As filed with the Securities and Exchange Commission on January 29, 1999
Registration No. 33-48014
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 9 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 10 [X]
PENNSYLVANIA DAILY MUNICIPAL INCOME FUND
(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 R. ROSELLA, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
(212) 856-6858
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>
PENNSYLVANIA DAILY MUNICIPAL INCOME FUND
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 Risks . Investment Strategies, and Related
Risks
5. Management's Discussion of Not Applicable
Fund Performance . . . . . . . . . . .
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>
PENNSYLVANIA DAILY MUNICIPAL INCOME FUND
Registration Statement on Form N-1A
CROSS-REFERENCE SHEET -
Pursuant to Rule 404(c)
PART B Caption in Statement of
Item No. Additional Information
1O. 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
Other Services . . . . . . . . . . . . Services
16. Brokerage Allocation and Other Brokerage Allocation and Other
Practices . . . . . . . . . . . . . . . Practices
17. Capital Stock and Other Securities . . . Capital Stock and 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. Calculation of Performance Data. . . . Calculation of Performance Data
22. Financial Statements . . . . . . . . . Financial Statements
<PAGE>
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600 FIFTH AVENUE
NEW YORK, N.Y. 10020
(212) 830-5220
PENNSYLVANIA
DAILY MUNICIPAL
INCOME FUND
Class A Shares; Class B Shares
PROSPECTUS
April 1, 1999
A money market fund whose investment objectives are to seek as high a level of
current income, exempt from Federal income tax and to the extent possible from
Pennsylvania 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 disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C>
2 Risk/Return Summary: Investments, Risks, 7 Management, Organization and Capital Structure
and Performance 7 Shareholder Information
4 Fee Table 14 Tax Consequences
5 Investment Objectives, Principal Investment 16 Distribution Arrangements
Strategies and Related Risks 17 Financial Highlights
</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 Federal income
tax and to the extent possible from Pennsylvania income tax, as is believed to
be consistent with preservation of capital, maintenance of liquidity, and
stability of principal. 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) The Commonwealth of Pennsylvania, 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 total
assets) in Pennsylvania 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 Pennsylvania 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 Pennsylvania municipal
obligations may entail. Payment of interest and preservation of capital are
dependent upon the continuing ability of Pennsylvania issuers and/or obligators
of state, municipal and public authority debt obligations to meet their payment
obligations. Risk factors affecting the State of Pennsylvania are described in
"Pennsylvania Risk Factors" in the Statement of Additional Information.
Risk/Return Bar Chart and Table
- -------------------------------
The following bar chart and table may assist you in your decision to invest
in a portfolio of the Fund. The bar chart shows the change in the annual returns
of the Fund over the last ten calendar years. The table shows the average total
returns for the last one, five and ten year periods. The table also includes the
Fund's average annual return since inception. While analyzing this information,
please note that the Fund's past performance is not an indicator of how the Fund
will perform in the future. The Fund's current 7-day yield may be obtained by
calling the Fund toll-free at 1-800- 433-1918.
2
<PAGE>
<TABLE>
<CAPTION>
Pennsylvania Daily Municipal Icncome Fund - Class A Shares (1) (2) (3) (4)
[GRAPHIC OMITTED]
<S> <C>
Calendar Year % Total Return
1993 2.25%
1994 2.56%
1995 3.50%
1996 2.97%
1997 3.06%
1998 2.91%
</TABLE>
(1) As of December 31, 1998, the Fund had a year-to-date return of 2.91%.
(2) The Fund's highest quarterly return was 0.91% for the quarter ended
June 30, 1995; the lowest quarterly return was 0.51% for the
quarter ended March 31, 1994.
(3) Investors purchasing or redeeming shares through a Participating
Organization may be charged a fee in connection with such service
and, therefore, the net return to such investors may be less than
the net return by investing in the Fund directly.
(4) The return for 1993 represents _____________ inception through December 31,
1993.
Average Annual Total Returns - Pennsylvania Daily Municipal Income Fund
Class A Class B*
For the period ended December 31, 1998
One Year 2.91% 3.21%
Five Years 3.00% N/A
Average Annual Total Return
since Inception 2.87% 3.27%
* Class B shares commenced operation on October 10, 1996.
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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
(expenses that are deducted from Fund assets)
Class A Class B
Management Fees........................... 0.40% 0.40%
Distribution and Service (12b-1) Fees..... 0.25% 0.00%
Other Expenses............................ 1.23% 1.23%
Administration Fees..................... 0.21% ______ 0.21% ______
Total Annual Fund Operating Expenses...... 1.88% 1.63%
The Manager has voluntarily waived a portion of the Management Fee and
Administration Fee and reimbursed portion of the Fund's operating expenses with
respect to both Class A and B Shares. After such waivers, the Management Fee,
with respect to both Class A and B shares was 0.02%. The Administration Fee,
with respect to Both Class A and B shares was 0% and other expenses were 0.43%.
The actual Total Fund Operating Expenses for Class A were 0.70% and for Class B
were 0.45%. 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: $191 $591 $1016 $2200
Class B: $166 $514 $886 $1932
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<PAGE>
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 Federal
income tax and, to the extent possible from Pennsylvania income taxes,
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) Pennsylvania Municipal Obligations issued by or on behalf of the
Commonwealth of Pennsylvania or any Pennsylvania 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 (i) Participation
Certificates in Pennsylvania Municipal Obligations and (ii) other Pennsylvania
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.
The Fund may also purchase securities and Participation Certificates whose
interest income may be subject to the Federal alternative minimum tax and these
investments would be included in the 20% that may be invested in taxable
securities.
To the extent suitable Pennsylvania Municipal Obligations are not available
for investment by the Fund, the Fund may purchase Municipal Obligations issued
by other states, their agencies and instrumentalities, the dividends on which
will be designated by the Fund as derived from interest income which will be, in
the opinion of bond counsel to the issuer at the date of issuance, exempt from
regular Federal income tax but will be subject to Pennsylvania income tax.
The Fund will invest at least 65% of its total assets in Pennsylvania
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
5% 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
5
<PAGE>
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 which have been determined by the Fund's Board of Trustees 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 Trustees 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 Trustees 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 associated
with long-term Pennsylvania 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.
Because of the Fund's concentration in investments in Pennsylvania Municipal
Obligations, the safety of an investment in the Fund will depend substantially
upon the financial strength of Pennsylvania and its political subdivisions.
The primary purpose of investing in a portfolio of Pennsylvania Municipal
Obligations is the special tax treatment accorded Pennsylvania resident
individual investors. Payment of interest and preservation of principal,
however, are dependent upon the continuing ability of the Pennsylvania 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
Pennsylvania 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
6
<PAGE>
be made with an understanding of the characteristics of the banking industry and
the risks which such an investment may entail. This includes extensive
governmental regulations, changes in the availability and cost of capital funds,
and general economic conditions (see "Variable Rate Demand Instruments and
Participation Certificates" in the Statement of Additional Information) which
may limit both the amounts and types of loans and other financial commitments
which may be made and interest rates and fees which may be charged. The
profitability of this industry is largely dependent upon the availability and
cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operations of this industry and exposure to credit losses
arising from possible financial difficulties of borrowers might affect a bank's
ability to meet its obligations under a letter of credit.
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Manager is in the process of working with the Fund's service
providers to prepare for the year 2000. Based on information currently
available, the Manager does not expect that the Fund will incur material costs
to be year 2000 compliant. Although the Manager does not anticipate that the
year 2000 issue will have a material impact on the Fund's ability to provide
service at current levels, there can be no assurance that steps taken in
preparation for the year 2000 will be sufficient to avoid an adverse impact on
the Fund. The Year 2000 Problem may also adversely affect issuers of the
securities contained in the Fund, to varying degrees based upon various factors,
and thus may have a corresponding adverse effect on the Fund's performance. The
Manager is unable to predict what effect, if any, the Year 2000 Problem will
have on such issuers.
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 December 30, 1998, the Manager was the
investment manager, advisor or supervisor with respect to assets aggregating in
excess of $12.0 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 Trustees
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. The
Manager, at its discretion, may voluntarily waive all or a portion of the
management fee.
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.
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
7
<PAGE>
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 Trustees 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 an account at a Participating
Organization 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 which, 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 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 a
personalized monthly statement from the Fund listing (i) the total number of
Fund shares owned as of the statement closing date, (ii) purchase and
redemptions of Fund shares and (iii) the dividends paid on Fund shares
(including dividends paid in cash or reinvested in additional Fund shares).
8
<PAGE>
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 212-830-5280
Outside New York (TOLL FREE) 800-433-1918
Mail
- ----
Investors may send a check made payable to "Pennsylvania Daily Municipal
Income Fund" along with a completed subscription order form to:
Pennsylvania Daily Municipal Income Fund
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
9
<PAGE>
telephoning the Fund at 212-830-5280 (within New York) or at 1-800-433-1918
(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 Pennsylvania Daily Municipal
Income Fund
Account of (Investor's Name)
Account #
SS#/Tax ID#
The investor should then promptly complete and mail the subscription order
form.
Investors planning to wire funds should instruct their bank early in the day
so the wire transfer can be accomplished before 12 noon, New York City time, on
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 "Pennsylvania Daily Municipal Income Fund",
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:
Pennsylvania Daily Municipal Income Fund
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
10
<PAGE>
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 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:
Pennsylvania Daily Municipal Income Fund
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 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 Trustees 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.
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.
11
<PAGE>
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.
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
212-830-5280; outside New York at 1-800-433-1918, and state: (i) the name of the
shareholder appearing on the Fund's records; (ii) the shareholder's account
number with the Fund; (iii) the amount to be withdrawn; (iv) whether such amount
is to be forwarded to the shareholder's designated bank account or address; and
(v) the name of the person requesting the redemption. Usually the proceeds are
sent to the designated bank account or address on the same Fund Business Day the
redemption is effected, provided the redemption request is received before 12
noon, New York City time. Proceeds are sent the next Fund Business Day if the
redemption request is received after 12 noon, New York City time. The Fund
reserves the right to terminate or modify the telephone redemption service in
whole or in part at any time and will notify shareholders accordingly.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are given
in proper form to the Fund's transfer agent, a check for the proceeds of a
redemption will be sent to the shareholders' address of record. If a shareholder
elects to redeem all the shares of the Fund he owns, all dividends accrued to
the date of such redemption will be paid to the shareholder along with the
proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the SEC determines that trading thereon is restricted. Additional exceptions
include any period during which an emergency (as determined by the SEC) exists
as a result of which disposal by the Fund of its portfolio securities is not
reasonably practicable or as a result of which it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or for such other
period as the SEC may by order permit for the protection of the shareholders of
the Fund.
The Fund has reserved the right to redeem the shares of any shareholder if
the net asset value of all the remaining shares in the shareholder's 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
12
<PAGE>
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.
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., Delafield Fund, Inc., Georgia Daily Municipal 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., Reich
& Tang Equity Fund, Inc., Short Term Income Fund, Inc. and Virginia Daily
Municipal 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
13
<PAGE>
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:
Pennsylvania Daily Municipal Income Fund
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 1-800-221-3079 (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
- ----------------
Dividends paid by the Fund, which are "exempt-interest dividends" by virtue
of being properly designated by the Fund as derived from Municipal Obligations
and Participation Certificates, 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"). To the extent the Fund's
assets consist exclusively of obligations (including participation certificates)
issued by or on behalf of the Commonwealth of Pennsylvania or any Pennsylvania
local governments, or their instrumentalities, authorities or districts
("Pennsylvania Municipal Obligations") or obligations issued by or on behalf of
territories and possessions of the United States and their authorities,
agencies, instrumentalities and political subdivisions on December 31st of each
taxable year, shares of the Fund will be exempt from Pennsylvania income tax.
Federal Income Taxes
- --------------------
The Fund has elected to qualify under the Code as a regulated investment
company that distributes "exempt-interest dividends" as defined in the Code. The
Fund's policy is to distribute as dividends each year 100% (and in no event less
than 90%) of its tax-exempt interest income, net of certain deductions, and its
investment company taxable income (if any). If distributions are made in this
manner, dividends derived from the interest earned on Municipal Obligations are
"exempt-interest dividends" and are not subject to regular Federal income tax,
although as described below, such "exempt-interest dividends" may be subject to
Federal alternative minimum tax. Dividends paid from taxable income, if any, and
distributions of any realized short-term capital gains (whether from tax-exempt
or taxable obligations) are taxable to shareholders as ordinary income for
Federal income tax purposes, whether received in cash or reinvested in
additional shares of the Fund. The Fund does not expect to realize long-term
capital gains, and thus does not contemplate distributing "capital gain
dividends" or having undistributed capital gain income within the meaning of the
Code. The Fund will inform shareholders of the amount and nature of its income
and gains in a written notice mailed to shareholders not later than 60 days
after the close of the Fund's taxable year. 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" (generally, a bond issue in which more than 10%
of the proceeds are used for a non-governmental trade or business and which
meets the private security or payment test, or a bond issue which meets the
private loan financing test) issued after August 7, 1986 will constitute an item
of tax preference subject to the individual alternative minimum tax.
Corporations will be required to include in alternative minimum taxable income
75% of the amount by which their adjusted current earnings (including generally,
tax-exempt interest) exceeds their alternative minimum taxable income
(determined without this tax item). In certain cases Subchapter S corporations
with accumulated earnings and profits from Subchapter C years will be subject to
a tax on excess "passive investment income", including tax-exempt interest.
Although the Fund intends to maintain a $1.00 per share net asset value, a
shareholder may realize a taxable gain or loss upon the disposition of shares.
With respect to variable rate demand instruments, including participation
certificates therein, the Fund is
14
<PAGE>
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. Counsel has pointed out that the Internal
Revenue Service has announced it will not ordinarily issue advance rulings on
the question of the ownership of securities or participation interests therein
subject to a put and could reach a conclusion different from that reached by
counsel.
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. The Court further held that there is no constitutional prohibition
against the Federal government's taxing the interest earned on state or other
municipal bonds. The Supreme Court decision affirms the authority of the Federal
government to regulate and control bonds such as the Municipal Obligations and
to tax such bonds in the future. The decision does not, however, affect the
current exemption from taxation of the interest earned on the Municipal
Obligations in accordance with Section 103 of the Code.
The Fund may invest a portion of its assets in securities that generate
income that is not exempt from Federal or state income tax. Income exempt from
Federal income tax may be subject to state and local income tax. Capital gains
distributed by the Fund may be taxable.
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.
An exchange pursuant to the exchange privilege is treated for Federal income
tax purposes as a sale on which a shareholder may realize a taxable gain or
loss.
Pennsylvania Taxes
- ------------------
The following is based upon the advice of Dechert Price & Rhoads, special
Pennsylvania counsel to the Fund.
The proportion of interest income representing interest income from
Pennsylvania Municipal Obligations distributed to shareholders of the Fund is
not taxable under the Pennsylvania Personal Income Tax or under the Corporate
Net Income Tax, nor will such interest be taxable under the Philadelphia School
District Investment Income Tax imposed on Philadelphia resident individuals.
The disposition by the Fund of a Pennsylvania Municipal Obligation (whether
by sale, exchange, redemption or payment at maturity) will not constitute a
taxable event to a shareholder under the Pennsylvania Personal Income Tax if the
Pennsylvania Municipal Obligation was issued prior to February 1, 1994. Further,
although there is no published authority on the subject, counsel is of the
opinion that (i) a shareholder of the Fund will not have a taxable event under
the Pennsylvania state and local income taxes referred to in the preceding
paragraph (other than the Corporate Net Income Tax) upon the redemption or sale
of his shares to the extent that the Fund is then comprised of Pennsylvania
Municipal Obligations issued prior to February 1, 1994 and (ii) the disposition
by the Fund of a Pennsylvania Municipal Obligation (whether by sale, exchange,
redemption or payment at maturity) will not constitute a taxable event to a
shareholder under the Corporation Income Tax or the Philadelphia School District
Investment Income Tax if the Pennsylvania Municipal Obligation was issued prior
to February 1, 1994. The School District tax has no application to gain on the
disposition of property held by the taxpayer for more than six months. Gains on
the sale, exchange, redemption, or payment at maturity of a Pennsylvania
Municipal Obligation issued on or after February 1, 1994, will be taxable under
all of these taxes, as will gains on the redemption or sale of a unit to the
extent that the Fund is comprised of Pennsylvania Municipal Obligations issued
on or after February 1, 1994.
The foregoing is a general, abbreviated summary of certain provisions of
Pennsylvania statutes and administrative interpretations presently in effect
governing the taxation of shareholders of the Fund. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to Fund transactions. Shareholders are advised to
consult with their own tax
15
<PAGE>
advisers for more detailed information concerning Pennsylvania tax matters.
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.
The Fund's Board of Trustees has adopted a Rule 12b-1 distribution and
service plan (the "Plan") and, pursuant to the Plan, the Fund and Reich & Tang
Distributors, Inc. (the "Distributor") have entered into a Distribution
Agreement 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. These payments are limited to a
maximum of .05% per annum of each Class' shares' average daily net assets.
The Plan provides that the Manager may make payments from time to time from
its own resources, which may include the management fee and past profits for the
following purposes: (i) to defray 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 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 November 30, 1998, the total amount spent pursuant
to the Plan for Class A shares was 0.47% of the average daily net assets of the
Fund, of which 0.25% 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 November 30,
<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 $ 1.00
========= ========= ========= ========= =========
Income from investment operations:
Net investment income................. 0.029 0.030 0.030 0.034 0.024
Dividends from net investment income.... ( 0.029) ( 0.030) ( 0.030) ( 0.034) ( 0.024
--------- --------- ---------- ---------- ---------
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total Return............................ 2.95% 3.05% 3.01% 3.50% 2.44%
Ratios/Supplemental Data
Net assets, end of period (000)......... $ 12,873 $ 43,064 $ 36,335 $ 40,980 $ 43,559
Ratios to average net assets:
Expenses.............................. 0.70% 0.70% 0.68% 0.59% 0.49%
Net Investment income................. 2.91% 3.00% 2.97% 3.44% 2.44%
Management, administration fees
and shareholder servicing fees waived 0.59% 0.49% 0.49% 0.61% 0.68%
Expenses reimbursed................... 0.59% -- -- -- --
Expense offsets....................... -- -- 0.01% -- --
</TABLE>
<TABLE>
<CAPTION>
Year ended November 30,
<S> <C> <C> <C>
October 10, 1996
Year Year (Commencement of
Class B Ended Ended offering) to
November 30, 1998 November 30, 1997 November 30, 1996
----------------- ----------------- -----------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period.... $ 1.00 $ 1.00 $ 1.00
--------- --------- -----------
Income from investment operations:
...................Net investment income 0.032 0.033 0.005
Less distributions:
Dividends from net investment income ( 0.032) ( 0.033) ( 0.005)
--------- -------- -----------
Net asset value, end of period.......... $ 1.00 $1.00 $1.00
========== =========== ===========
Total Return............................ 3.26% 3.31% 3.25%*
Ratios/Supplemental Data
Net assets, end of period (000)......... $ 933 $ 392 $ 5
Ratios to average net assets:
Expenses................................ 0.45% 0.45% 0.42%*
Net investment income................... 3.13% 3.28% 3.21%*
Management and administration fees waived 0.59% 0.49% 0.27%*
Expense reimbursed...................... 0.59% -- --
Expense offsets......................... -- -- 0.01%*
* Annualized
</TABLE>
17
<PAGE>
PENNSYLVANIA
DAILY
MUNICIPAL
INCOME
FUND
PROSPECTUS
April 1, 1999
Reich & Tang Distributors, Inc.
600 Fifth Avenue
New York, NY 10020
(212) 830-5220
A Statement of Additional Information (SAI) dated April 1, 1999, and the Fund's
Annual Report include additional information about the Fund and its investments
and are incorporated by reference into this prospectus. You may obtain the SAI
and the Annual Report and material incorporated by reference without charge by
calling the Fund at 1-800-221-3079. To request other information, please call
your financial intermediary or the Fund.
A current SAI has been filed with the Securities and Exchange Commission. You
may visit the Securities and Exchange Commission's Internet website
(www.sec.gov) to view the SAI, material incorporated by reference and other
information. These materials can also be reviewed and copied at the Commission's
Public Reference Room in Washington D.C. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. In addition, copies of these materials may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C.
20549-6009.
811-6681
<PAGE>
================================================================================
PENNSYLVANIA
DAILY MUNICIPAL
INCOME FUND 600 Fifth Avenue, New York, NY 10020
(212) 830-5220
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
April 1, 1999
RELATING TO THE PENNSYLVANIA DAILY MUNICIPAL INCOME FUND
PROSPECTUS DATED APRIL 1, 1999
This Statement of Additional Information (SAI) is not a Prospectus. The SAI
expands upon and supplements the information contained in the current Prospectus
of Pennsylvania Daily Municipal Income Fund ( the "Fund"), dated April 1, 1999
and should be read in conjunction with the Fund's Prospectus.
A Prospectus may be obtained from any Participating Organization or by writing
or calling the Fund toll-free at 1-(800) 221-3079. The Financial Statements of
the Fund have been incorporated by reference to the Fund's Annual Report. The
Annual Report is available, without charge, upon request by calling the
toll-free number provided.
This Statement of Additional Information is incorporated by reference into the
respective Prospectus in its entirety.
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Table of Contents
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Fund History......................................2 Purchase, Redemption
Description of the Fund and its Investments and and Pricing Shares.................................20
Risks...........................................2 Taxation of the Fund.................................25
Management of the Fund...........................14 Underwriters.........................................27
Control Persons and Principal Holders of Calculation of Performance Data......................28
Securities.....................................16 Financial Statements.................................28
Investment Advisory and Other Services...........16 Description of Ratings...............................29
Brokerage Allocation and Other Practices.........19 Corporate Taxable Equivalent Yield Table.............30
Capital Stock and Other Securities...............2 Individual Taxable Equivalent Yield Table.............31
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I. FUND HISTORY
The Fund was established as a Massachusetts Business Trust under the laws of
Massachusetts by an Agreement and Declaration of Trust dated July 30, 1992.
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 as
high a level of current income, exempt from regular Federal income tax and to
the extent possible from Pennsylvania income tax, as is believed to be
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 Commonwealth of Pennsylvania, 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.) To the extent
the Fund's assets consist exclusively of obligations (including Participation
Certificates) issued by or on behalf of the Commonwealth of Pennsylvania or any
Pennsylvania local governments, or their instrumentalities, authorities or
districts ("Pennsylvania Municipal Obligations") or territories and possessions
of the United States and their authorities, agencies, instrumentalities and
political subdivisions on December 31st of each taxable year, shareholders of
the Fund will be exempt from Pennsylvania income tax. (See "Pennsylvania Taxes"
herein.) To the extent that suitable Pennsylvania 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
Pennsylvania 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 Pennsylvania 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 Pennsylvania Municipal Obligations. In view of this
"concentration" in bank participation certificates in Pennsylvania 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 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
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of (i) 67% or more of the shares of the Fund present at a meeting, if the
holders of more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Fund.
The Fund may only purchase United States dollar-denominated securities
determined by the Fund's Board of Trustees to present minimal credit risks and
that are Eligible Securities at the time of acquisition. The term Eligible
Securities means: (i) securities which have or are deemed to have remaining
maturities of 397 days or less and rated in the two highest short-term rating
categories by any two nationally recognized statistical rating organizations
("NRSROs") or in such categories by the only NRSRO that has rated the Municipal
Obligations (collectively, the "Requisite NRSROs"); (ii) or (ii) unrated
securities determined by the Fund's Board of Trustees to be of comparable
quality. In addition, securities which have or are deemed to have remaining
maturities of 397 days or less but that at the time of issuance were long-term
securities (i.e. with maturities greater than 366 days) are deemed unrated and
may be purchased if such has received a long-term rating from the Requisite
NRSROs in one of the three highest rating categories. Provided however, that
such may not be purchased if it (i) does not satisfy the rating requirements set
forth in the preceding sentence and (ii) has received a long-term rating from
any NRSRO that is not within the three highest long-term rating categories. A
determination of comparability by the Board of Trustees is made on the basis of
its credit evaluation of the issuer, which may include an evaluation of a letter
of credit, guarantee, insurance or other credit facility issued in support of
the securities. While there are several organizations that currently qualify as
NRSROs, two examples of NRSROs are Standard & Poor's Rating Services, a division
of The McGraw-Hill Companies, ("S&P") and Moody's Investors Service, Inc.
("Moody's"). The two highest ratings by S&P and Moody's are "AAA" and "AA" by
S&P in the case of long-term bonds and notes or "Aaa" and "Aa" by Moody's in the
case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by Moody's in the
case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2" by Moody's in
the case of tax-exempt commercial paper. The highest rating in the case of
variable and floating demand notes is "VMIG-1" by Moody's or "SP-1/AA" by S&P.
Such instruments may produce a lower yield than would be available from less
highly rated instruments.
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.
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 Trustees 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 Trustees 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 Trustees 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 Trustees 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.
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.
The Fund has elected and intends to continue 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. In satisfying this test, the
Fund can include securities of any one issuer only if such securities do not
exceed 5% in value of the total assets of the Fund and 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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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 Pennsylvania issuers.
3. Municipal Commercial Paper that is an Eligible Security at the time of
acquisition. Issues of Municipal Commercial Paper typically represent very
short-term, unsecured, negotiable promissory notes. These obligations are often
issued to meet seasonal working capital needs of municipalities or to provide
interim construction financing. They are paid from general revenues of
municipalities or are refinanced with long-term debt. In most cases Municipal
Commercial Paper is backed by letters of credit, lending agreements, note
repurchase agreements or other credit facility agreements offered by banks or
other institutions which may be called upon in the event of default by the
issuer of the commercial paper.
4. Municipal Leases, which may take the form of a lease or an installment
purchase or conditional sale contract, issued by state and local governments and
authorities to acquire a wide variety of equipment and facilities such as fire
and sanitation vehicles, telecommunications equipment and other capital assets.
Municipal Leases frequently have special risks not normally associated with
general obligation or revenue bonds. Leases and installment purchase or
conditional sale contracts (which normally provide for title to the leased asset
to pass eventually to the governmental issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting the
constitutional and statutory requirements for the issuance of debt. The
debt-issuance limitations of many state constitutions and statutes are deemed to
be inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses. These clauses provide that the governmental issuer
has no obligation to make future payments under the lease or contract unless
money is appropriated for such purpose by the appropriate legislative body on a
yearly or other periodic basis. To reduce this risk, the Fund will only purchase
Municipal Leases subject to a non-appropriation clause where the payment
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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 Trustees 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, Pennsylvania
tax-exempt obligations issued by or on behalf of states and municipal
governments and their authorities, agencies, instrumentalities and political
subdivisions, whose inclusion in the Fund will be consistent with the Fund's
"Description of the Fund and its Investments and Risks" and permissible under
Rule 2a-7 under the 1940 Act.
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 Trustees 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 Trustees. The Fund's Board of Trustees may determine that an
unrated variable rate demand instrument meets the Fund's high quality criteria
if it is backed by a letter of credit or guarantee or is insured by an insurer
that meets the quality criteria for the Fund stated herein or on the basis of a
credit evaluation of the underlying obligor. If an instrument is ever not deemed
to be an Eligible Security, the Fund either will sell it in the market or
exercise the demand feature.
The variable rate demand instruments that the Fund may invest in include
Participation Certificates purchased by the Fund from banks, insurance companies
or other financial institutions in fixed or variable rate, tax-exempt Municipal
Obligations (expected to be concentrated in IRBs) owned by such institutions or
affiliated organizations. The Fund will not purchase Participation Certificates
in fixed rate tax-exempt Municipal Obligations without obtaining an opinion of
counsel that the Fund will be treated as the owner thereof for Federal income
tax purposes. A participation certificate gives the Fund an undivided interest
in the Municipal Obligation in the proportion that the Fund's participation
interest bears to the total principal amount of the Municipal Obligation and
provides the demand repurchase feature described below. Where the institution
issuing the participation does not meet the Fund's eligibility criteria, the
participation is backed by an irrevocable letter of credit or guaranty of a bank
(which may be the bank issuing the participation certificate, a bank issuing a
confirming letter of credit to that of the issuing bank, or a bank serving as
agent of the issuing bank with respect to the possible repurchase of the
certificate of participation) or insurance policy of an insurance company that
the Board of Trustees 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
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* 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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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 the 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 Trustees 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 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
Pennsylvania Municipal Obligations, which may be secured by bank letters of
credit or guarantees, an investment in the Fund should be made with an
understanding of the characteristics of the banking industry and the risks which
such an investment may entail. Banks are subject to extensive governmental
regulations which may limit both the amounts and types of loans and other
financial commitments which may be made and interest rates and fees which may be
charged. The profitability of this industry is largely dependent upon the
availability and cost of capital funds for the purpose of financing lending
operations under prevailing money market conditions. Also, general economic
conditions play an important part in the operations of this industry and
exposure to credit losses arising from possible financial difficulties of
borrowers might affect a bank's ability to meet its obligations under a letter
of credit. The Fund may invest 25% or more of the net assets of any portfolio in
securities that are related in such a way that an economic, business or
political development or change affecting one of the securities would also
affect the other securities. This includes, for example, securities the interest
upon which is paid from revenues of similar type projects, or securities the
issuers of which are located in the same state.
While the value of the underlying variable rate demand instruments may change
with changes in interest rates generally, the variable rate nature of the
underlying variable rate demand instruments should minimize changes in value of
the instruments. Accordingly, as interest rates decrease or increase, the
potential for capital appreciation and the risk of potential capital
depreciation is less than would be the case with a portfolio of fixed income
securities. The portfolio may contain variable maximum rates set by state law,
which limit the degree to which interest on such variable rate demand
instruments may fluctuate; to the extent state law contains such limits,
increases or decreases in value may be somewhat greater than would be the case
without such limits. Additionally, the portfolio may contain variable rate
demand participation certificates in fixed rate Municipal Obligations. The fixed
rate of interest on these Municipal Obligations will be a ceiling on the
variable rate of the participation certificate. In the event that interest rates
increase so that the variable rate exceeds the fixed rate on the Municipal
Obligations, the Municipal Obligations can no longer be valued at par and may
cause the Fund to take corrective action, including the elimination of the
instruments from the portfolio. Because the adjustment of interest rates on the
variable rate demand instruments is made in relation to movements of the
applicable banks' "prime rates", or other interest rate adjustment index, the
variable rate demand instruments are not comparable to long-term fixed rate
securities. Accordingly, interest rates on the variable rate demand instruments
may be higher or lower than current market rates for fixed rate obligations of
comparable quality with similar maturities.
Because of the variable rate nature of the instruments, the Fund's yield will
decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have declined. On the
other hand, during periods where prevailing interest rates have increased, the
Fund's yield will increase and its shareholders will have reduced risk of
capital depreciation.
For purposes of determining whether a variable rate demand instrument held by
the Fund matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (i) the period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (ii) the period remaining until the instrument's next interest
rate adjustment. The maturity of a variable rate demand instrument will be
determined in the same manner for purposes of computing the Fund's
dollar-weighted average portfolio maturity. If a variable rate demand instrument
ceases to be an Eligible Security it will be sold in the market or through
exercise of the repurchase demand feature to the issuer.
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When-Issued Securities
New issues of certain Municipal Obligations frequently are offered on a
when-issued basis. The payment obligation and the interest rate 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 will be (i) the acquisition cost of the Municipal Obligation (excluding
any accrued interest that the Fund paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the security, plus (ii) all interest accrued on the
security since the last interest payment date during the period the security was
owned by the Fund. Absent unusual circumstances relating to a change in market
value, the Fund will value the underlying Municipal Obligation at amortized
cost. Accordingly, the amount payable by a bank or dealer during the time a
stand-by commitment is exercisable will be substantially the same as the market
value of the underlying Municipal Obligation.
The Fund's right to exercise a stand-by commitment will be unconditional and
unqualified. A stand-by commitment will not be transferable by the Fund,
although it can sell the underlying Municipal Obligation to a third party at any
time.
The Fund expects stand-by commitments to generally be available without the
payment of any direct or indirect consideration. However, if necessary and
advisable, the Fund may pay for stand-by commitments either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to such a commitment (thus reducing the yield to maturity otherwise available
for the same securities). The total amount paid in either manner for outstanding
stand-by commitments held in the Fund's portfolio will not exceed 1/2 of 1% of
the value of the Fund's total assets calculated immediately after the
acquisition of each stand-by commitment.
The Fund will enter into stand-by commitments only with banks and other
financial institutions that, in the Manager's opinion, present minimal credit
risks. If the issuer of the Municipal Obligation does not meet the eligibility
criteria, the issuer of the stand-by commitment will have received a rating
which meets the eligibility criteria or, if not rated, will present a minimal
risk of default as determined by the Board of Trustees. 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
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will not affect the valuation or assumed maturity of the underlying Municipal
Obligations which will continue to be valued in accordance with the amortized
cost method. Stand-by commitments acquired by the Fund will be valued at zero in
determining net asset value. In those cases in which the Fund pays directly or
indirectly for a stand-by commitment, its cost will be reflected as unrealized
depreciation for the period during which the commitment is held by the Fund.
Stand-by commitments will not affect the dollar-weighted average maturity of the
Fund's portfolio. The maturity of a security subject to a stand-by commitment is
longer than the stand-by repurchase date.
The stand-by commitments the Fund may enter into are subject to certain risks.
These include the ability of the issuer of the commitment to pay for the
securities at the time the commitment is exercised, the fact that the commitment
is not marketable by the Fund, and that the maturity of the underlying security
will generally be different from that of the commitment.
In addition, the Fund may apply to the Internal Revenue Service for a ruling, or
seek from its counsel an opinion, that interest on Municipal Obligations subject
to stand-by commitments will be exempt from Federal income taxation (see
"Federal Income Taxes" herein). In the absence of a favorable tax ruling or
opinion of counsel, the Fund will not engage in the purchase of securities
subject to stand-by commitments.
Taxable Securities
Although the Fund will attempt to invest 100% of its net assets in tax-exempt
Municipal Obligations, the Fund may invest up to 20% of the value of its net
assets in securities of the kind described below, the interest income on which
is subject to regular Federal income tax, under any one or more of the following
circumstances: (a) pending investment of proceeds of sales of Fund shares or of
portfolio securities, (b) pending settlement of purchases of portfolio
securities and (c) to maintain liquidity for the purpose of meeting anticipated
redemptions. In addition, the Fund may temporarily invest more than 20% in such
taxable securities when, in the opinion of the Manager, it is advisable to do so
because of adverse market conditions affecting the market for Municipal
Obligations. The kinds of taxable securities in which the Fund may invest are
limited to the following short-term, fixed-income securities (maturing in 397
days or less from the time of purchase): (1) obligations of the United States
Government or its agencies, instrumentalities or authorities; (2) commercial
paper meeting the definition of Eligible Securities at the time of acquisition;
(3) certificates of deposit of domestic banks with assets of $1 billion or more;
and (4) repurchase agreements with respect to any Municipal Obligations or other
securities which the Fund is permitted to own. (See "Federal Income Taxes"
herein.)
Repurchase Agreements
The Fund may invest in instruments subject to repurchase agreements with
securities dealers or member banks of the Federal Reserve System. Under the
terms of a typical repurchase agreement, the Fund will acquire an underlying
debt instrument for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase and the Fund to resell the
instrument at a fixed price and time, thereby determining the yield during the
Fund's holding period. This results in a fixed rate of return insulated from
market fluctuations during such period. A repurchase agreement is subject to the
risk that the seller may fail to repurchase the security. Repurchase agreements
may be deemed to be loans under the 1940 Act. All repurchase agreements entered
into by the Fund shall be fully collateralized at all times during the period of
the agreement in that the value of the underlying security shall be at least
equal to the amount of the loan, including the accrued interest thereon.
Additionally, the Fund or its custodian shall have possession of the collateral,
which the Fund's Board believes will give it a valid, perfected security
interest in the collateral. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs in connection with the disposition of the
collateral. The Fund's Board believes that the collateral underlying repurchase
agreements may be more susceptible to claims of the seller's creditors than
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.
Pennsylvania Risk Factors
Prospective investors should consider the financial difficulties and pressures
which the Commonwealth of Pennsylvania and certain of its municipal subdivisions
have undergone. Both the Commonwealth and the City of Philadelphia have
historically experienced significant revenue shortfalls. There can be no
assurance that the Commonwealth will not experience further declines in economic
conditions or that portions of the Municipal Obligations purchased by the Fund
will not be affected by such declines. Without intending to be complete, the
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following briefly summarizes some of these difficulties and the current
financial situation, as well as some of the complex factors affecting the
financial situation in the Commonwealth. It is derived from sources that are
generally available to investors and is based in part on information obtained
from various agencies in Pennsylvania. No independent verification has been made
of the following information.
State Economy
Pennsylvania has been historically identified as a heavy industry state although
that reputation has changed recently as the industrial composition of the
Commonwealth diversified when the coal, steel and railroad industries began to
decline. The major new sources of growth in Pennsylvania are in the service
sector, including trade, medical and the health services, education and
financial institutions. Pennsylvania's agricultural industries are also an
important component of the Commonwealth's economic structure, accounting for
more than $3.6 billion in crop and livestock products annually while
agribusiness and food related industries support $39 billion in economic
activity annually.
Non-manufacturing employment in Pennsylvania has increased in recent years to
82.1% of total employment in 1995 and to 82.5% as of December 1996.
Consequently, manufacturing employment constitutes a diminished share of total
employment within the Commonwealth. Manufacturing, contributing 17.9% of 1995
non-agricultural employment and 17.5% as of December 1996, has fallen behind
both the services sector and the trade sector as the largest single source of
employment within the Commonwealth. In 1995, the services sector accounted for
30.4% of all non-agricultural employment while the trade sector accounted for
22.8%.
Pennsylvania's annual average unemployment rate was below the national average
from 1986 until 1990. Slower economic growth caused the unemployment rate in the
Commonwealth to rise to 6.9% in 1991 and 7.5% in 1992. The resumption of faster
economic growth resulted in a decrease in the Commonwealth's unemployment rate
to 7.1% in 1993. For 1994 through 1997, Pennsylvania's annual average
unemployment rate was below the Middle Atlantic Region's average, but slightly
higher than that of the United States. For January 1998, the unadjusted
unemployment rate was 5.2% in both the Commonwealth and the United States, while
the seasonally adjusted unemployment rate for the Commonwealth was 4.6% compared
to 4.7% for the United States.
State Budget
The Commonwealth operates under an annual budget which is formulated and
submitted for legislative approval by the Governor each February. The
Pennsylvania Constitution requires that the Governor's budget proposal consist
of three parts: (i) a balanced operating budget setting forth proposed
expenditures and estimated revenues from all sources and, if estimated revenues
and available surplus are less than proposed expenditures, recommending specific
additional sources of revenue sufficient to pay the deficiency; (ii) a capital
budget setting forth proposed expenditures to be financed from the proceeds of
obligations of the Commonwealth or its agencies or from operating funds; and
(iii) a financial plan for not less than the succeeding five fiscal years, which
includes for each year projected operating expenditures and estimated revenues
and projected expenditures for capital projects. The General Assembly may add,
change or delete any items in the budget prepared by the Governor, but the
Governor retains veto power over the individual appropriations passed by the
legislature. The Commonwealth's fiscal year begins on July 1 and ends on June
30.
All funds received by the Commonwealth are subject to appropriation in specific
amounts by the General Assembly or by executive authorization by the Governor.
Total appropriations enacted by the General Assembly may not exceed the ensuing
year's estimated revenues, plus (less) the unappropriated fund balance (deficit)
of the preceding year, except for constitutionally authorized debt service
payments. Appropriations from the principal operating funds of the Commonwealth
(the General Fund, the Motor License Fund and the State Lottery Fund) are
generally made for one fiscal year and are returned to the unappropriated
surplus of the fund if not spent or encumbered by the end of the fiscal year.
The constitution specifies that a surplus of operating funds at the end of a
fiscal year must be appropriated for the ensuing year.
Pennsylvania uses the "fund" method of accounting for receipts and
disbursements. For purposes of government accounting, a "fund" is an independent
fiscal and accounting entity with a self balancing set of accounts, recording
cash and/or other resources together with all related liabilities and equities.
In the Commonwealth, over 150 funds have been established by legislative
enactment or in certain cases by administrative action for the purpose of
recording the receipt and disbursement of moneys received by the Commonwealth.
Annual budgets are adopted each fiscal year for the principal operating funds of
the Commonwealth and several other special revenue funds. Expenditures and
encumbrances against these funds may only be made pursuant to appropriation
measures enacted by the General Assembly and approved by the Governor. The
General Fund, the Commonwealth's largest fund, receives all tax revenues,
non-tax revenues and federal grants and entitlements that are not specified by
law to be deposited elsewhere. The majority of the Commonwealth's operating and
administrative expenses are payable from the General Fund. Debt service on all
bond indebtedness of the Commonwealth, except that issued for
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highway purposes or for the benefit of other special revenue funds, is payable
from the General Fund.
Financial information for the principal operating funds of the Commonwealth are
maintained on a budgetary basis of accounting, which is used for the purpose of
insuring compliance with the enacted operating budget. The Commonwealth also
prepares annual financial statements in accordance with generally accepted
accounting principles ("GAAP"). Budgetary basis financial reports are based on a
modified cash basis of accounting as opposed to a modified accrual basis of
accounting prescribed by GAAP. Financial information is adjusted at fiscal year
end to reflect appropriate accruals for financial reporting in conformity with
GAAP.
Recent Financial Results
The fiscal years 1992 through 1997 were years of recovery for Pennsylvania from
the recession in 1990 and 1991. The recovery fiscal years were characterized by
modest economic growth and low inflation rates in the Commonwealth. These
economic conditions, combined with several years of tax reductions following the
various tax rate increases and tax base expansions enacted in fiscal 1991 for
the General Fund, produced modest increases in Pennsylvania's tax revenues
during the period. Tax revenues from fiscal 1993 through 1997 rose at an annual
average rate of 4.3%. Total revenues and other income sources increased during
this period by an average annual rate of 4.1%. Expenditures and other uses
during the fiscal 1993 through 1997 period rose at a 3.8% annual rate, led by
annual average increases of 14.1% for protection of persons and property program
costs. At the close of fiscal 1997, the fund balance for the governmental fund
types totaled $2,900.9 million, an increase of $914.6 million over fiscal 1996
and $940.9 million over fiscal 1993.
Commonwealth revenues for the 1997 fiscal year were above estimate and exceeded
fiscal year expenditures and encumbrances. Fiscal 1997 was the sixth consecutive
fiscal year the Commonwealth reported an increase in the fiscal year-end
unappropriated balance. Prior to reserves for the transfer to the Tax
Stabilization Reserve Fund, the fiscal 1996 closing unappropriated surplus was
$183.8 million, a decrease of $366.2 million over the fiscal 1995 closing
unappropriated surplus prior to transfers.
Commonwealth revenues (prior to tax refunds) for the 1996 fiscal year increased
by $113.9 million over the prior fiscal year to $16,338.5 million representing a
growth rate of 0.7%. Tax rate reductions and other tax law changes substantially
reduced the amount and rate of revenue growth for the fiscal year. The
Commonwealth has estimated that tax changes enacted for the 1996 fiscal year
reduced Commonwealth revenues by $283.4 million representing 1.7% age points of
fiscal 1996 growth in Commonwealth revenues. The most significant tax changes
enacted for the 1996 fiscal year were (i) the reduction of the corporate net
income tax rate to 9.99%; (ii) double weighing of the sales factor of the
corporate net income apportionment calculation; (iii) an increase in the maximum
annual allowance for a net operating loss deduction from $0.5 million to $1.0
million; (iv) an increase in the basic exemption amount for the capital stock
and franchise tax; (v) the repeal of the tax on annuities; and (vi) the
elimination of inheritance tax on transfers of certain property to surviving
spouses.
Among the major sources of Commonwealth revenues for the 1996 fiscal year,
corporate tax receipts declined $338.4 million from receipts in the prior fiscal
year, largely due to the various tax changes enacted for these taxes. Corporate
tax changes were enacted to reduce the cost of doing business in Pennsylvania
for the purpose of encouraging business to remain in Pennsylvania and to expand
employment opportunities within the state. Sales and use tax receipts for fiscal
year increased $155.5 million, or 2.8%, over receipts during fiscal 1995. All of
the increase was produced by the non-motor vehicle portion of the tax as
receipts from the sale of motor vehicles declined slightly for the fiscal 1996,
Personal income tax receipts for the fiscal year increased $291.1 million, or
5.7%, over receipts during fiscal 1995. Personal income tax receipts were aided
by a 10.2% increase in non-withholding tax payments which generally are
comprised of quarterly estimated and annual final return tax payments. Non-tax
receipts for the fiscal year increased $23.7 million for the fiscal year.
Included in that increase was $67 million in net receipts from a tax amnesty
program that was available for a portion of the 1996 fiscal year. Some portion
of the tax amnesty receipts represent normal collections of delinquent taxes.
The tax amnesty program is not expected to be repeated.
The unappropriated surplus (prior to transfers to Tax Stabilization Reserve
Fund) at the close of the fiscal year for the General Fund was $183.8 million,
$65.5 million above estimate. Transfers to the Tax Stabilization Reserve Fund
from fiscal 1996 operations will be $27.6 million. This amount represents the
fifteen percent of the fiscal year ending unappropriated surplus transfer
provided under current law. With the addition of this transfer and anticipated
interest earnings, the Tax Stabilization Reserve Fund balance will be $211
Million.
Fiscal 1997 Budget
The unappropriated balance of Commonwealth revenues increased during the 1997
fiscal year by $432.9 million. Higher than estimated revenues and slightly lower
expenditures than budgeted caused the increase. The unappropriated balance rose
from an adjusted amount of $158.5 million at the beginning of fiscal 1997 to
$591.4
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million (prior to reserves for transfer to the Tax Stabilization Reserve Fund)
at the close of the fiscal year. Transfers to the Tax Stabilization Reserve Fund
for fiscal 1997 operations are expected to be $88.7 million, which represents
the normal fifteen percent of the ending unappropriated balance, plus an
additional $100 million authorized by the General Assembly when it enacted the
fiscal 1998 budget.
Commonwealth revenues (prior to tax refunds) during the fiscal year totaled
$17,320.6 million, $576.1 (3.4 percent) above the estimate made at the time the
budget was enacted. Revenue from taxes was the largest contributor to higher
than estimated receipts. Tax revenue in fiscal 1997 grew 6.1 percent over tax
revenues in fiscal 1996. This rate of increase was not adjusted for legislated
tax reductions that affected receipts during both of those fiscal years and
therefore understates the actual underlying rate of growth of tax revenue during
fiscal 1997. Receipts from the personal income tax produced the largest single
component of higher revenues for the fiscal year. Personal income collections
were $236.3 million over estimate representing a 6.9 percent increase over
fiscal 1996 receipts. Receipts of the sales and use tax were $185.6 million over
estimate representing a 6.2 percent increase. Collections of corporate taxes,
led by the capital stock and franchise and the gross receipt taxes, also
exceeded their estimates for the fiscal year. Non-tax revenues were $19.8
million (5.8 percent) over estimate mostly due to higher than anticipated
interest earnings.
Fiscal 1998 Budget
The budget for fiscal 1998 was enacted in May 1997. Commonwealth revenues for
the fiscal year at that time were estimated to be $17,435.4 million before
reserves for tax refunds. That estimate represented an increase over estimated
fiscal 1997 Commonwealth revenues of 1.0 percent. Although fiscal 1997 revenues
exceeded the fiscal 1998 budget estimate, the adopted fiscal 1998 budget revenue
estimate remains unchanged and represents a 0.7 percent increase over actual
fiscal 1997 revenues. Fiscal 1998 estimates for Commonwealth revenues are based
on an economic forecast for national economic growth to slow through the
remainder of calendar year 1997. A growth rate of just above 1.0 percent is
anticipated by the Commonwealth to be maintained for the last two quarters of
the 1998 fiscal year and result in a 1.2 percent growth rate in real gross
domestic product for the second calendar quarter of 1998 over the second quarter
of 1997. This anticipated rate of economic growth is a result of anticipated
slowing of gains in consumer spending, business investment and residential
housing. Inflation is projected to remain modest and the unemployment rate is
expected to reach 6.0 percent by the second calendar quarter of 1998.
The rate of anticipated growth of Commonwealth revenues is also affected by the
enactment of tax reductions and tax revenue dedications effective for the 1998
fiscal year. Excluding these newly enacted changes, revenues are projected to
increase by 2.4 percent during fiscal 1998. Tax reductions enacted for the 1998
fiscal year budget totaled an estimate of $170.6 million, including $16.2
million that is reflected in higher projected tax refunds. In addition, $75
million of existing sales tax revenue has been earmarked for mass transit
funding and one cent of the cigarette tax ($10.8 million) has been earmarked for
a children's health program and are no longer included in the General Fund.
Major changes to taxes enacted for fiscal 1998 include: (i) the repeal of the
sales and use tax on computer services ($79.1 million); (ii) an increase in the
amount of income that is exempt from the personal income tax for low-income
families ($25.4 million); (iii) enactment of a research and development tax
credit program for business ($15.0 million); (iv) conforming state tax laws to
federal laws for subchapter S and limited liability companies ($16.3 million);
and various other miscellaneous changes. Most changes are effective beginning in
July 1997, although some are effective retroactively to January 1997.
Appropriations enacted for fiscal 1998 are 3.7 percent ($618 million) above
appropriations enacted for fiscal 1997 (including supplemental appropriations).
Major funding increases provided by the fiscal 1998 budget include; (i) $166
million of appropriations for elementary and secondary education plus an
estimated $51 million in reduced employer retirement contributions payable by
local school districts due to a reduction in the contribution rate; (ii) $42
million for higher education institutions plus $16 million for student
scholarships; (iii) $70 million for higher caseload, utilization, and cost of
nursing home care; (iv) $60 million for economic development assistance through
programs providing incentive grants and loans; and (v) $38 million for
corrections including $17 million for operating costs for new and expanded
facilities. The balance of the increase is spread over many other departments
and program operations.
Based on current expectations and the adopted budget for fiscal 1998 and
excluding any estimate for appropriations lapses during the fiscal year, the
unappropriated surplus is projected to decline from $402.7 million at the
beginning of the fiscal year to $16.7 million at fiscal year-end (prior to
transfer to the Tax Stabilization Reserve Fund).
Proposed Fiscal 1999 Budget
In February 1998, the Governor presented his proposed General Fund budget for
fiscal 1999 to the General Assembly. Revenue estimates in the proposed budget
were developed using a national economic forecast with a projected real gross
domestic product growth annual rate below 2 percent. Total commonwealth revenues
before
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reductions for the tax refunds and proposed tax changes are estimated to be
$18,191.0 million, 2.9 percent above revised estimates for fiscal 1997. Proposed
appropriations from those revenues total $17,787.4 million, a 3.0 percent
increase over currently estimated appropriations for fiscal 1998. As proposed,
the fiscal 1999 budget assumes the draw down of the currently estimated $280.6
million unappropriated surplus at June 30, 1998, however, no appropriations
lapses are included in this projection. The proposed fiscal 1999 budget includes
five proposed tax reductions representing an estimated $128.1 million (0.7
percent) of fiscal 1999 revenues. The proposal with the largest effect on
revenues is an expansion of the amount of household income eligible for tax
revenues. The proposal with the largest effect on revenues is an expansion of
the amount of household income eligible for tax forgiveness from the personal
income tax and is estimated at $54.1 million. A 0.5 mill reduction to the tax
rate for the capital stock and franchise tax and an increase from three to ten
years in the time period for a business to recover operating losses for
corporate net tax purpose are also proposed. Estimated fiscal 1999 costs of
these proposals are $46.2 million and $17.8 million respectively. In addition,
funding for two tax credit programs is proposed at $5 million each. All proposed
tax changes require legislative enactment. The General Assembly is reviewing the
proposed budget in hearings before its committees. The General Assembly may
change, eliminate or add amounts and items to the Governor's proposed budget and
there can be no assurance that the budget, as proposed by the Governor, will be
enacted into law.
Debt Limits and Outstanding Debt
The Constitution of Pennsylvania permits the issuance of the following types of
debt: (i) debt to suppress insurrection or rehabilitate areas affected by
disaster; (ii) electorate approved debt; (iii) debt for capital projects subject
to an aggregate outstanding debt limit of 1.75 times the annual average tax
revenues of the preceding five fiscal years; and (iv) tax anticipation notes
payable in the fiscal year of issuance.
Under the Pennsylvania Fiscal Code, the Auditor General is required to certify
to the Governor and the General Assembly certain information regarding the
Commonwealth's indebtedness. According to the August 29, 1997 Auditor General
certificate, the average annual tax revenues deposited in all funds in the five
fiscal years ended June 30, 1997 was approximately $19.6 billion, outstanding
net debt totaled $3.7 billion at August 31, 1997, and therefore, the net debt
limitation for the 1998 fiscal year is $30.6 billion, approximately $2.5 billion
less than the prior fiscal year. At August 29, 1997, the amount of debt
authorized by law to be issued, but not yet incurred, was $17.1 billion.
Outstanding general obligation debt totaled $4,795.1 million at June 30, 1997, a
decrease of $261.0 million from June 30, 1996. Over the ten-year period ending
June 30, 1997, total outstanding general obligation debt increased at an annual
rate of 0.5 percent. Within the most recent five-year period, outstanding
general obligation debt has decreased at an annual rate of 0.3 percent.
Debt Ratings
All outstanding general obligation bonds of the Commonwealth are rated "AA-" by
S&P and "Aa3" by Moody's.
City of Philadelphia
The City of Philadelphia (the "City" or "Philadelphia") is the largest city in
the Commonwealth, with an estimated population of 1,585,577 according to the
1990 Census. Philadelphia experienced a series of general fund deficits for
fiscal years 1988 through 1992 which culminated in serious financial
difficulties for the City. In its 1992 Comprehensive Annual Financial Report,
Philadelphia reported a cumulative general fund deficit of $71.4 million for
fiscal 1992.
In June 1991, the Pennsylvania legislature established the Pennsylvania
Intergovernmental Corporation Authority ("PICA"), a five-member board to assist
Philadelphia in remedying fiscal emergencies. PICA is designed to provide
assistance through the issuance of funding debt and to make factual findings and
recommendations to Philadelphia concerning its budgetary and fiscal affairs. The
legislation empowered PICA to issue notes and bonds on behalf of Philadelphia,
and also authorized Philadelphia to levy a one-percent sales tax the proceeds of
which would be used to pay off the bonds. In return for PICA'a fiscal
assistance, Philadelphia is required, among other things, to establish five-year
financial plans that include balanced annual budgets. Under the legislation, if
Philadelphia does not comply with such requirements, PICA may withhold bond
revenues and certain state funding. At this time, the City is operating under a
five-year fiscal plan approved by PICA on April 30, 1996. As of February 28,
1997, PICA has issued approximately $1,761.7 million of its Special Tax Revenue
Bonds. The financial assistance has included the refunding of certain city
general obligation bonds, funding of capital projects and the liquidation of the
City's Cumulative General Fund balance deficit as of June 30, 1992 of $244.9
million.
No further PICA bonds are to be issued by PICA for the purpose of financing a
capital project or deficit as the authority for such bond sales expired on
December 31, 1994, PICA's authority to issue debt for the purpose of financing a
cash flow deficit expired on December 31, 1996. Its ability to refund existing
outstanding debt is
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unrestricted. PICA had $1,102.4 million in Special Tax Revenue Bonds outstanding
as of June 30, 1997.
The audited General Fund balance of the City as of June 30, 1994, 1995 and 1996
showed a surplus of approximately $15.4 million, $80.5 million and $118.5
million, respectively.
S&P rating on Philadelphia's general obligation bonds is "BBB-." Moody's rating
is currently "Baa."
Litigation
The Commonwealth is a party to numerous lawsuits in which an adverse final
decision could materially affect the Commonwealth's governmental operations and
consequently its ability to pay debt service on its obligations. The
Commonwealth also faces tort claims made possible by the limited waiver of
sovereign immunity effected by Act 152, approved September 28, 1978, as amended.
Under Act 152, damages from any loss are limited to $250,000 per person and $1
million for each accident.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions which
apply to all portfolios. They may not be changed unless approved by a majority
of the outstanding shares "of each series of the Fund's shares that would be
affected by such a change." The term "majority of the outstanding shares" of the
Fund means the vote of the lesser of (i) 67% or more of the shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Fund. The Fund may not:
1. Make portfolio investments other than as described under "Description of
the Fund and its Investments and Risks." Any other form of Federal
tax-exempt investment must meet the Fund's high quality criteria, as
determined by the Board of Trustees, and be consistent with the Fund's
objectives and policies.
2. Borrow money. This restriction shall not apply to borrowings from banks
for temporary or emergency (not leveraging) purposes. This includes the
meeting of redemption requests that might otherwise require the untimely
disposition of securities, in an amount up to 15% of the value of the
Fund's total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the borrowing
was made. While borrowings exceed 5% of the value of the Fund's total
assets, the Fund will not make any investments. Interest paid on borrowings
will reduce net income.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
in an amount up to 15% of the value of its total assets and only to secure
borrowings for temporary or emergency purposes.
4. Sell securities short or purchase securities on margin, or engage in the
purchase and sale of put, call, straddle or spread options or in writing
such options. However, securities subject to a demand obligation and
stand-by commitments may be purchased as set forth under "Description of
the Fund and its Investments and Risks" herein.
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 "
Description of the Fund and its Investments and Risks" herein.
9. Purchase more than 10% of all outstanding voting securities of any one
issuer or invest in companies for the purpose of exercising control.
10. Invest more than 25% of its assets in the securities of "issuers" in
any single industry. The Fund may invest more than 25% of its assets in
Participation Certificates and there shall be no limitation on the purchase
of those Municipal Obligations and other obligations issued or guaranteed
by the United States Government, its agencies or instrumentalities. When
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating
the issuing entity and a security is backed only by the assets and revenues
of the entity, the entity will be deemed to be the sole issuer of the
security. Similarly,
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in the case of an industrial revenue bond, if that bond is backed only by
the assets and revenues of the non-government user, then such
non-government user will be deemed to be the sole issuer. If, however, in
either case, the creating government or some other entity, such as an
insurance company or other corporate obligor, guarantees a security or a
bank issues a letter of credit, such a guarantee or letter of credit will
be considered a separate security and 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 Trustees, which is responsible for the overall management
and supervision of the Fund, employs the Manager to serve as investment manager
of the Fund. The Manager provides persons satisfactory to the Fund's Board of
Trustees to serve as officers of the Fund. Such officers, as well as certain
other employees and Trustees of the Fund, may be directors or officers of Reich
& Tang Asset Management, Inc., the sole general partner of the Manager or
employees of the Manager or its affiliates. Due to the services performed by the
Manager, the Fund currently has no employees and its officers are not required
to devote their full-time to the affairs of the Fund.
The Trustees 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, 45 - President and Trustee of the Fund, has been President of
the Mutual Funds Division of the Manager since September 1994. Mr. Duff was
formerly Director of Mutual Fund Administration at NationsBank which he was
associated with from June 1981 to August 1994. Mr. Duff is also President and a
Director /Trustee of 14 other funds in the Reich & Tang Fund Complex, Director
of Pax World Money Market Fund, Inc., Executive Vice President of Reich & Tang
Equity Fund, Inc., and President and Chief Executive Officer of Tax Exempt
Proceeds Fund, Inc. and President of Back Bay Funds, Inc.
Dr. W. Giles Mellon, 67 - Trustee 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 14 other
funds in the Reich & Tang Fund Complex and a Director of Pax World Money Market
Fund.
Robert Straniere, 57 - Trustee of the Fund, has been a member of the New York
State Assembly and a partner with the Straniere Law Firm since 1981. His address
is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is also a
Director/Trustee of 15 other funds in the Reich & Tang Fund Complex and a
Director of Pax World Money Market /Fund, Inc. and Director of Life Cycle Mutual
Funds, Inc.
Dr. Yung Wong, 60 - Trustee 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 14 other funds in the Reich & Tang Fund
Complex and a Director of Pax World Money Market Fund, Inc. 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
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<PAGE>
associated with from December 1977 to September 1993. Ms. Flewharty is also Vice
President of 16 other funds in the Reich & Tang Fund Complex and a Director of
Pax World Money Market Fund, Inc..
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 15
other funds in the Reich & Tang Fund Complex.
Dana E. Messina, 42 - 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 additional funds in the Reich & Tang Fund Complex.
In addition, Ms. Finn is also a Secretary of Pax World Money Market Fund, Inc.
Richard De Sanctis, 42 - 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 16 other
funds in the Reich & Tang Fund Complex, a Treasurer of Pax World Money Market
Fund, Inc. and is Vice President and Treasurer of Cortland Trust, Inc.
Rosanne Holtzer, 34 - 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 16
other funds in the Reich & Tang Fund Complex and Assistant Treasurer of Pax
World Money Market Fund, Inc..
The Fund paid an aggregate remuneration of $6,000 to its trustees with respect
to the period ended November 30, 1998, all of which consisted of trustees' fees
paid to the three disinterested trustees, pursuant to the terms of the
Investment Management Contract (see "Manager" herein.)
Trustees 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 Trustees meeting
attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Trustees who are affiliated with the Manager do not
receive compensation from the Fund. See Compensation Table.
Compensation Table
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Aggregate Pension or Retirement Estimated Annual Total Compensation
Name of Person, Compensation From Benefits Accrued as Benefits Upon From Fund and Fund
Position the Fund Part of Fund Expenses Retirement Complex Paid to
Trustees*
Dr. W. Giles Mellon, $2,000 0 0 $54,500 ( 14 Funds)
Trustee
Robert Straniere, $2,000 0 0 $54,500 ( 14 Funds)
Trustee
Dr. Yung Wong, $2,000 0 0 $54,500 ( 14 Funds)
Trustee
</TABLE>
*
The total compensation paid to such persons by the Fund and Fund Complex for the
fiscal year ending November 30, 1998 (and, with respect to certain of the funds
in the Fund Complex, estimated to be paid during the fiscal year ending November
30, 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.
15
<PAGE>
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On November 30, 1998 there were 12,874,074 shares of Class A common stock
outstanding and 933,273 shares of Class B Common Stock outstanding. As of
November 30, 1998, the amount of shares owned by all officers and Trustees of
the Fund as a group were ___% of the outstanding shares of the Fund. Set forth
below is certain information as to persons who owned __% or more of the Fund's
outstanding shares as of November 30, 1998:
Name and Address % of Class Nature of Ownership
CLASS A
CLASS B
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 December 30, 1998, investment
manager, adviser, or supervisor with respect to assets aggregating in excess of
$12.0 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 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 Trustees, including a majority of the
trustees 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, 1999. 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 trustees 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.
16
<PAGE>
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 Trustees of
the Fund.
The Manager provides persons satisfactory to the Board of Trustees of the Fund
to serve as officers of the Fund. Such officers, as well as certain other
employees and trustees of the Fund, may be trustees 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 Trustees,
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 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, not in excess of $1.25 billion, plus .20% of such
assets in excess of $1.25 billion but not in excess of $1.5 billion, plus .19%
of such assets in excess of $1.5 billion. For the Funds' fiscal years ended
November 30, 1998, November 30, 1997 and November 30, 1996, the Manager received
a fee of $31,548, $89,693 and $84,054 of which $31,305, $85,422 and $80,051 was
voluntarily waived.
For the Fund's fiscal years ended November 30, 1998, November 30, 1997 and
November 30, 1996, the fee paid to the Manager under the Investment Management
Contract was $60,092, $170,844, and $160,103, respectively of which $57,905,
$124,396 and $28,516 was voluntarily waived. The Fund's net assets at the close
of business on November 30, 1998 totaled $13,805,859. 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 Trustees, 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
17
<PAGE>
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 Trustees 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.
The Class A shares will be offered to investors who desire certain additional
shareholder services from Participating Organizations that are compensated by
the Fund's Manager and Distributor for such services. For its services under the
Shareholder Servicing Agreement (with respect to 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 November 30, 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 $35,316,
none of which was voluntarily waived. During the same period, the Manager and
Distributor made total payments under the Plan to or on behalf of Participating
Organizations of $60,372. The excess of such payments over the total payments
the Distributor received from the Fund under the Plan represents distribution
and servicing expenses funded by the Manager from its own resources including
the management fee. Of the total amount paid pursuant to the Plan, $2,432 was
utilized for compensation to sales personnel, $2,470 on Prospectus printing and
$848 on miscellaneous expenses.
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 its
own resources, which may include the management fee, and past profits for the
following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements for performing shareholder servicing and related
administrative functions on behalf of the Class A shares of the Fund; (ii) to
compensate certain Participating Organizations for providing assistance in
distributing the 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
determines the amount of such payments made pursuant to the Plan, provided that
such payments will not increase the amount which the Fund is
18
<PAGE>
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 Trustees. In addition, the Plan requires the
Fund and the Distributor to prepare, at least quarterly, written reports setting
forth all amounts expended for distribution purposes by the Fund and the
Distributor pursuant to the Plan and identifying the distribution activities for
which those expenditures were made.
The Plan provides that it may continue in effect for successive annual periods
provided it is approved by the Class A shareholders or by the Board of Trustees,
including a majority of trustees who are not interested persons of the Fund and
who have no direct or indirect interest in the operation of the Plan or in the
agreements related to the Plan. The Board of Trustees approved the continuance
of the Plan at the Board of Trustees meeting held on July 8, 1996. The Plan
further provides that it may not be amended to increase materially the costs
which may be spent by the Fund for distribution pursuant to the Plan without
shareholder approval, and the other material amendments must be approved by the
trustees 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 trustees of
the Fund or the Fund's Class A shareholders.
Custodian And Transfer Agent
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri
64105, is custodian for the Fund's cash and securities. Reich & Tang Services,
Inc., an affiliate of the Fund's Manager, located at 600 Fifth Avenue, New York,
NY 10020, is transfer agent and dividend agent for the shares of the Fund. The
custodian and transfer 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 Massachusetts and Pennsylvania law are passed upon by
Dechert Price & Rhoads, 477 Madison Avenue, New York, New York 10022.
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, independent
certified public accountants, have been selected as auditors for the Fund.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
The Fund's purchases and sales of portfolio securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Thus, the Fund will select a broker
for such a transaction based upon which broker can effect the trade at the best
price and execution available. Purchases from underwriters of portfolio
securities include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price. The Fund purchases participation
certificates in variable rate Municipal Obligations with a demand feature from
banks or other financial institutions at a negotiated yield to the Fund based on
the applicable interest rate adjustment index for the security. The interest
received by the Fund is net of a fee charged by the issuing institution for
servicing the underlying obligation and issuing the participation certificate,
letter of credit, guarantee or insurance and providing the demand repurchase
feature.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. No preference in purchasing portfolio securities will
be given to banks or dealers that are Participating Organizations.
Investment decisions for the Fund are made independently from those for any
other investment companies or accounts that may be or become managed by the
Manager or its affiliates. If, however, the Fund and other investment companies
or accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In some cases, this policy might adversely
affect the price paid or received by the Fund or the size of the position
obtainable for the Fund. In addition, when purchases or sales of the same
security for the Fund and for other investment companies managed by the Manager
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantage available to large denomination purchasers or
sellers.
No portfolio transactions are executed with the Manager or its affiliates acting
as principal. In addition, the Fund will not buy bankers' acceptances,
certificates of deposit or commercial paper from the Manager or its affiliates.
19
<PAGE>
VII. CAPITAL STOCK AND OTHER SECURITIES
The Fund has an unlimited authorized number of shares of beneficial interest.
These shares are entitled to one vote per share with proportional voting for
fractional shares. 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, represents an interest in the same portfolio of investments
and has identical voting, dividend, liquidation and other rights, preferences,
powers, restrictions, limitations, qualifications, designations and terms and
conditions, except: (i) the Class A and Class B shares have different class
designations; (ii) only the Class A shares are 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; and (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. The exchange
privilege permits stockholders to exchange their shares only for shares of the
same class of an investment company that participates on an exchange privilege
program with the Fund. Payments made under the Plan are calculated and charged
daily to the appropriate class prior to determining daily net asset value per
share and dividends/distributions.
Under its Declaration of Trust the Fund has the right to redeem for cash shares
of beneficial interest owned by any shareholder to the extent and at such times
as the Fund's Board of Trustees determines to be necessary or appropriate to
prevent an undue concentration of share 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
trustees can elect 100% of the Trustees 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 Trustees. 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 (a) for the election of trustees, (b) for approval of the revised
investment advisory contracts with respect to a particular class or series of
beneficial interest, (c) for approval of revisions to the Fund's distribution
agreement with respect to a particular class or series of beneficial interest,
and (d) 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
trustee(s) and communication among shareholders, any registration of the Fund
with the SEC or any state, or as the trustee may consider necessary or
desirable. For example, procedures for calling a shareholder's meeting for the
removal of trustees of the Fund, similar to those set forth in Section 16(c) of
the 1940 Act, are available to shareholders of the Fund. A meeting for such
purpose can be called by the holders of at least 10% of the Fund's outstanding
shares of beneficial interest. The Fund will aid shareholder communications with
other shareholders as required under Section 16(c) of the 1940 Act. Each trustee
serves until the next meeting of the shareholders called for the purpose of
considering the election or reelection of such trustee or of a successor to such
trustee, and until the election and qualification of this or her successor,
elected at such a meeting, or until such trustee sooner dies, resigns, retires
or is removed by the vote of shareholders.
VIII. PURCHASE, REDEMPTION AND PRICING SHARES
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
Trustees 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.
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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 an account at a Participating Organization
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 which,
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 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 a
personalized monthly statement from the Fund listing (i) the total number of
Fund shares owned as of the statement closing date, (ii) purchase and
redemptions of Fund shares and (iii) the dividends paid on Fund shares
(including dividends paid in cash or reinvested in additional Fund shares).
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
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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
Outside New York (TOLL FREE) 800-221-3079
Mail
- ----
Investors may send a check made payable to "Pennsylvania Daily Municipal Income
Fund" along with a completed subscription order form to:
Pennsylvania Daily Municipal Income Fund
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 1-800-221-3079 (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 Pennsylvania Daily Municipal
Income Fund
Account of (Investor's Name)
Fund Account #
SS#/Tax ID#
The investor should then promptly complete and mail the subscription order form.
Investors planning to wire funds should instruct their bank 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 "Pennsylvania Daily Municipal Income Fund",
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
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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:
Pennsylvania Daily Municipal Income Fund
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:
Pennsylvania Daily Municipal Income Fund
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 check may not be redeemed by check until the check has
cleared, which can take up to 15 days following the date of purchase.
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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 Trustees 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.
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.
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.
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 1-800-241-3263, and state: (i) the name of the
shareholder appearing on the Fund's records; (ii) the shareholder's account
number with the Fund; (iii) the amount to be withdrawn; (iv) whether such amount
is to be forwarded to the shareholder's designated bank account or address; and
(v) the name of the person requesting the redemption. Usually the proceeds are
sent to the designated bank account or address on the same Fund Business Day the
redemption is effected, provided the redemption request is received before 12
noon, New York City time. Proceeds are sent the next Fund Business Day if the
redemption request is received after 12 noon, New York City time. The Fund
reserves the right to terminate or modify the telephone redemption service in
whole or in part at any time and will notify shareholders accordingly.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are given
in proper form to the Fund's transfer agent, a check for the proceeds of a
redemption will be sent to the shareholders' address of record. If a shareholder
elects to redeem all the shares of the Fund he owns, all dividends accrued to
the date of such redemption will be paid to the shareholder along with the
proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the SEC determines that trading thereon is restricted. Additional exceptions
include any period during which an emergency (as determined by the SEC) exists
as a result of which disposal by the Fund of its portfolio securities is not
reasonably practicable or as a result of which it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or for such other
period as the SEC may by order permit for the protection of the shareholders of
the Fund.
The Fund reserves 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
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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.
Net Asset Value
The Fund does not determine net asset value per share of each Class on any day
in which the New York Stock Exchange is closed for trading. Those days include:
New Year's Day, Martin Luther King Jr. Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
The net asset value of the Fund's shares is determined as of 12 noon, New York
City time, on each Fund Business Day. The net asset value of a Class is computed
by dividing the value of the Fund's net assets for such Class (i.e., the value
of its securities and other assets less its liabilities, including expenses
payable or accrued but excluding capital stock and surplus) by the total number
of shares outstanding for such Class.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium. If fluctuating interest
rates cause 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
Trustees will consider whether any action should be initiated, as described in
the following paragraph. Although the amortized cost method provides certainty
in valuation, it may result in periods during which the value of an instrument
is higher or lower than the price an investment company would receive if the
instrument were sold.
The Fund's Board of Trustees 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 Trustees determines present minimal credit
risks, and will comply with certain reporting and record keeping procedures. The
Fund has also established procedures to ensure compliance with the requirement
that portfolio securities are Eligible Securities. (See "Description of the Fund
and its Investments and Risks" herein.)
IX. TAXATION OF THE FUND
Federal Income Taxes
The Fund has elected to qualify under the Code, and under Pennsylvania 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 interests of its shareholders. Such
qualification relieves the Fund of liability for Federal income taxes to the
extent its earnings are distributed in accordance with the applicable provisions
of the Code.
The Fund's policy is to distribute as dividends each year 100% and in no event
less than 90% of its tax-exempt interest income, net of certain deductions.
Exempt-interest dividends, as defined in the Code, are dividends or any part
thereof (other than capital gain dividends) paid by the Fund that are
attributable to interest on obligations, the interest on which is exempt from
regular Federal income tax, and designated by the Fund as exempt-interest
dividends in a written notice mailed to the Fund's shareholders not later than
60 days after the close of its taxable year. The percentage of the total
dividends paid by the Fund during any taxable year that qualifies as
exempt-interest dividends will be the same for all shareholders receiving
dividends during the year.
Exempt-interest dividends are to be treated by the Fund's shareholders as items
of interest excludable from their gross income under Section 103(a) of the Code.
However, a shareholder is advised to consult his tax advisors with respect to
whether exempt-interest dividends retain the exclusion under Section 103 of the
Code if such shareholder will 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
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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 added to
adjusted gross income for purposes of computing the amount of social security
benefits includible in gross income. The amount of such interest received will
have to be disclosed on the shareholders' Federal income tax returns. Taxpayers
are required to include as an item of tax preference for purposes of the Federal
alternative minimum tax all tax-exempt interest on "private activity" bonds
(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) issued
after August 7, 1986. Thus, this provision will apply to the portion of the
exempt-interest dividends from the Fund's assets that are attributable to such
post-August 7, 1986 private activity bonds, if any of such bonds are acquired by
the Fund. Corporations are required to increase their alternative minimum
taxable income for purposes of calculating their alternative minimum tax
liability by 75% of the amount by which the adjusted current earnings (which
will include tax-exempt interest) of the corporation exceeds the alternative
minimum taxable income (determined without this item). In addition, in certain
cases, Subchapter S corporations with accumulated earnings and profits from
Subchapter C years are subject to a minimum tax on excess "passive investment
income" which includes tax-exempt interest.
Although not intended, it is possible that the Fund may realize short-term or
long-term capital gains or losses from its portfolio transactions. The Fund may
also realize short-term or long-term capital gains upon the maturity or
disposition of securities acquired at discounts resulting from market
fluctuations. Short-term capital gains are taxable to shareholders as ordinary
income when they are distributed. Any net capital gains (the excess of its net
realized long-term capital gain over its net realized short-term capital loss)
will be distributed annually to the Fund's shareholders. The Fund will have no
tax liability with respect to distributed net capital gains and the
distributions are taxable to shareholders as long-term capital gains regardless
of how long the shareholders have held Fund shares. However, Fund shareholders
who at the time of such a net capital gain distribution have not held their Fund
shares for more than 6 months, and who subsequently dispose of those shares at a
loss, will be required to treat such loss as a long-term capital loss to the
extent of the net capital gain distribution. Distributions of net capital gain
will be designated as a "capital gain dividend" in a written notice mailed to
the Fund's shareholders not later than 60 days after the close of the Fund's
taxable year. Capital gains realized by corporations are generally taxed at the
same rate as ordinary income. Generally, capital gains are taxable at a maximum
rate of 20% to non-corporate shareholders who have a holding period of more than
12 months. Corresponding maximum rate and holding period rules apply with
respect to capital gains distributed by the Fund without regard to the length of
time shares have been held by the holder.
The Fund intends to distribute at least 90% of its investment company taxable
income (taxable income subject to certain adjustments exclusive of the excess of
its net long-term capital gain over its net short-term capital loss) for each
taxable year. The Fund will be subject to Federal income tax on any
undistributed investment company taxable income. To the extent such income is
distributed it will be taxable to shareholders as ordinary income. Expenses paid
or incurred by the Fund will be allocated between tax-exempt and taxable income
in the same proportion as the amount of the Fund's tax-exempt income bears to
the total of such exempt income and its gross income (excluding from gross
income the excess of capital gains over capital losses). If the Fund does not
distribute at least 98% of its ordinary income and 98% of its capital gain net
income for a taxable year, the Fund will be subject to a nondeductible 4% excise
tax on the excess of such amounts over the amounts actually distributed.
If a shareholder fails to provide the Fund with a current taxpayer
identification number, the Fund generally is required to withhold 31% of taxable
interest, dividend payments, and proceeds from the redemption of shares of the
Fund.
Dividends and distributions to shareholders will be treated in the same manner
for Federal income tax purposes whether received in cash or reinvested in
additional shares of the Fund.
With respect to the variable rate demand instruments, including participation
certificates therein, the Fund has obtained and is relying on the opinion of
Battle Fowler LLP, counsel to the Fund, that it will be treated for Federal
income tax purposes as the owner of the underlying Municipal Obligations and the
interest thereon will be exempt from regular Federal income taxes to the Fund to
the same extent as interest on the underlying Municipal Obligation. Counsel has
pointed out that the Internal Revenue Service has announced that it will not
ordinarily issue advance rulings on the question of ownership of securities or
participation interests therein subject to a put and, as a result, the Internal
Revenue Service could reach a conclusion different from that reached by counsel.
From time to time, proposals have been introduced before Congress to restrict or
eliminate the Federal income tax exemption for interest on Municipal
Obligations. If such a proposal were introduced and enacted in the future, the
ability of the Fund to pay exempt-interest dividends would be adversely affected
and the Fund would reevaluate its investment objective and policies and consider
changes in the structure.
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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.
Pennsylvania Taxes
The following is based upon the advice of Dechert Price & Rhoads, special
Pennsylvania counsel to the Fund.
The proportion of interest income representing interest income from Pennsylvania
Municipal Obligations distributed to shareholders of the Fund is not taxable
under the Pennsylvania Personal Income Tax or under the Corporate Net Income
Tax, nor will such interest be taxable under the Philadelphia School District
Investment Income Tax imposed on Philadelphia resident individuals. Shares of
the Fund may be taxable under the Pennsylvania inheritance and estate taxes.
The disposition by the Fund of a Pennsylvania Municipal Obligation (whether by
sale, exchange, redemption or payment at maturity) will not constitute a taxable
event to a shareholder under the Pennsylvania Personal Income Tax if the
Pennsylvania Municipal Obligation was issued prior to February 1, 1994. Further,
although there is no published authority on the subject, counsel is of the
opinion that (i) a shareholder of the Fund will not have a taxable event under
the Pennsylvania state and local income taxes referred to in the preceding
paragraph (other than the Corporate Net Income Tax) upon the redemption or sale
of his shares to the extent that the Fund is then comprised of Pennsylvania
Municipal Obligations and (ii) the disposition by the Fund of a Pennsylvania
Municipal Obligation (whether by sale, exchange, redemption or payment at
maturity) will not constitute a taxable event to a shareholder under the
Corporation Income Tax or the Philadelphia School District Investment Income Tax
if the Pennsylvania Municipal Obligation was issued prior to February 1, 1994.
(The School District tax has no application to gain on the disposition of
property held by the taxpayer for more than six months.)
The foregoing is a general, abbreviated summary of certain of the provisions of
Pennsylvania statutes and administrative interpretations presently in effect
governing the taxation of shareholders of the Fund. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to Fund transactions. Shareholders are advised to
consult with their own tax advisers for more detailed information concerning
Pennsylvania tax matters.
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 Trustees 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 as dealers pursuant to
state law.
27
<PAGE>
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 one minus a stated income tax rate
and adding the quotient to that portion, if any, of the yield of the Fund that
is not tax exempt. The tax equivalent yield for the Fund may also fluctuate
daily and does not provide a basis for determining future yields.
The Fund may from time to time advertise a tax equivalent effective yield table
which shows the yield that an investor needs to receive from a taxable
investment in order to equal a tax-free yield from the Fund. This is calculated
by dividing that portion of the Fund's effective yield that is tax-exempt by 1
minus a stated income tax rate and adding the quotient to that portion, if any,
of the Fund's effective yield that is not tax-exempt. See "Taxable Equivalent
Yield Table" herein.
The Fund's Class A shares' yield for the seven day period ended November 30,
1998 was 2.69% which is equivalent to an effective yield of 2.73%. The Fund's
Class B shares' yield for the seven day period ended November 30, 1998 was 2.94%
which is equivalent to an effective yield of 2.98%.
XII. FINANCIAL STATEMENTS
The audited financial statements for the Fund for the fiscal year ended November
30, 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.
28
<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 are
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used are as follows:
MIG-1: Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2: Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
Description of Standard & Poor's Rating Services Two Highest Debt Ratings:
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only to a small degree.
Plus ( + ) or Minus ( - ): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
Provisional Ratings: The letter "p" indicates the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
Standard & Poor's does not provide ratings for state and municipal notes.
Description of Standard & Poor's Rating Services Two Highest Commercial Paper
Ratings:
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Description of Moody's Investors Service, Inc.'s Two Highest Commercial Paper
Ratings:
Moody's employs the following designations, both judged to be investment grade,
to indicate the relative repayment capacity of rated issues: Prime-1, highest
quality; Prime-2, higher quality.
_____________________________________
* As described by the rating agencies
29
<PAGE>
CORPORATE TAXABLE EQUIVALENT YIELD TABLE
(Based on Tax Rates Effective Until December 31,
1999)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
1. If Your Corporate Taxable Income Bracket Is . . .
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
Corporate $0 $50,001 $75,001 $100,001 $335,001 $10,000,001 $15,000,001 $18,333,334
Return 50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 and over
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
- ---------------------------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
Federal
Tax Rate 15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00%
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
State
Tax Rate 9.99% 9.99% 9.99% 9.99% 9.99% 9.99% 9.99% 9.99%
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
Combined
Marginal
Tax Rate 23.49% 32.49% 40.59% 45.09% 40.59% 41.49% 44.19% 41.49%
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
- ---------------------------------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------- ----------------------------------------------------------------------------------------------------------
Tax Exempt Equivalent Taxable Investment Yield
Yield Requires to Match Tax Exempt Yield
- ---------------------- ----------------------------------------------------------------------------------------------------------
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
2.00% 2.61% 2.96% 3.37% 3.64% 3.37% 3.42% 3.58% 3.42%
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
2.50% 3.27% 3.70% 4.21% 4.55% 4.21% 4.27% 4.48% 4.27%
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
3.00% 3.92% 4.44% 5.05% 5.46% 5.05% 5.13% 5.38% 5.13%
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
3.50% 4.57% 5.18% 5.89% 6.37% 5.89% 5.98% 6.27% 5.98%
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
4.00% 5.23% 5.93% 6.73% 7.29% 6.73% 6.84% 7.17% 6.84%
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
4.50% 5.88% 6.67% 7.57% 8.20% 7.57% 7.69% 8.06% 7.69%
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
5.00% 6.54% 7.41% 8.42% 9.11% 8.42% 8.55% 8.96% 8.55%
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
5.50% 7.19% 8.15% 9.26% 10.02% 9.26% 9.40% 9.86% 9.40%
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
6.00% 7.84% 8.89% 10.10% 10.93% 10.10% 10.26% 10.75% 10.26%
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
6.50% 8.50% 9.63% 10.94% 11.84% 10.94% 11.11% 11.65% 11.11%
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
7.00% 9.15% 10.37% 11.78% 12.75% 11.78% 11.96% 12.54% 11.96%
- ---------------- ------------ ------------- ------------ ------------- -------------- ------------- ------------- ---------------
</TABLE>
To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, in section three, to see the equivalent taxable yields
for each of the tax free income yields given.
30
<PAGE>
PERSONAL TAXABLE EQUIVALENT YIELD TABLE
(Based on Tax Rates Effective Until December 31,
1999)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
- ------------------------- ---------------------- ------------------- --------------------- -------------------- ------------------
Single $0- $25,751-- $62,451- $130,251- $283,151
Return 25,750 62,450 130,250 283,150 and over
- ------------------------- ---------------------- ------------------- --------------------- -------------------- ------------------
- ------------------------- ---------------------- ------------------- --------------------- -------------------- ------------------
Joint $0- $43,051- $104,051- $158,551- $283,151
Return 43,050 104,050 158,550 283,150 and over
- ------------------------- ---------------------- ------------------- --------------------- -------------------- ------------------
- ----------------------------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- ----------------------------------------------------------------------------------------------------------------------------------
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
Federal
Tax Rate 15.00% 28.00% 31.00% 36.00% 39.60%
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
State
Tax Rate 2.80% 2.80% 2.80% 2.80% 2.80%
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
Combined
Tax Rate 17.38% 30.02% 32.93% 37.79% 41.29%
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
- ----------------------------------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
- ----------------------------------------------------------------------------------------------------------------------------------
- ------------------------- --------------------------------------------------------------------------------------------------------
Tax Exempt Equivalent Taxable Investment Yield
Yield Required to Match Tax Exempt Yield
- ------------------------- --------------------------------------------------------------------------------------------------------
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
2.00% 2.42% 2.86% 2.98% 3.22% 3.41%
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
2.50% 3.03% 3.57% 3.73% 4.02% 4.26%
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
3.00% 3.63% 4.29% 4.47% 4.82% 5.11%
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
3.50% 4.24% 5.00% 5.22% 5.63% 5.96%
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
4.00% 4.84% 5.72% 5.96% 6.43% 6.81%
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
4.50% 5.45% 6.43% 6.71% 7.23% 7.66%
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
5.00% 6.05% 7.14% 7.46% 8.04% 8.52%
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
5.50% 6.66% 7.86% 8.20% 8.84% 9.37%
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
6.00% 7.26% 8.57% 8.95% 9.65% 10.22%
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
6.50% 7.87% 9.29% 9.69% 10.45% 11.07%
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
7.00% 8.47% 10.00% 10.44% 11.25% 11.92%
- ------------------------- -------------------- --------------------- --------------------- -------------------- ------------------
</TABLE>
To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read down to section two to determine your
combined tax bracket and, in section three, to see the equivalent taxable yields
for each of the tax free income yields given.
31
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits.
* (a) Declaration of Trust of the Registrant.
* (b) By-Laws of the Registrant.
(c) Not applicable
**** (d) Form of Investment Management Contract between the Registrant and
Reich & Tang Asset Management L.P.
**** (e) Form of Distribution Agreement between the Registrant and Reich &
Tang Distributors, Inc.
(f) Not applicable.
** (g) Custody Agreement between the Registrant and Investors Fiduciary
Trust Company.
*** (h) Administrative Services Contract between Registrant and Reich &
Tang Asset Management L.P.
- --------------------
* Filed with Pre-Effective Amendment No. 1 to Registration
Statement No. 33-48014 on November 13, 1992, and incorporated
herein by reference.
** Filed with Post-Effective Amendment No. 5 to Registration
Statement No. 33-48014 on March 29, 1996, and incorporated herein
by reference.
*** Filed with Post-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File Nos. 33-48014 and 811-6681) filed on
November 13, 1992 and incorporated herein by reference.
**** Filed with Post-Effective Amendment No. 8 to Registration
Statement No.33-48014 on March 29, 1998, and incorporated berein
by reference.
C-1
<PAGE>
* (i.1) 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.2) Opinion of Dechert, Price & Rhoads as to the legality of the
securities being registered, and as to Pennsylvania Law,
including their consent to the filing thereof and to the use of
their name under the heading "Pennsylvania Income Taxes" in the
Prospectus.
(j) Consent of Independent Auditors.
(k) Audited Financial Statements, for fiscal year ended November 30,
1998 (filed with Annual Report) 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) Shareholder Servicing Agreement between the Registrant and Reich
& Tang Distributors, Inc.
***** (m.3) Distribution Agreement between the Registrant and Reich & Tang
Distributors, Inc. filed herein as Exhibit e.
(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 Virginia Daily
Municipal Income Fund, Inc. (file no. 33-90538) Registration
Statement and incorporated herein by reference.
*** (p.1) Powers of Attorney of Messrs. Strainiere, Wong and Mellon.
**** (p.2) Powers of Attorney of Steven W. Duff.
Item 24. Persons controlled by or Under Common Control with the Fund.
None.
Item 25. Indemnification.
Registrant incorporates herein by reference to Item 27 of the
Registration Statement filed with the Commission on December 18, 1990.
- --------------------
* Filed with Pre-Effective Amendment No. 1 to said Registration Statement No.
33-48014 on November 13, 1992, and is incorporated herein by reference.
** Filed with Post-Effective Amendment No. 2 to Registration Statement No.
33-48014 on January 21, 1994, and is incorporated herein by reference.
*** Filed with Post-Effective Amendment No. 1 to Registration Statement on Form
N-1A (File Nos. 33-48014 and 811-6681) filed on November 13, 1992 and
incorporated herein by reference.
**** Filed with Post-Effective Amendement No. 3 to Registration Statement on
Form N-1A (File Nos. 33-48014 and 811-6681) filed on March 29, 1995 and
incorporated herein by reference.
*****Filed with Post-Effective Amendment No. 8 to Registration Statement No.
33-48014 on March 27, 1998, 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. under the caption
"Management of the Fund" in the Prospectus and 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 advisor, Reich & Tang Asset Management
L.P., is a registered investment advisor. Reich & Tang Asset Management L.P.'s
investment advisory clients include 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., 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., North Carolina
Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund,
North Carolina Daily Municipal Income Fund, Inc., 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., registered investment companies
whose addresses are 600 Fifth Avenue, New York, New York 10020, which invest
principally in equity securities. In addition, Reich & Tang Asset Management
L.P. is the sole general partner of Alpha Associates L.P., August Associates,
Reich & Tang Minutus L.P., Reich & Tang Minutus II L.P. Reich and Tang Equity
Partnerships L.P., and Tucek Partners L.P., private investment partnerships
organized as limited partnerships.
Peter S. Voss, President, Chief Executive Officer and a Director of NEIC
since October 1992, Chairman of the Board of NEIC 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 NEIC's subsidiaries
other than Loomis, Sayles & Company, L.P. ("Loomis") and Back Bay Advisors, L.P.
("Back Bay"), where he serves as a Director, and Chairman of the Board of
Trustees of all of the mutual funds in the TNE Fund Group and the Zenith Funds.
G. Neil Ryland, Executive Vice President, Treasurer and Chief Financial Officer
NEIC 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 NEIC 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 NEIC. Lorraine C. Hysler has been
Secretary of Reich & Tang Asset Management Inc. since July 1994, Assistant
Secretary of NEIC since September 1993, Vice President of the Mutual Funds Group
of New England Investment Companies, L.P. 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 Reich & Tang
Asset Management Inc. since July 1994, President and Chief Operating Officer of
the Capital Management Group of New England Investment Companies, L.P. 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 Reich & Tang
Asset Management Inc. since October 1994, President and Chief Executive Officer
of Reich & Tang Mutual Funds since August 1994, 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., Short Term Income Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc., President and Trustee of Florida Daily Municipal
Income Fund, Pennsylvania Daily Municipal Income Fund, President and Chief
Executive Officer of Tax Exempt Proceeds Fund, Inc., Executive Vice President of
Reich & Tang Equity Fund, Inc. Bernadette N. Finn has been Vice President -
Compliance of Reich & Tang Asset Management Inc. since July 1994, Vice President
of Mutual Funds division of Reich & Tang Asset Management Inc. from September
1993
C-3 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., 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., North Carolina Daily Municipal Income 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
Delafield Fund, Inc., Reich & Tang Equity Fund, Inc. and Short Term Income Fund,
Inc. Richard De Sanctis has been Vice President and Treasurer of Reich & Tang
Asset Management Inc. since July 1994, Assistant Treasurer of NEIC since
September 1993 and Treasurer of the Mutual Funds Group of New England Investment
Companies, L.P. from September 1993 until July 1994. Mr De Sanctis joined Reich
& Tang, Inc. in December 1990 and served as Controller of Reich & Tang, Inc.,
from January 1991 to September 1993. Mr De Sanctis was 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 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., 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., North Carolina Daily Municipal Income Fund,
Inc., Reich & Tang Equity Fund, Inc., Tax Exempt Proceeds Fund, Inc., Short Term
Income Fund, Inc. and Virginia Daily Municipal Income Fund, Inc. and is Vice
President and Treasurer of Cortland Trust, Inc.
Item 27. Principal Underwriters.
(a) Reich & Tang Distributors, Inc. is also distributor for California
Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Cortland Trust, Inc., Delafield 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., North Carolina Daily
Municipal Income Fund, Inc., Reich & Tang Equity Fund, Inc., Short Term Income
Fund, Inc., Tax Exempt Proceeds Fund, Inc. and Virginia Daily Municipal Income
Fund, Inc.
C-4
<PAGE>
(b) The following are the directors and officers of Reich & Tang
Distributors, Inc. The principal business address of Messrs Voss, Ryland, and
Wadsworth is 399 Boylston Street, Boston, Massachusetts 02116. For all other
persons, the principal business address is 600 Fifth Avenue, New York, New York
10020.
Positions and Offices
With Positions and Offices
Name the Distributor With Registrant
Peter S. Voss Director None
G. Neal Ryland Director None
Edward N. Wadsworth Executive Officer None
Richard E. Smith III President and Director None
Peter DeMarco Executive Vice President None
Steven W. Duff Director President and Trustee
Bernadette N. Finn Vice President Secretary
Lorraine C. Hysler Secretary None
Richard De Sanctis Vice President and Treasurer Treasurer
Richard I. Weiner Vice President None
(c) Not applicable.
Item 28. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained in the physical possession of Registrant at 600 Fifth
Avenue, New York, New York 10020, the Registrant's Manager; and at Investors
Fiduciary Trust Company, 801 Pennsylvania Street, Kansas City, Missouri, 64105,
the Registrant's custodian; and at Reich & Tang Services L.P., 600 Fifth Avenue,
New York, New York 10020, the Registrant's Transfer Agent and Dividend
Disbursing Agent.
Item 29. Management Services.
Not applicable
Item 30. Undertakings.
Not applicable.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Post-Effective Amendment
to its Registration Statement pursuant to Rule 485(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 29th day of
January, 1999.
PENNSYLVANIA DAILY MUNICIPAL INCOME FUND
By:/s/Steven W. Duff
Steven W. Duff
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
(1) Principal Executive Officer
/s/Steven W. Duff
Steven W. Duff President and Trustee 1/29/99
(2) Principal Financial and
Accounting Officer
/s/Richard De Sanctis
Richard De Sanctis Treasurer 1/29/99
(3) Majority of Directors
W. Giles Mellon (Trustee)
Robert Straniere (Trustee)
Yung Wong (Trustee)
By: /s/Bernadette N. Finn
Bernadette N. Finn
Attorney-in-Fact* 1/29/99
* Powers of Attorney filed as Exhibit 16 with Post-Effective Amendment No. 1
to said Registration Statement on November 13, 1992 and with Post-Effective
Amendment No. 3 to said Registration Statement on March 29, 1995 and are
incorporated herein by reference
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 December 28, 1998, on the
financial statements referred to therein in Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A, File No. 33-48014 of Pennsylvania
Municipal Income Fund, 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 caption "Counsel and Auditors" and "Financial Statements".
/s/McGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP
New York, New York
January 29, 1999
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