dividends paid by the Fund that are
attributable to interest that is exempt from regular Federal income tax, and are
designated by the Fund as exempt-interest dividends in a written notice mailed
to the Fund's shareholders. The percentage of the total dividends paid by the
Fund during any taxable year that qualifies as exempt-interest dividends will be
the same for all shareholders receiving dividends during the year.

Exempt-interest dividends are to be treated by the Fund's shareholders as items
of interest excludable from their gross income under Section 103(a) of the Code.
The amount of such interest received will have to be disclosed on the
shareholders' Federal income tax returns. A shareholder is advised to consult
its tax advisors with respect to whether exempt-interest dividends retain the
exclusion under Section 103 of the Code if such shareholder would be treated as
a "substantial user" or "related person" under Section 147(a) of the Code with
respect to some or all of the "private activity bonds", if any, held by the
Fund. If a shareholder receives an exempt-interest dividend with respect to any
share and such share has been held for six months or less, then any loss on the
sale or exchange of such share will be disallowed to the extent of the amount of
such exempt-interest dividend. The Code provides that interest on indebtedness
incurred, or continued, to purchase or carry certain tax-exempt securities, such
as shares of the Fund, is not deductible. Therefore, among other consequences, a
certain proportion of interest on indebtedness incurred, or continued, to
purchase or carry securities on margin may not be deductible during the period
an investor holds shares of the Fund. For Social Security recipients, interest
on tax-exempt bonds, including exempt-interest dividends paid by the Fund, is to
be added to adjusted gross income for purposes of computing the amount of social
security benefits includible in gross income. Taxpayers are required to include
as an item of tax preference for purposes of the Federal alternative minimum tax
all tax-exempt interest on "private activity" bonds, issued after August 7, 1986
(generally, a bond issue in which more than 10% of the proceeds are used in a
non-governmental trade or business, other than Section 501(c)(3) bonds). This
provision will apply to any portion of the exempt-interest dividends from the
Fund's assets that are attributable to such post-August 7, 1986 private activity
bonds. Corporations are required to increase their alternative minimum taxable
income for purposes of calculating their alternative minimum tax liability by
75% of the amount by which the adjusted current earnings (which will include
tax-exempt interest) of the corporation exceeds its alternative minimum taxable
income (determined without this item). In addition, in certain cases, Subchapter
S corporations with accumulated earnings and profits from Subchapter C years are
subject to a minimum tax on excess "passive investment income", which includes
tax-exempt interest.

Although it is not intended, it is possible that the Fund may realize short-term
or long-term capital gains or losses from its portfolio transactions. The Fund
may also realize short-term or long-term capital gains or accrued market
discount upon the maturity or disposition of securities acquired at discounts
resulting from market fluctuations. Short-term capital gains and accrued market
discount will be taxable to shareholders as ordinary income. Any net capital
gains (the excess of net realized long-term capital gain over net realized
short-term capital loss) will be distributed annually to shareholders. The Fund
will have no tax liability with respect to distributed net capital gains and the

-19-
<PAGE>

distributions will be taxable to shareholders as long-term capital gains
regardless of how long the shareholders have held their shares. However,
shareholders who at the time of such a net capital gain distribution have not
held their shares for more than 6 months, and who subsequently dispose of those
shares at a loss, will be required to treat such loss as a long-term capital
loss to the extent of the net capital gain distribution. Distributions of net
capital gain will be designated as a "capital gain dividend" in a written notice
mailed to the Fund's shareholders after the close of the Fund's taxable year.
Capital gains realized by corporations are generally taxed at the same rate as
ordinary income. However, long-term capital gains realized by non-corporate
shareholders who have a holding period of more than 12 months are taxable at a
maximum rate of 20%. Corresponding maximum rate and rules apply with respect to
capital gains dividends distributed by the Fund, without regard to the length of
time shares have been held by the shareholder.

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

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

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

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

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

From time to time, proposals have been introduced before Congress to restrict or
eliminate the Federal income tax exemption for interest on Municipal
Obligations. If such a proposal were introduced and enacted in the future, the
ability of the Fund to pay exempt-interest dividends would be adversely affected
and the Fund would reevaluate its investment objective and policies and consider
changes in the structure.

North Carolina 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. However, assuming that the Fund is a regulated investment company
within the meaning of Section 851 of the Code and has filed with the North
Carolina Department of Revenue its election to be treated as a regulated
investment company, exempt interest dividends received from the Fund and
correctly identified by the Fund as derived from obligations issued by or on
behalf of the state of North Carolina or any political subdivisions need not be
included in North Carolina taxable income by shareholders of the Fund subject to
North Carolina taxation. Exempt-interest dividends correctly identified by the
Fund as derived from obligations of Puerto Rico and the Virgin Islands, as well
as other types of obligations that North Carolina is prohibited from taxing
under the Constitution or laws of the United States of America or the
constitution or laws of North Carolina ("Territorial Municipal Obligations")
should be exempt from North Carolina income taxation provided the Fund complies
with North Carolina law. Dividends with

-20-
<PAGE>

respect to interest on obligations from states other than North Carolina and its
political subdivisions are required to be added to Federal taxable income in
calculating North Carolina taxable income. The portion of distributions from the
Fund that represents capital gain is reportable for North Carolina income tax
purposes as capital gain income and not dividend income.

X. UNDERWRITERS

The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a sales charge. The Distributor does not receive an
underwriting commission. In effecting sales of Fund shares under the
Distribution Agreement, the Distributor, for nominal consideration (i.e., $1.00)
and as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.

The Glass-Steagall Act and other applicable laws and regulations prohibit banks
and other depository institutions from engaging in the business of underwriting,
selling or distributing most types of securities. In the opinion of the Manager,
however, based on the advice of counsel, these laws and regulations do not
prohibit such depository institutions from providing other services for
investment companies such as the shareholder servicing and related
administrative functions referred to above. The Fund's Board of Directors will
consider appropriate modifications to the Fund's operations, including
discontinuance of any payments then being made under the Plan to banks and other
depository institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to provide the
above-mentioned services. It is not anticipated that the discontinuance of
payments to such an institution would result in loss to shareholders or change
in the Fund's net asset value. In addition, state securities laws on this issue
may differ from the interpretations of Federal law expressed herein and banks
and financial institutions may be required to register ad dealers pursuant to
state law.

XI. CALCULATION OF PERFORMANCE DATA

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

The Fund's "effective yield" 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 1 minus a stated income tax rate
and

-21-
<PAGE>

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 would need 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 November 30,
1998 was ____% which is equivalent to an effective yield of ____%.

XII. FINANCIAL STATEMENTS

The audited financial statements for the Fund for the fiscal year ended August
31, 1998 and the report therein of McGladrey & Pullen, LLP, are herein
incorporated by reference to the Fund's Annual Report. The Annual Report is
available upon request and without charge.

-22-
<PAGE>

DESCRIPTION OF RATINGS*

Description of Moody's Investors Service, Inc.'s Two Highest Municipal Bond
Ratings

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

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

Con. ( ... ) Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (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 will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used will be as follows:

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

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

Description of Standard & Poor's Rating Services Two Highest Debt Ratings:

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

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

- -----------
*As described by the rating agencies.

-23-
<PAGE>

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.

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<PAGE>

CORPORATE TAXABLE EQUIVALENT YIELD TABLE
(Based on Tax Rates Effective Until December 31, 1998)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>

- ------------------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket is . . .
- ------------------------------------------------------------------------------------------------------------------------
Corporate 50,001- 75,001- 100,001- 335,001- 10,000,001- 15,000,001- 18,333,334-
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 25.00% 34.00% 39.00% 34.00% 35.0% 38.0% 35.0%
Tax Rate
- ------------------------------------------------------------------------------------------------------------------------
State 7.25% 7.25% 7.25% 7.25% 7.25% 7.25% 7.25%
Tax Rate
- ------------------------------------------------------------------------------------------------------------------------
State Tax 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Surcharge
- ------------------------------------------------------------------------------------------------------------------------
Combined 30.44% 38.79% 43.42% 38.79% 39.71% 42.50% 39.71%
Marginal
Tax Rate
- ------------------------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
- ------------------------------------------------------------------------------------------------------------------------
Tax Equivalent Taxable Investment Yield
Exempt Required to Match Tax Exempt Yield
Yield
- ------------------------------------------------------------------------------------------------------------------------
2.00% 2.88% 3.27% 3.53% 3.27% 3.32% 3.48% 3.32%
- ------------------------------------------------------------------------------------------------------------------------
2.50% 3.59% 4.08% 4.42% 4.08% 4.15% 4.35% 4.15%
- ------------------------------------------------------------------------------------------------------------------------
3.00% 4.31% 4.90% 5.30% 4.90% 4.98% 5.22% 4.98%
- ------------------------------------------------------------------------------------------------------------------------
3.50% 5.03% 5.72% 6.19% 5.72% 5.81% 6.09% 5.81%
- ------------------------------------------------------------------------------------------------------------------------
4.00% 5.75% 6.53% 7.07% 6.53% 6.63% 6.96% 6.63%
- ------------------------------------------------------------------------------------------------------------------------
4.50% 6.47% 7.35% 7.95% 7.35% 7.46% 7.83% 7.46%
- ------------------------------------------------------------------------------------------------------------------------
5.00% 7.19% 8.17% 8.84% 8.17% 8.29% 8.69% 8.29%
- ------------------------------------------------------------------------------------------------------------------------
5.50% 8.91% 8.98% 9.72% 8.98% 9.12% 9.56% 9.12%
- ------------------------------------------------------------------------------------------------------------------------
6.00% 8.63% 9.80% 10.60% 9.80% 9.95% 10.43% 9.95%
- ------------------------------------------------------------------------------------------------------------------------
6.50% 9.34% 10.62% 11.49% 10.62% 10.78% 11.30% 10.78%
- ------------------------------------------------------------------------------------------------------------------------
7.00% 10.06% 11.44% 12.37% 11.44% 11.61% 12.17% 11.61%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

To use this chart, find the applicable level of taxable income based on your tax
filling status in section one. Then read down to section two to determine your
combined tax bracket and, in section three, to see the equivalent taxable yields
for each of the tax free income yields given.

-25-
<PAGE>

INDIVIDUAL TAXABLE EQUIVALENT YIELD TABLE
(Based on Tax Rates Effective Until December 31, 1998)

- ---------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket is . . .
- ---------------------------------------------------------------------------------------------------------
Single $0- 25,351- 60,001- 61,401- 128,101- 278,451
Return 25,350 60,000 61,400 128,100 278,450 and over
- ---------------------------------------------------------------------------------------------------------
Joint $0- 42,351- 100,001- 102,301- 155,951- 278,451
Return 42,350 100,000 102,300 155,950 278,450 and over
- ---------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- ---------------------------------------------------------------------------------------------------------
Federal 15.00% 28.00% 28.00% 31.00% 36.0% 39.60%
Tax Bracket 35.0%
- ---------------------------------------------------------------------------------------------------------
State 7.00% 7.0% 7.75% 7.75% 7.75% 7.75%
Tax Bracket
- ---------------------------------------------------------------------------------------------------------
Combined 20.95% 33.04% 33.58% 36.65% 40.96% 44.28%
Tax Bracket
- ---------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
- ---------------------------------------------------------------------------------------------------------
Tax Equivalent Taxable Investment Yield
Exempt Required to Match Tax Exempt Yield
Yield
- ---------------------------------------------------------------------------------------------------------
2.00% 2.53% 2.99% 3.01% 3.14% 3.39% 3.59%
- ---------------------------------------------------------------------------------------------------------
2.50% 3.16% 3.73% 3.76% 3.93% 4.23% 4.49%
- ---------------------------------------------------------------------------------------------------------
3.00% 3.80% 4.48% 4.52% 4.71% 5.08% 5.38%
- ---------------------------------------------------------------------------------------------------------
3.50% 4.43% 5.23% 5.27% 5.50% 5.93% 6.28%
- ---------------------------------------------------------------------------------------------------------
4.00% 5.06% 5.97% 6.02% 6.28% 6.78% 7.18%
- ---------------------------------------------------------------------------------------------------------
4.50% 5.69% 6.72% 6.78% 7.07% 7.62% 8.08%
- ---------------------------------------------------------------------------------------------------------
5.00% 6.33% 7.47% 7.53% 7.86% 8.47% 8.97%
- ---------------------------------------------------------------------------------------------------------
5.50% 6.96% 8.21% 8.28% 8.64% 9.32% 9.87%
- ---------------------------------------------------------------------------------------------------------
6.00% 7.59% 8.96% 9.03% 9.43% 10.16% 10.77%
- ---------------------------------------------------------------------------------------------------------
6.50% 8.22% 9.71% 9.79% 10.21% 11.01% 11.67%
- ---------------------------------------------------------------------------------------------------------
7.00% 8.86% 10.45% 10.54% 11.01% 11.86% 12.56%
- ---------------------------------------------------------------------------------------------------------

</TABLE>

<PAGE>
PART C

OTHER INFORMATION

ITEM 23. Exhibits.
- -------

Exhibits.

* (a) Articles of Incorporation of the Registrant.

** (b) By-laws of the Registrant.

* (c) Form of certificate for shares of Common Stock, par value
$.001 per share, of the Registrant.

**** (d) Investment Management Contract between the Registrant
and Reich & Tang Asset Management, L.P.

**** (e) Distribution Agreement between the Registrant and
Reich & Tang Distributors L.P.

(f) Not applicable

*** (g) Custody Agreement between the Registrant and Investors
Fiduciary Trust Company.

*** (h) Sub-Transfer Agency Agreement between the Registrant and
Investors Fiduciary Trust Company filed.

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

* Filed with the original Registration Statement No. 33-41462 on June 28,
1991, and incorporated herein by reference.

** Filed with Pre-Effective Amendment No. 1 to said Registration Statement on
August 15, 1991, and incorporated herein by reference.

*** Filed with Post-Effective Amendment No. 4 to said Registration Statement on
December 23, 1994, and incorporated herein by reference.

**** Filed with Post-Effective Amendment No. 6 to said Registration Statement
December 16, 1996, and incorporated herein by reference.

C-1

<PAGE>

** (i) Opinion of Messrs. Battle Fowler LLP, as to the
legality of the securities being registered, including
their consent to the filing thereof and to the use of
their name under the heading "Federal Income Taxes" in the
Prospectus and in the Statement of Additional Information,
and under "Counsel and Auditors" in the Statement of
Additional Information as to certain federal tax matters.

** (i.1) Opinion of Kennedy Covington Lobdell & Hickman as to
North Carolina law, including their consent to the filing
thereof and to the use of their name under the heading
"North Carolina Income Taxes" in the Prospectus and in the
Statement of Additional Information, and under "Counsel
and Auditors" in the Statement of Additional Information
as to certain federal tax matters.

(j) Consent of Independent Auditor.

(k) Audited Financial Statements, for fiscal year ended August
31, 1997 (Filed with Annual Report) and unaudited
Semi-Annual Report for the six months ended February 28,
1998 and incorporated herein by reference.

** (l) Written assurance of Reich & Tang L.P. that its purchase of
shares of the Registrant was for investment purposes
without any present intention of redeeming or reselling.

*** (m.1) Distribution and Service Plan Pursuant to Rule 12b-1 under
the Investment Company Act of 1940.

*** (m.2) Distribution Agreement between registrant and Reich & Tang
Distributors L.P..

*** (m.3) Shareholder Servicing Agreement and Administrative Services
Contract between the Registrant and Reich & Tang
Distributors L.P.

(n) Financial Data Schedule (for Edgar filing only).

(o) Rule 18f-3 Plan for Multi-Class (filed on November 5, 1997
with Post-Effective Amendment No. 2 to the Virginia Daily
Municipal Income Fund, Inc. (file no. 33-90538)
Registration Statement and incorporated herein by reference).

* (p) Powers of Attorney.

ITEM 24. Persons Controlled by or Under Common Control with the Fund.
- -------

None.

ITEM 25. Indemnification.
- -------

Filed as Item 27 to Form N-1A Registration Statement No. 33-41462
on June 28, 1991 and incorporated herein by reference.

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

* Filed with the original Registration Statement No. 33-41462 on June 28,
1991, and is incorporated herein by reference.

** Filed with Pre-Effective Amendment No. 1 to said Registration Statement on
August 15, 1991, and incorporated herein by reference.

*** Filed with Post-Effective Amendment No. 6 to said Registration Statement on
December 16, 1996, and incorporated herein by reference.

C-2

<PAGE>

ITEM 26. Business and Other Connections of Investment Adviser.
- -------

The description of Reich & Tang Asset Management L.P. ("RTAMLP") under
the caption "Management of the Fund" in the Prospectus and "Manager" and
"Management of the Fund" in the Statement of Additional Information constituting
parts A and B, respectively, of the Registration Statement are incorporated
herein by reference.

The Registrant's investment adviser, Reich & Tang Asset Management L.P. is a
registered investment adviser. Reich & Tang Asset Management L.P.'s investment
advisory clients include California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax
Free Income Fund, Inc., Florida Daily Municipal Income Fund, Georgia Daily
Municipal Income Fund, Inc., Institutional Daily Income Fund, Michigan Daily Tax
Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York
Daily Tax Free Income Fund, Inc., Pax World Money Market Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Short Term Income Fund, Inc., Tax
Exempt Proceeds Fund, Inc., and Virginia Daily Municipal Income Fund, Inc.,
registered investment companies whose addresses are 600 Fifth Avenue, New York,
New York 10020, which invest principally in money market instruments; Delafield
Fund, Inc. and Reich & Tang Equity Fund, Inc. are registered investment
companies whose address is 600 Fifth Avenue, New York, New York 10020, which
invests principally in equity securities. In addition, RTAMLP is the sole
general partner of Alpha Associates L.P., August Associates L.P., Reich & Tang
Minutus I, L.P., Reich & Tang Minutus II, L.P., Reich & Tang Equity Partners
L.P., Tucek Partners L.P., Reich & Tang Micro Cap L.P., and Reich & Tang
Concentrated Portfolio L.P., private investment partnerships organized as
limited partnerships.

Peter S. Voss, President, Chief Executive Officer and a Director of Nvest
Corporation (Formerly New England Investment Companies, Inc.) since October
1992, Chairman of the Board of Nvest Corporation since December 1992, Group
Executive Vice President, Bank of America, responsible for the global asset
management private banking businesses, from April 1992 to October 1992,
Executive Vice President of Security Pacific Bank, and Chief Executive Officer
of Security Pacific Hoare Govett Companies a wholly-owned subsidiary of Security
Pacific Corporation, from April 1988 to April 1992, Director of The New England
since March 1993, Chairman of the Board of Directors of Nvest Corporation's
subsidiaries other than Loomis, Sayles & Company, L.P. ("Loomis") and Back Bay
Advisors, L.P. ("Back Bay"), where he serves as a Director, and Chairman of the
Board of Trustees of all of the mutual funds in the TNE Fund Group and the
Zenith Funds. G. Neal Ryland, Executive Vice President, Treasurer and Chief
Financial Officer since July 1993, Executive Vice President and Chief Financial
Officer of The Boston Company, a diversified financial services company, from
March 1989 until July 1993, from September 1985 to December 1988, Mr. Ryland was
employed by Kenner Parker Toys, Inc. as Senior Vice President and Chief
Financial Officer. Edward N. Wadsworth, Executive Vice President, General
Counsel, Clerk and Secretary of Nvest Corporation since December 1989, Senior
Vice President and Associate General Counsel of The New England from 1984 until
December 1992, and Secretary of Westpeak and Draycott and the Treasurer of Nvest
Corporation. Lorraine C. Hysler has been Secretary of RTAM since July 1994,
Assistant Secretary since September 1993, Vice President of the Mutual Funds
Group of NEICLP from September 1993 until July 1994, and Vice President of Reich
& Tang Mutual Funds since July 1994. Ms. Hysler joined Reich & Tang, Inc. in May
1977 and served as Secretary from April 1987 until September 1993. Richard E.
Smith, III has been a Director of RTAM since July 1994, President and Chief
Operating Officer of the Capital Management Group of NEICLP from May 1994 until
July 1994, President and Chief Operating Officer of the Reich & Tang Capital
Management Group since July 1994, Executive Vice President and Director of Rhode
Island Hospital Trust from March 1993 to May 1994, President, Chief Executive
Officer and Director of USF&G Review Management Corp. from January 1988 until
September 1992. Steven W. Duff has been a Director of RTAM since October 1994,
President and Chief Executive Officer of Reich & Tang Mutual Funds since August
1994,

C-3

<PAGE>

Senior Vice President of NationsBank from June 1981 until August 1994, Mr. Duff
is President and a Director of Back Bay Funds, Inc., California Daily Tax Free
Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free
Income Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pax World Money Market Fund, Inc.,
Short Term Income Fund, Inc. and Virginia Daily Municipal Income Fund, Inc.
President and Trustee of Institutional Daily Municipal Income Fund, Pennsylvania
Daily Municipal Income Fund, President and Chief Executive Officer of Tax Exempt
Proceeds Fund, Inc., and Executive Vice President of Reich & Tang Equity Fund,
Inc. Bernadette N. Finn has been Vice President/Compliance of RTAM since July
1994, Vice President of Mutual Funds Division of NEICLP from September 1993
until July 1994, Vice President of Reich & Tang Mutual Funds since July 1994.
Ms. Finn joined Reich & Tang, Inc. in September 1970 and served as Vice
President from September 1982 until May 1987 and as Vice President and Assistant
Secretary from May 1987 until September 1993. Ms. Finn is also Secretary of Back
Bay Funds, Inc., California Daily Tax Free Income Fund, Inc., Connecticut Daily
Tax Free Income Fund, Inc., Cortland Trust, Inc., Delafield Fund, Inc., Daily
Tax Free Income Fund, Inc., Institutional Daily Municipal Income Fund, Michigan
Daily Tax Free Income Funds, Inc., New Jersey Daily Municipal Income Fund, Inc.,
New York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pax World Money Market Fund, Inc., Pennsylvania Daily Municipal
Income Fund, Tax Exempt Proceeds Fund, Inc., and Virginia Daily Municipal Income
Fund, Inc. a Vice President and Secretary of Reich & Tang Equity Fund, Inc., and
Short Term Income Fund, Inc. Richard DeSanctis has been Treasurer of RTAM since
July 1994, Assistant Treasurer since September 1993 and Treasurer of the Mutual
Funds Group of NEICLP from September 1993 until July 1994, Treasurer of the
Reich & Tang Mutual Funds since July 1994. Mr. DeSanctis joined Reich & Tang,
Inc. in December 1990 and served as Controller of Reich & Tang, Inc., from
January 1991 to September 1993. Mr. DeSanctis was Vice President and Treasurer
of Cortland Financial Group, Inc. and Vice President of Cortland Distributors,
Inc. from 1989 to December 1990. Mr. DeSanctis is also Treasurer of Back Bay
Funds, Inc., California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax
Free Income Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc.,
Institutional Daily Municipal Income Fund, Michigan Daily Tax Free Income Fund,
Inc., New Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free
Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc., Pax World
Money Market Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang
Equity Fund, Inc., Short Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc.
and Virginia Daily Municipal Income Fund, Inc., and is Vice President and
Treasurer of Cortland Trust, Inc. Richard I. Weiner has been Vice President of
RTAM since July 1994, has been Vice President of Nvest Corporation since
September 1993, Vice President of the Capital Management Group of NEIC from
September 1993 until July 1994, Vice President of Reich & Tang Asset Management
L.P. Capital Management Group since July 1994. Mr. Weiner joined Reich & Tang,
Inc. in August 1970 and has served as a Vice President since September 1982.
Rosanne D. Holtzer has been Vice President of the Mutual Funds division of the
Manager since December 1997. Ms. Holtzer was formerly Manager of Fund Accounting
for the Manager with which she was associated with from June 1986. She is also
Assistant Treasurer of Back Bay Funds, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Florida
Daily Municipal Income Fund, Institutional Daily Income Fund, Michigan Daily Tax
Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York
Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income Fund,
Inc. Pax World Money Market Fund, Inc., Pennsylvania Daily Municipal Income
Fund, Short Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc. and Virginia
Daily Municipal Income Fund, Inc. and is Vice President and Assistant Treasurer
of Cortland Trust, Inc.

C-4

<PAGE>

ITEM 27. Principal Underwriters.
- -------

(a) Reich & Tang Distributors, Inc. is also distributor for Back Bay
Funds, Inc., California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax
Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Florida Daily Municipal Income Fund, Georgia Daily
Municipal Income Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income Fund, Inc., Pax World Money Market
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., Short Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc. and Virginia
Daily Municipal Income Fund, Inc.

(b) The following are the directors and officers of Reich & Tang
Distributors, Inc.. The principal business address of Messrs. Voss, Ryland and
Wadsworth is 399 Boylston Street, Boston, Massachusetts 02116. For all other
persons, the principal business address is 600 Fifth Avenue, New York, New York
10020.

Positions and Offices Positions and Offices
Name of the Distributor With Registrant
---- ------------------ ---------------

Peter S. Voss President and Director None
G. Neal Ryland Director None
Edward N. Wadsworth Executive Officer None
Richard E. Smith III Director None
Steven W. Duff Director None
Bernadette N. Finn Vice President Secretary
Lorraine C. Hysler Secretary None
Richard De Sanctis Treasurer Treasurer
Richard I. Weiner Vice President None

ITEM 28. Location of Accounts and Records.
- -------

Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained in the physical possession of the Registrant at 600
Fifth Avenue, New York, New York 10020, the Registrants Manager, and at
Investors Fiduciary Trust Company, 801 Pennsylvania Street, Kansas City,
Missouri 64105, Registrant's custodian and transfer agent.

ITEM 29. Management Services.
- -------

Not applicable.

ITEM 30. Undertaking.
- -------

(a) Not applicable.
(b) Not applicable.

C-5

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has met all of
the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(a) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, and State of New York, on the 30th day of October, 1998.

NORTH CAROLINA DAILY MUNICIPAL
INCOME FUND, INC.

By: /s/ Bernadette N. Finn
Bernadette N. Finn
Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.

Signature Capacity Date

(1) Principal Executive Officer

By: /s/ Steven W. Duff
Steven W. Duff* President and 10/30/98
Director

(2) Principal Financial and
Accounting Officer

By: /s/ Richard De Sanctis Treasurer 10/30/98
Richard De Sanctis

(3) Majority of Directors

Steven W. Duff President and Director
Yung Wong Director
W. Giles Mellon Director
Robert Straniere Director

By: /s/ Bernadette N. Finn 10/30/98

Bernadette N. Finn
Attorney-in-Fact

* Power of Attorney, Exhibit 16 herein, and is incorporated herein by reference
to Post - Effective Amendment number 4 to said Registration Statement filed on
December 23, 1994.

EXHIBIT J

McGLADREY & PULLEN L.L.P.
Certified Public Accountants & Consultants

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use of our report dated September 30, 1997, on the
financial statements referred to therein in Post-Effective Amendment No. 8 to
the Registration Statement on Form N-1A File No. 33-41462 of North Carolina
Daily Municipal Income Fund, Inc., as filed with the Securities and Exchange
Commission.

We also consent to the reference to our Firm in the Prospectus under the
caption "Financial Highlights" and in the Statement of Additional Information
under the captions "Counsel and Auditors" and "Financial Statements".

/s/McGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP

New York, New York
October 28, 1998

<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
extracted from the financial statements and supporting
schedules as of the end of the most current period and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000876895
<NAME> North Carolina Daily Municipal Income Fund, Inc.

<S> <C>
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<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
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</TABLE>