Rule 497(c)
Registration No. 33-69760
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DELAFIELD FUND, INC. 600 FIFTH AVENUE,
NEW YORK, NY 10020
(212) 830-5220
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PROSPECTUS
May 1, 1998
Delafield Fund, Inc. (the "Fund") is an open-end, diversified management
investment company. The Fund's investment objectives are to seek long-term
preservation of capital (sufficient growth to outpace inflation over an extended
period of time) and growth of capital. The Fund will seek to achieve these
objectives by investing primarily in the equity securities of domestic companies
which, based on the research of the Delafield Asset Management Division of Reich
& Tang Asset Management L.P. (the "Manager"), are considered to be undervalued
or to represent special situations that the Manager believes can increase in
value regardless of general economic trends or the condition of the stock market
generally. There can be no assurance that the Fund will achieve its objectives.
The Delafield Asset Management Division of Reich & Tang Asset Management L.P.
acts as Manager of the Fund and Reich & Tang Distributors, Inc. acts as
Distributor of the Fund's shares. Reich & Tang Asset Management L.P. is a
registered investment adviser. Reich & Tang Distributors, Inc. is a registered
broker-dealer and member of the National Association of Securities Dealers, Inc.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional Information
dated May 1, 1998, has been filed with the Securities and Exchange Commission
("the SEC") and is hereby incorporated by reference into this Prospectus. It is
available without charge and can be obtained by either writing or calling the
Fund at the address or telephone number set forth above. The SEC maintains a web
site (http://www.sec.gov) that contains the Statement of Additional Information
and other reports and information regarding the Fund which have been filed
electronically with the SEC.
Shares in the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and the shares are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency.
This Prospectus should be read and retained by investors for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT BEING OFFERED VIA THE
INTERNET TO RESIDENTS OF PARTICULAR STATES.
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<CAPTION>
TABLE OF FEES AND EXPENSES
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees .80%
12b-1 Fees - After Fee Waiver .05%
Other Expenses .44%
Administration Fees .21% ______
Total Fund Operating Expenses - After Fee Waivers 1.29%
<S> <C> <C> <C> <C>
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the following on a $1,000
investment, assuming 5% annual return and
redemption at the end of each period: $13 $41 $71 $156
The foregoing table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. For a
further discussion of these fees, see "The Manager" and "Distribution and
Service Plan" herein. The Distributor has voluntarily waived a portion of its
12b-1 Fees. The maximum 12b-1 Fees would have been .25% of average daily net
assets, absent fee waivers. In addition, absent fee waivers, Total Operating
Expenses would have been 1.49%.
THE FIGURES REFLECTED IN THIS EXAMPLE SHOULD NOT BE CONSIDERED AS A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN ABOVE.
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FINANCIAL HIGHLIGHTS
The following financial highlights of Delafield Fund, Inc. have been audited by
McGladrey & Pullen LLP, Independent Certified Public Accountants, whose report
thereon is incorporated by reference in the Statement of Additional Information.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year Year Period from Year November 19, 1993
Ended Ended October 1, 1995 to Ended (Inception) to
December 31, 1997 December 31, 1996 December 31, 1995 September 30, 1995 September 30, 1994
----------------- ----------------- ----------------- ------------------ ------------------
Per Share Operating Performance:
(for a share outstanding throughout
the period)
Net asset value, beginning of period $ 13.49 $ 12.26 $ 11.95 $ 10.82 $ 10.00
---------- --------- ---------- ----------- ------
Income from investment operations:
Net investment income .21 .16 .05 .13 .07
Net realized and unrealized
gains (losses) on investments 2.42 3.07 .50 1.99 .82
--------- ----------- -------- --------- ------
Total from investment operations 2.63 3.23 .55 2.12 .89
--------- ----------- --------- --------- ---------
Less distributions:
Dividends from net investment income ( .21) ( .16) ( .05) ( .13) ( .07)
Distributions from net realized gains
on investments............... ( 1.03) ( 1.84) ( .18) ( .86) --
In excess of net realized gain... -- -- ( .01) -- --
-------- --------- --------- --------- ------
Total distributions.............. ( 1.24) ( 2.00) ( .24) ( .99) ( .07)
--------- ---------- --------- ---------- ---------
Net asset value, end of period... $ 14.88 $ 13.49 $ 12.26 $ 11.95 $ 10.82
========= ========== ========= ========== =========
Total Return..................... 19.66% 26.35% 4.62%(a) 20.05% 8.93%(a)
========= ========== ========= ========== =========
Ratios/Supplemental Data
Net assets, end of period(000)... $146,624 $ 61,279 $ 45,730 $ 42,316 $ 9,658
Ratios to average net assets:
Expenses, net of waived fees..... 1.29% 1.29% 1.67%* 1.65% 1.78%*
Net investment income............ 1.64% 1.18% 1.57%* 1.35% 0.96%*
Management, administration and shareholder
servicing fees waived....... .20% .20% .20%* .71% 1.12%
Expenses paid indirectly......... -- .01% .07%* -- --
Portfolio turnover rate.......... 55.43% 75.54% 20.49% 70.36% 42.84%
Average commission rate paid (per share) (b) $ .0305 $ .0378 $ .0343 -- --
*........Annualized
(a)......Not annualized
(b)......Required by regulations issued in 1995.
</TABLE>
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INTRODUCTION
Delafield Fund, Inc. (the "Fund") is a diversified, open end management
investment company organized as a Maryland corporation on October 12, 1993, that
seeks to provide its investors with long term preservation of capital
(sufficient growth to outpace inflation over an extended period of time) and
growth of capital. The Fund seeks to achieve its objectives by investing
principally in the equity securities of domestic companies which, based on the
research of the Delafield Asset Management Division of Reich & Tang Asset
Management L.P. (the "Manager") are considered to be undervalued or to represent
special situations (i.e., companies undergoing change that might cause their
market value to grow at a rate faster than the market generally). There can be
no assurance that the Fund will achieve its objectives. This is a summary of the
Fund's fundamental investment policies which are set forth in full under
"Investment Objectives, Policies and Risks" herein and in the Statement of
Additional Information and may not be changed without approval of a majority of
the Fund's outstanding shares.
The Fund's shares are distributed through Reich & Tang Distributors, Inc. (the
"Distributor"), with whom the Fund has entered into a Distribution Agreement and
a Shareholder Servicing Agreement pursuant to the Fund's plan adopted under Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act").
(See "Distribution and Service Plan".)
On any day on which the New York Stock Exchange, Inc. is open for trading ("Fund
Business Day"), investors may initiate purchases and redemptions of shares of
the Fund's common stock at their net asset value, which will be determined
daily. (See "Purchase of Shares" "Redemption of Shares" and "Net Asset Value"
herein.) The minimum initial investment is $5,000, except that the minimum
initial investment for an Individual Retirement Account is $250. There is no
minimum for subsequent investments. The Fund currently intends to pay dividends,
if any, semi-annually. Net capital gains, if any, will be distributed at least
annually, and in no event later than within 60 days after the end of the Fund's
fiscal year. All dividends and distributions of capital gains are automatically
invested in additional shares of the Fund unless a shareholder has elected by
written notice to the Fund to receive either of such distributions in cash. (See
"Dividends, Distributions and Taxes" herein.)
The Fund intends to invest principally in the equity securities of domestic
companies. Investment in the Fund should be made with an understanding of the
risks which an investment in equity securities may entail. In particular, common
stocks represent residual ownership interest in the issuer and are entitled to
the income and increase in the value of the assets and business of the entity
after all its obligations, including preferred stock dividends, are satisfied.
Common stocks fluctuate in price in response to many factors including
historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, and investor perceptions of market
liquidity. See "Investment Objectives, Policies and Risks" herein and the
Statement of Additional Information for a discussion of the special risk factors
affecting equity securities and the other investment policies of the Fund,
including investments in lower rated debt securities.
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
The investment objectives of the Fund are to seek long-term preservation of
capital (sufficient growth to outpace inflation over an extended period of time)
and growth of capital. The Fund will seek to achieve these objectives by
investing primarily in the equity securities of domestic companies which, based
on the research of the Manager, are considered to be undervalued or to represent
special situations (i.e., companies undergoing change that might cause their
market value to grow at a rate faster than the market generally). The Fund's
investment objectives are fundamental policies and may not be changed without
shareholder approval.
There obviously can be no assurance that the Fund's investment objectives will
be achieved. The nature of the Fund's investment objectives and policies may
involve a somewhat greater degree of
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short-term risk than would be present under other investment approaches.
The Fund will under normal circumstances have substantially all of its assets
(i.e., more than 65%) invested in a diversified portfolio of equity securities,
including common stocks, securities convertible into common stocks or rights or
warrants to subscribe for or purchase common stocks. For a discussion of the
risks of investing in convertible securities, see "Convertible Securities" and
"Risks of Investing in Lower Rated Securities" below.
The Fund at times may also invest less than 35% of its total assets in debt
securities and preferred stocks offering a significant opportunity for price
appreciation. For a discussion of the risks of investing in these securities,
see "Risks of Investing in Lower Rated Securities" below.
The Fund may take a defensive position when the Manager has determined that
adverse business or financial conditions warrant such a defensive position and
invest temporarily without limit in rated or unrated debt securities or
preferred stocks or in money market instruments. Money market instruments for
this purpose include obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities (including such obligations subject to
repurchase agreements), commercial paper rated in the highest grade by any
nationally recognized rating agency, and certificates of deposit and bankers'
acceptances issued by domestic banks having total assets in excess of one
billion dollars. A repurchase agreement is an instrument under which an investor
(e.g., the Fund) purchases a U.S. Government security from a vendor, with an
agreement by the vendor to repurchase the security at the same price, plus
interest at a specified rate. Repurchase agreements may be entered into with
member banks of the Federal Reserve System or "primary dealers" (as designated
by the Federal Reserve Bank of New York) in U.S. Government securities.
Repurchase agreements usually have a short duration, often less than one week.
In the event that a vendor defaulted on its repurchase obligation, the Fund
might suffer a loss to the extent that the proceeds from the sale of the
collateral were less than the repurchase price. If the vendor becomes bankrupt,
the Fund might be delayed, or may incur costs or possible losses of principal
and income, in selling the collateral.
Within this basic framework, the policy of the Fund will emphasize flexibility
in arranging its portfolio to seek the desired results. The Fund's investment
philosophy is that of investment in equity securities of companies which, based
on fundamental research, the management of the Fund believes to be undervalued.
The Manager believes that the philosophy of the management of the portfolio
companies is very important and, therefore, intends to invest in companies that
are managed for the benefit of their shareholders and not by managements that
believe that the most important measure of a company's success is its size. In
addition, companies generating free cash flow, which is defined as earnings,
depreciation, and deferred income tax in excess of need for capital expenditures
and dividends, will be considered attractive because such funds can be used to
pay down debt, retire shares, acquire other businesses or increase the dividend.
Investment securities will be assessed upon their earning power, stated asset
value and off the balance sheet values, such as natural resources and timber
properties. Critical factors that will be considered in the selection of
securities will include the values of individual securities relative to other
investment alternatives, trends in the determinants of corporate profits,
corporate cash flow, balance sheet changes, management capability and practices,
and the economic and political outlook. Although the balance sheet of a company
is important to the Manager's analysis, the Fund may invest in financially
troubled companies if the Manager has reason to believe that the underlying
assets are worth far more than the market price of the shares. Generally
speaking, disposal of a security will be based upon factors such as (i)
increases in the valuation of the security which the Fund believes reflect
earnings growth too far in advance, (ii) changes in the relative opportunities
offered by various securities, and (iii) actual or potential deterioration of
the issuers' earning power which the Fund believes may adversely affect the
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price of its securities. Portfolio turnover will be influenced by sound
investment practices, the Fund's investment objective, and the need of funds for
the redemption of the Fund's shares.
The Fund will not seek to realize profits by anticipating short-term market
movements and intends to purchase securities for long-term capital appreciation
under ordinary circumstances. The rate of portfolio turnover will not be a
limiting factor when the investment adviser deems changes to be appropriate.
The Fund's investment policies indicated below (unlike its investment objective)
are not fundamental and may be changed by the Fund's Board of Directors without
shareholder approval.
Foreign Securities
Although the Fund will invest primarily in domestic securities, both listed and
unlisted, and has no present intention of investing any significant portion of
its assets in foreign securities, it reserves the right to invest in foreign
securities if purchase thereof at the time of purchase would not cause more than
15% of the value of the Fund's total assets to be invested in foreign
securities. Investments in foreign securities involve certain risk
considerations which are not typically associated with investments in domestic
securities. These considerations include changes in exchange rates and exchange
control regulation, political and social instability, expropriation, less liquid
markets and less available information than is generally the case in the United
States, less government supervision of exchanges and brokers and issuers, lack
of uniform accounting and auditing standards, foreign withholding taxes and
greater price volatility. See "Foreign Securities" in the Statement of
Additional Information.
Convertible Securities
The Fund may invest in convertible securities when it appears to the Manager
that it may not be prudent to be fully invested in common stocks. In evaluating
a convertible security, the Manager places primary emphasis on the
attractiveness of the underlying common stock and the potential for capital
appreciation through conversion. See "Convertible Securities" in the Statement
of Additional Information.
Risks of Investing in
Lower Rated Securities
The Fund may purchase convertible securities, debt securities, or preferred
stock considered by the Manager to be consistent with the Fund's investment
objectives regardless of whether or not the security is rated. Lower rated
securities (BBB or lower by Standard & Poor's Rating Services, a division of the
McGraw-Hill Companies ("S&P") or Baa or lower by Moody's Investor Services, Inc.
("Moody's") and comparable unrated securities, collectively commonly known as
"junk bonds", have special risks associated with them. The market for these
securities may not be as liquid as the market for higher rated securities, which
may result in depressed prices for the Fund upon the disposal of such lower
rated securities. There is no established secondary market for many of these
securities. The Manager cannot anticipate whether these securities could be sold
other than to institutional investors. There is frequently no secondary market
for the resale of those debt obligations that are in default. The limited market
for these securities may affect the amount actually realized by the Fund upon
such sale. Such sale may result in a loss to the Fund. There are certain risks
involved in applying credit ratings as a method of evaluating lower rated
securities. For example, while credit rating agencies evaluate the safety of
principal and interest payments, they do not evaluate the market risk of the
securities and the securities may decrease in value as a result of credit
developments. See "Description of Ratings" in the Statement of Additional
Information for a definition of the various ratings assigned by S&P and Moody's.
These lower rated securities tend to offer higher yields than higher rated
securities with the same maturities because the creditworthiness of the obligors
of lower rated securities may not have been as strong as that of other issuers.
Since there is a general perception that there are greater risks associated with
the lower rated securities, if any, in
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the Fund, the yields and prices of such securities tend to fluctuate more with
changes in the perceived quality of the credit of their obligors. In addition,
the market value of these lower rated securities may fluctuate more than the
market value of higher rated securities since lower rated securities tend to
reflect short-term market developments to a greater extent than higher rated
securities, which fluctuate primarily in response to the general level of
interest rates, assuming that there has been no change in the fundamental credit
quality of such securities. These lower rated securities are also more sensitive
to adverse economic changes and events affecting specific issuers than are
higher rated securities. Periods of economic uncertainty can be expected to
result in increased market price volatility of the lower rated securities. These
lower rated securities may also be directly and adversely affected by variables
such as interest rates, unemployment rates, inflation rates and real growth in
the economy and may be more susceptible to variables such as adverse publicity
and negative investor perception than more highly rated securities, particularly
in a limited secondary market. Lower rated securities generally involve greater
risks of loss of income and principal than higher rated securities. The obligors
of lower rated securities possess less creditworthy characteristics than the
obligors of higher rated securities, as is evidenced by those securities that
have experienced a downgrading in rating or that are in default. The evaluation
of the price of such securities is highly speculative and volatile. As such,
these evaluations are very sensitive to the latest available public information
relating to developments concerning such securities. See "Risks of Investing in
Lower Rated Securities" in the Statement of Additional Information.
Warrants
The Fund may invest in warrants which entitle the holder to buy equity
securities at a specific price for a specific period of time. In the event the
underlying security does not sufficiently appreciate in value during the period
when the warrant may be exercised so as to provide an attractive investment for
the Fund, the warrant will expire and the Fund will suffer a loss on the price
it paid for the warrant. The Fund will not, however, purchase any warrant if, as
a result of such purchase, 5% or more of the Fund's total assets would be
invested in warrants. Included within that amount, but not to exceed 2% of the
value of the Fund's total assets, may be warrants which are not listed on the
New York or American Stock Exchange. Warrants acquired by the Fund in units or
attached to securities may be deemed to be without value. See "Warrants" in the
Statement of Additional Information.
Short Sales
The Fund may make short sales of securities. A short sale is a transaction in
which the Fund sells a security it does not own in anticipation that the market
price of that security will decline. The Fund expects to make short sales both
to obtain capital gains from anticipated declines in securities and as a form of
hedging to offset potential declines in long positions in the same or similar
securities. The short sale of a security is considered a speculative investment
technique. When the Fund makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
in order to satisfy its obligation to deliver the security upon conclusion of
the sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.
The Fund's obligation to replace the borrowed security will be secured by
collateral deposited with the broker-dealer, usually cash, U.S. Government
securities or other liquid high grade debt obligations. The Fund will also be
required to deposit in a segregated account established and maintained with the
Fund's Custodian, liquid assets such as cash, U.S. Government securities or
other liquid high grade debt obligations, to the extent, if any, necessary so
that the value of both collateral deposits in the aggregate is at all times
equal to the greater of the price at which the security is sold short or 100% of
the current market value of the security sold short. Depending on arrangements
made with the broker-dealer from which it borrowed the security regarding
payment over of any payments received by the Fund on such security, the Fund may
not receive any payments (including interest) on its collateral deposited with
such broker-dealer. If the price of the security sold short
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increases between the time of the short sale and the time the Fund replaces the
borrowed security, the Fund will incur a loss, and, conversely, if the price
declines, the Fund will realize a capital gain; provided, however, any gain will
be decreased, and any loss increased, by the transaction costs described above.
Although the Fund's gain is limited to the price at which it sold the security
short, its potential loss is theoretically unlimited. The market value of the
securities sold short of any one issuer will not exceed either 5% of the Fund's
total assets or 5% of such issuer's voting securities. The Fund will not make a
short sale, if, after giving effect to such sale, the market value of all
securities sold short exceeds 20% of the value of its assets or the Fund's
aggregate short sales "against the box" without respect to such limitations. In
this type of short sale, at the time of the sale, the Fund owns or has the
immediate and unconditional right to acquire at no additional cost the security.
Restricted Securities
The Fund may invest in restricted securities and in other assets having no ready
market if such purchases at the time thereof would not cause more than 15% of
the value of the Fund's net assets to be invested in all such restricted or not
readily marketable assets. Restricted securities may be sold only in privately
negotiated transactions, in a public offering with respect to which a
registration statement is in effect under the Securities Act of 1933 or pursuant
to Rule 144 promulgated under such Act. Where registration is required, the Fund
may be obligated to pay all or part of the registration expense, and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If during such a period adverse market conditions were
to develop, the Fund might obtain a less favorable price than the price that
prevailed when it decided to sell. Restricted securities will be valued in such
manner as the Board of Directors of the Fund in good faith deems appropriate to
reflect their fair market value.
Corporate Reorganizations
The Fund may invest in securities for which a tender or exchange offer has been
made or announced and in securities of companies for which a merger,
consolidation, liquidation or similar reorganization proposal has been announced
if, in the judgment of the Manager, there is a reasonable prospect of capital
appreciation significantly greater than the added portfolio turnover expenses
inherent in the short term nature of such transactions. The principal risk is
that such offers or proposals may not be consummated within the time and under
the terms contemplated at the time of the investment, in which case, unless such
offers or proposals are replaced by equivalent or increased offers or proposals
which are consummated, the Fund may sustain a loss. For further information on
such investments, see "Corporate Reorganizations" in the Statement of Additional
Information.
Investment in Small,
Unseasoned Companies
The Fund may invest up to 5% of its total assets in small, less well known
companies, which (including predecessors) have operated less than three years.
The securities of such companies may have limited liquidity. The Fund will not
invest more than 5% of its total assets in securities of issuers which together
with their predecessors have a record of less than three years of continuous
operations.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment restrictions which may not be changed
without the approval of the Fund's shareholders. Briefly, these restrictions
provide that the Fund may not:
1. Purchase the securities of any one issuer, other than the U.S. Government
or any of its agencies or instrumentalities, if immediately after such
purchase more than 5% of the value of its total assets would be invested in
such issuer or the Fund would own more than 10% of the outstanding voting
securities of such issuer, except that up to 25% of the value of the Fund's
total assets may be invested without regard to such 5% and 10% limitations;
2. Invest more than 25% of the value of its total assets in any particular
industry;
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3. Purchase securities on margin, but it may obtain such short-term credits
from banks as may be necessary for the clearance of purchases and sales of
securities;
4. Make loans of its assets to any person, except for the purchase of debt
securities and repurchase agreements as discussed under "Investment
Objectives, Policies and Risks" herein;
5. Borrow money except for (i) the short-term credits from banks referred to
in paragraph 3 above and (ii) borrowings from banks for temporary or
emergency purposes, including the meeting of redemption requests which
might require the untimely disposition of securities. Borrowing in the
aggregate may not exceed 15%, and borrowing for purposes other than meeting
redemptions may not exceed 5%, of the value of the Fund's total assets
(including the amount borrowed) less liabilities (not including the amount
borrowed) at the time the borrowing is made. Outstanding borrowings in
excess of 5% of the value of the Fund's total assets will be repaid before
any subsequent investments are made;
6. Mortgage, pledge or hypothecate any of its assets, except as may be
necessary in connection with permissible borrowings mentioned in paragraph
5 above;
7. Purchase the securities of other investment companies, except (i) 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 and (ii) further except as permitted
by Section 12(d) of the 1940 Act; and
8. Act as an underwriter of securities of other issuers, except that the Fund
may acquire restricted or not readily marketable securities under
circumstances where, if such securities were sold, the Fund might be deemed
to be an underwriter for purposes of the Securities Act of 1933. The Fund
will not, however, invest more than 15% of the value of its net assets in
restricted securities and not readily marketable securities.
If a percentage restriction is adhered to at the time an investment is made, a
later change in percentage resulting from changes in the value of the Fund's
portfolio securities will not be considered a violation of the Fund's policies
or restrictions.
THE MANAGER
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, has employed the Manager to serve as investment
manager of the Fund. The Manager provides persons satisfactory to the Fund's
Board of Directors to serve as officers of the Fund. Such officers, as well as
certain other employees and directors of the Fund, may be directors or officers
of Reich & Tang Asset Management Inc., or employees of the Manager or its
affiliates. Due to the services performed by the Manager, the Fund currently has
no employees and its officers are not required to devote full-time to the
affairs of the Fund. The Statement of Additional Information contains general
background information regarding each director and principal officer of the
Fund.
The Manager is a Delaware limited partnership with its principal office at 600
Fifth Avenue, New York, New York 10020. As of March 31, 1998, the Manager was
investment manager, adviser or supervisor with respect to assets aggregating in
excess of $11.51 billion. The Manager acts as manager or administrator of 17
other registered 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
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of a 99.5% interest in the Manager. The recent name change of NEICLP did not
result in a change in control of the manager and has no impact upon the
Manager's performance of its responsibilities and obligations.
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"). Also, 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.
J. Dennis Delafield and Vincent Sellecchia of the Fund are primarily responsible
for the day-to-day management of the Fund's portfolio. Mr. Delafield is
Chairman, Chief Executive Officer and Director of the Fund and is Managing
Director of the Reich & Tang Capital Management Group, a division of the
Manager, with which he has been associated since September 1993. From December
1991 to September 1993, Mr. Delafield, acting as investment adviser, was a
Managing Director of Reich & Tang L.P. and an officer of Reich & Tang, Inc.; and
from October 1979 to December 1991, was President and Director of Delafield
Asset Management, Inc. Mr. Sellecchia is President of the Fund and Managing
Director of the Reich & Tang Capital Management Group, a division of the
Manager, with which he has been associated since September 1993. From December
1991 to September 1993, Mr. Sellecchia, acting as investment adviser, was Vice
President of Reich & Tang L.P. and an officer of Reich & Tang, Inc.; and from
October 1980 to December 1991 was Vice President, Director of Investment
Analysis for Delafield Asset Management, Inc. The Fund's Annual Report contains
information regarding the Fund's performance and will be provided, without
charge, upon request.
MetLife is a mutual life insurance company with assets of $297.6 billion at
December 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and its the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.6 trillion at December 31, 1996 for MetLife and its
insurance affiliates. 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 Partnership, 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.
On November 28, 1995 the Board of Directors, including a majority of the
directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved the Investment Management Contract effective
August 30, 1996, which has a term which extends to July 31, 1998 and may be
continued in force thereafter for successive twelve-month periods beginning each
August 1, provided that such continuance is specifically approved annually by
majority vote of the Fund's outstanding voting securities or by its Board of
Directors, and in either case by a majority of the directors who are not parties
to the
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Investment Management Contract or interested persons of any such party, by votes
cast in person at a meeting called for the purpose of voting on such matter.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund. Under the Investment Management Contract, the Manager receives from
the Fund a fee equal to .80% per annum of the Fund's average daily net assets
for managing the Fund's investment portfolio and performing related services.
The fee received by the Manager under the Investment Management Contract is
higher than the fee paid by most investment companies. The Manager, at its
discretion, may voluntarily waive all or a portion of the management fee.
Pursuant to an Administrative Services Contract for the Fund, the Manager
performs clerical, accounting supervision and office service functions for the
Fund and provides the Fund with personnel to (i) supervise the performance of
bookkeeping and related services by Investors Fiduciary Trust Company, the
Fund's bookkeeping agent, (ii) prepare reports to and filings with regulatory
authorities, and (iii) perform such other services as the Fund may from time to
time request of the Manager. The personnel rendering such services may be
employees of the Manager or its affiliates. The Manager, at its discretion, may
voluntarily waive all or a portion of the administrative services fee. For its
services under the Administrative Services Contract, the Manager receives a fee
equal to .21% per annum of the Fund's average daily net assets. Any portion of
the total fees received by the Manager may be used to provide shareholder
services and for distribution of Fund shares. See "Distribution and Service
Plan" herein.
In addition the Distributor can receive a servicing fee up to .25% per annum of
the average daily net assets of the shares of the Fund under the Shareholder
Servicing Agreement. The fees are accrued daily and paid monthly.
DESCRIPTION OF COMMON STOCK
The Fund was incorporated in Maryland on October 12, 1993. The authorized
capital stock of the Fund consists of twenty billion shares of common stock
having a par value of one-tenth of one cent ($.001) per share. The Fund
currently has only one portfolio. The Fund's Articles of Incorporation provide
for the creation of separate classes of the Fund's outstanding common stock.
Except as noted below, each share when issued has equal dividend, distribution
and liquidation rights within the series for which it was issued, and each
fractional share has rights in proportion to the percentage it represents of a
whole share. Shares of all series have identical voting rights, except where, by
law, certain matters must be approved by a majority of the shares of the
affected series. 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 non-assessable. Shares of the Fund are
redeemable at net asset value, at the option of the shareholders.
Under its Articles of Incorporation the Fund has the right to redeem, for cash,
shares of common stock owned by any shareholder to the extent that, and at such
times as, the Fund's Board of Directors determines to be necessary or
appropriate to prevent any 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
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. The Fund's By-Laws provide the
holders of one-third of the outstanding shares of the Fund present at a meeting
in person or by proxy will constitute a quorum for the transaction of business
at all meetings.
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DISTRIBUTION AND SERVICE PLAN
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 Rule 12b-1.
The Fund's Board of Directors has adopted a Distribution and Service Plan (the
"Plan") and, pursuant to the Plan, the Fund and the Distributor have entered
into a Distribution Agreement and a Shareholder Servicing Agreement.
Under the Distribution Agreement, the Distributor serves as distributor of the
Fund's shares and, for nominal consideration and as agent for the Fund, will
solicit 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 is permitted to
receive payments from the Fund (i) to permit it to make payments to
participating organizations, with which it has written agreements and whose
clients or customers are shareholders of the Fund (each a "Participating
Organization"), for providing personal shareholder services and for the
maintenance of shareholder accounts and (ii) to reimburse it for its costs in
the provision of these services by it to Fund shareholders up to .25% per annum
of the Fund's average daily net assets (the "Shareholder Servicing Fee").
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for preparation, 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 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. In addition to the use of the Shareholder
Servicing Fee, the Distributor may also make payments from time to time from its
own resources and past profits, for the purposes enumerated 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 December 31, 1997, the total amount spent pursuant to
the Plan was 0.04 % of the average daily net assets of the Fund, all of which
was paid by the Fund to the Distributor. Of the total amount paid by the
Manager, $0 was utilized for Broker assistance payments, $558 for compensation
to sales personnel, $1,099 for travel and expenses, $35,404 for prospectus,
application and miscellaneous printing, and $130 on miscellaneous expenses.
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. However, in the opinion of the
Manager based on the advice of counsel, these laws and regulations do not
prohibit such depository institutions from providing other services for
investment companies such as the shareholder servicing and related
administrative functions referred to above. The Fund's Board of Directors will
consider appropriate modifications to the Fund's operations, including
discontinuance of any payments then being made under the Plan to banks
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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.
PURCHASE OF SHARES
Shares of the Fund that are purchased through broker-dealers are offered at a
price based on the current net asset value of such shares which is next computed
upon receipt of the purchase order by the broker-dealer.
The minimum for an initial investment is $5,000, except that the minimum initial
investment for an Individual Retirement Account is $250. There is no minimum for
subsequent investments. All purchase payments will be invested in full and
fractional shares. The Fund or the Distributor is authorized to reject any
purchase order.
For each shareholder of record, the Fund's transfer agent, Reich & Tang
Services, Inc. ("Transfer Agent"), as the shareholder's agent, establishes an
open account to which all shares purchased are credited, together with any
dividends and capital gain distributions which are paid in additional shares.
See "Dividends, Distributions and Taxes" herein. Although most shareholders
elect not to receive stock certificates, certificates for full shares can be
obtained on specific written request to the Transfer Agent. No certificates are
issued for fractional shares.
If an investor purchases or redeems shares of the Fund through an investment
dealer, bank or other institution, that institution may impose charges for its
services; these charges would reduce the investor's yield or return. An investor
may purchase or redeem shares of the Fund directly from the Fund's Distributor
or its Transfer Agent without any such charges.
New Shareholders
Mail
To purchase shares of the Fund send a check made payable to "Delafield Fund,
Inc." and a completed subscription order form to the Fund at the following
address:
Delafield Fund, Inc.
Reich & Tang Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
Checks are accepted subject to collection at full face value in United States
currency.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, an investor should first telephone the Fund at 212-830-5220 (within
New York State) or at 800-221-3079 (outside New York State) to obtain a new
account number. The investor should then instruct a member commercial bank to
wire funds to:
Investors Fiduciary Trust Company
Reich & Tang Funds
ABA #101003621
DDA #890752-953-8
For Delafield Fund, Inc.
Account of (Investor's Name)
Fund Account # 819-
SS#/Tax ID#
Then promptly complete and mail the subscription order form. There may be a
charge by your bank for transmitting the money by bank wire. The Fund does not
charge investors in the Fund for the receipt of wire transfers. If you are
planning to wire funds, it is suggested that you instruct your bank early in the
day so the wire transfer can be accomplished the same day. Payment in the form
of a "bank wire" received prior to 4 p.m., 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 "Delafield Fund, Inc.", along with a completed
subscription order form to:
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Reich & Tang Funds
600 Fifth Avenue - 9th Floor
New York, New York 10020
Present Shareholders
Subsequent purchases can be made by personal delivery or bank wire, as indicated
above, or by mailing a check made payable to "Delafield Fund, Inc." at:
Delafield Fund, Inc.
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232
The shareholder's account number should be clearly indicated.
Certain Participating Organizations may utilize the FundSERV mutual funds
clearinghouse system to purchase and redeem shares.
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, or by
having federal salary, social security, or certain veteran's, military or other
payments from the federal government, automatically deposited into your Fund
account. You can also have money debited from your checking account. To enroll
in any one of these programs, you must file with the Fund a completed EFT
Application, Pre-authorized Credit Application, a copy of a voided check 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.
REDEMPTION OF SHARES
Shareholders may make a redemption in any amount by sending a written request to
the Fund, accompanied by any certificate that may have been issued to the
shareholder, addressed to:
Delafield Fund, Inc.
Reich & Tang Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
Upon receipt by the Fund of a redemption request in proper form, shares of the
Fund will be redeemed at their next determined net asset value. See "Net Asset
Value" herein.
The request must specify the name of the Fund, the dollar amount or number of
shares to be redeemed, and the account number. The request must be signed in
exactly the same way the account is registered (if there is more than one owner
of the shares, all must sign) and, if any certificates are included in the
request, presentation of such certificates properly endorsed. In all cases, all
the signatures on a redemption request and/or certificates must be signature
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
(guarantees by notaries public are not acceptable). Further documentation, such
as copies of corporate resolutions and instruments of authority may be requested
from corporations, administrators, executors, personal representatives, trustees
or custodians to evidence the authority of the person or entity making the
redemption request.
Checks for redemption proceeds normally will be mailed within seven days, but
will not be mailed until all checks (including a certified or cashier's check)
in payment for the purchase of the shares to be redeemed have been cleared,
which could take up to 15 days after investment. Unless other instructions are
given in proper form, a check for the proceeds of a redemption will be sent to
the shareholder's address of record and generally will be mailed within seven
days after receipt of the request.
The Fund may suspend the right of redemption and postpone the date of payment
for more than seven
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days during any period when (i) trading on the New York Stock Exchange is
restricted or the Exchange is closed, other than customary weekend and holiday
closings, (ii) the SEC has by order permitted such suspension or (iii) an
emergency, as defined by rules of the SEC, exists making disposal of portfolio
investments or determination of the value of the net assets of the Fund not
reasonably practicable.
The proceeds of a redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for Federal income tax
purposes.
To minimize expenses, the Fund reserves the right to redeem upon not less than
45 days notice all shares of the Fund in an account (other than an Individual
Retirement Account) which has a value below $500 caused by reason of a
redemption by a shareholder of shares of the Fund; provided, however, a
shareholder's shares may not be redeemed if written objection to the redemption
is received by the Fund within 30 days after the date on which notice of the
redemption is received by the shareholder. Shareholders will be allowed to make
additional investments prior to the date fixed for redemption to avoid
liquidation of the account. In lieu of the right to redeem all shares, the Fund
may impose a monthly service charge of $10 on such accounts.
Systematic Withdrawal Plan
Any shareholder who owns shares of the Fund with an aggregate value of $10,000
or more may establish a Systematic Withdrawal Plan under which he offers to sell
to the Fund at net asset value the number of full and fractional shares which
will produce the monthly or quarterly payments specified (minimum $50 per
payment). Depending on the amounts withdrawn, systematic withdrawals may deplete
the investor's principal. Investors contemplating participation in this plan
should consult their tax advisers.
Shareholders wishing to utilize this plan may do so by completing an application
which may be obtained by writing or calling the Fund. No additional charge to
the shareholder is made for this service.
Telephone Redemption Privilege
The Fund accepts telephone requests for redemption from shareholders who elect
this option. Telephone requests for redemption may not exceed the sum of $25,000
per request per day. The proceeds of a telephone redemption will be sent to the
shareholder at his address or to his bank account as set forth in the
subscription order form or in a subsequent signature guaranteed written
authorization. The Fund may accept telephone redemption instructions from any
person with respect to accounts of shareholders who elect this service, and thus
shareholders risk possible loss of dividends in the event of a telephone
redemption not authorized by them. The Fund will employ reasonable procedures to
confirm that telephone redemption instructions are genuine, and will require
that shareholders electing such option provide a form of personal
identification. The failure by the Fund to employ such reasonable procedures may
cause the Fund to be liable for any losses incurred by investors due to
telephone redemptions based upon unauthorized or fraudulent instructions. The
telephone redemption option may be modified or discontinued at any time upon 60
days written notice to shareholders.
RETIREMENT PLANS
The Fund has available a form of individual retirement account ("IRA") for
investment in the Fund's shares. In general, an individual can make an annual
contribution to an IRA in an amount equal to the lesser of $2000 or 100% of the
individual's earned income. In addition, in the case of a married couple filing
a joint return, annual IRA contributions of up to $2000 can generally be made
for each spouse, as long as the combined compensation of both spouses is at
least equal to the contributed amounts. IRA contribution can, in general, be
made to either regular deductible IRAs, regular non-deductible IRAs or
non-deductible Roth IRAs, a new type of IRA established by the Taxpayer Relief
Act of 1997. Contributions to a Roth IRA are not deductible, but qualified
distributions from a Roth IRA are not includable in income or subject to the
additional ten-percent tax on early withdrawals. A "qualified distribution" is a
distribution that is made
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after the end of the five taxable year period beginning with the first taxable
year in which the individual made a contribution to a Roth IRA, and which is
made on or after the date in which the individual attains a 59 1/2, on or after
the death of the individual or is attributable to the disability of the
individual, or is a distribution for specified first-time home buyer expenses.
Contributions to regular deductible IRAs and Roth IRAs may be limited based on
adjusted gross income levels. The ability of a person who is an active
participant in an employer sponsored retirement plan to make deductible
contributions to a regular IRA is phased out based on the individual's adjusted
gross incomes. For 1998, the phase out occurs over a range of adjusted gross
incomes from $50,000 to $60,000 on a joint return and $30,000 to $40,000 on a
single return. The phase out range for a married individual who is not an active
participant but whose spouse is an active participant is between $150,000 and
$160,000.
The maximum annual contribution that can be made to a Roth IRA is also subject
to phase out rules that apply to married individuals filing joint returns when
adjusted gross income is between $150,000 and $160,000 and to single
individuals when adjusted gross income is between $95,000 and $110,000.
For both regular deductible IRAs and Roth IRAs, the phase out range for married
individuals filing separate returns is from $0 to $10,000
The minimum investment required to open an IRA is $250. Generally, there are
penalties for premature distributions from an IRA before the attainment of age
59 1/2, except in the case of the participant's death or disability and certain
other circumstances including first-time home buyer expenses, and in the case of
regular IRAs, certain education expenses.
Fund shares may also be a suitable investment for assets of other types of
qualified pension or profit-sharing plans, including cash or deferred or salary
reduction "Section 401(k) plans" which give participants the right to defer
portions of their compensation for investment on a tax-deferred basis until
distributions are made from the plans.
Persons desiring information concerning investments by IRAs and other retirement
plans should write or telephone the Fund.
EXCHANGE PRIVILEGE
Shareholders of the Fund are entitled to exchange some or all of their shares in
the Fund for Class B shares of either the Daily Tax Free Income Fund, Inc. or
the Short Term Income Fund, Inc. (U.S. Government Portfolio), each of which are
other investment companies which retain Reich & Tang Asset Management L.P. as
investment adviser or manager. 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. The Fund will provide
shareholders with 60 days written notice prior to any modification or
discontinuance of the exchange privilege. An exchange of shares in the Fund
pursuant to the exchange privilege is, in effect, a redemption of Fund shares
(at net asset value) followed by the purchase of shares of the investment
company into which the exchange is made (at net asset value) and may result in a
shareholder realizing a taxable gain or loss for Federal income tax purposes.
There is no charge for the exchange privilege or limitation as to frequency of
exchanges. The minimum amount for an exchange is $1,000, except that
shareholders who are establishing a new account with an investment company
through the exchange privilege must insure that a sufficient number of shares
are exchanged to meet the minimum initial investment required for the investment
company into which the exchange is being made. The exchange privilege is
available to shareholders resident in any state in which shares of the
investment company being acquired may legally be sold. Before making an
exchange, the investor should review the current prospectus of the investment
company into which the exchange is being made. Prospectuses may be obtained by
contacting the Distributor at the address or telephone number listed on the
cover of this Prospectus.
Instructions for exchange may be made in writing to the Transfer Agent at the
appropriate address listed
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herein or, for shareholders who have elected that option, by telephone. The Fund
reserves the right to reject any exchange request.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each dividend and capital gains distribution, if any, declared by the Fund on
its outstanding shares will, at the election of each shareholder, be paid in
cash or in additional shares of common stock of the Fund having an aggregate net
asset value as of the payment date of such dividend or distribution equal to the
cash amount of such dividend or distribution. Election to receive dividends and
distributions in cash or shares is made at the time shares are subscribed for
and may be changed by notifying the Fund in writing at any time prior to the
record date for a particular dividend or distribution. If the shareholder makes
no election the Fund will make the distribution in shares. There is no sales or
other charge in connection with the reinvestment of dividends and capital gains
distributions.
While it is the intention of the Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by the Fund of income and capital gains
from investments. Dividends will normally be paid semi-annually. Capital gains
distributions, if any, will be made at least annually, and in no event later
than 60 days after the end of the Fund's fiscal year. There is no fixed dividend
rate, and there can be no assurance that the Fund will pay any dividends or
realize any capital gains.
The Fund intends to continue to qualify for and elect special treatment
applicable to a "regulated investment company" under the Internal Revenue Code
of 1986, as amended. To qualify as a regulated investment company, the Fund must
meet certain complex tests concerning its investments and distributions. For
each year the Fund qualifies as a regulated investment company, the Fund will
not be subject to federal income tax on income distributed to its shareholders
in the form of dividends or capital gain distributions. Additionally, the Fund
will not be subject to a federal excise tax if the Fund distributes at least 98%
of its ordinary income and 98% of its capital gain income to its shareholders.
Dividends out of net ordinary income and distributions of net short-term capital
gains are taxable to the recipient shareholders as ordinary income and are
eligible, in the case of corporate shareholders, for the dividends-received
deduction to the extent that the Fund's income is derived from qualifying
dividends received by the Fund from domestic corporations. A corporation's
dividends-received deduction will be disallowed unless the corporation holds
shares in the Fund at least 46 days. Furthermore, a corporation's
dividends-received deduction will be disallowed to the extent a corporation's
investment in shares of the Fund is financed with indebtedness.
The excess of net long-term capital gains over the net short-term capital losses
realized and distributed by the Fund to its shareholders as capital gains
distributions are taxable to the shareholders as long-term capital gains,
irrespective of the length of time a shareholder may have held his stock. Such
long-term capital gains distributions are not eligible for the
dividends-received deduction referred to above. If a shareholder held shares six
months or less and during that period received a distribution taxable to such
shareholder as long-term capital gain, any loss realized on the sale of such
shares during such six-month period would be a long-term capital loss to the
extent of such distribution.
Any dividend or distribution received by a shareholder on shares of the Fund
shortly after the purchase of such shares by such shareholder will have the
effect of reducing the net asset value of such shares by the amount of such
dividend or distribution. Furthermore, such dividend or distribution, although
in effect a return of capital, is subject to applicable taxes to the extent that
the investor is subject to such taxes regardless of the length of time the
investor may have held the stock.
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions and redemptions) paid
to shareholders who have not complied with IRS regulations. In connection with
this withholding requirement, a shareholder will be asked to certify on his
application that the social
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security or tax identification number provided is correct and that the
shareholder is not subject to 31% backup withholding for previous underreporting
to the IRS.
NET ASSET VALUE
The Fund determines the net asset value per share of the Fund as of 4:00 p.m.,
New York City time, by dividing the value of the Fund's net assets (i.e., the
value of its securities and other assets less its liabilities, including
expenses payable or accrued but excluding capital stock and surplus) by the
number of shares outstanding at the time the determination is made. The Fund
determines its net asset value on each Fund Business Day. Fund Business Day for
this purpose means weekdays (Monday through Friday) except customary national
business holidays and Good Friday. Purchases and redemptions will be effected at
the time of determination of net asset value next following the receipt of any
purchase or redemption order in proper form. See "Purchase of Shares" and
"Redemption of Shares" herein.
Portfolio securities for which market quotations are readily available are
valued at market value. All other investment assets of the Fund are valued in
such manner as the Board of Directors of the Fund in good faith deems
appropriate to reflect their fair value.
GENERAL INFORMATION
Performance
From time to time the Fund may distribute sales literature or publish
advertisements containing "total return" quotations for the Fund. The Manager
may also include general language in such advertisements or information
furnished to present or prospective shareholders regarding the Manager's
investment performance. Such sales literature or advertisements will disclose
the Fund's average annual compounded total return for the Fund's last one year
period, five year period and the period since the Fund's inception, and may
include total return information for other periods. The Fund's total return for
each period is computed, through use of a formula prescribed by the SEC, by
finding the average annual compounded rates of return over the period that would
equate an assumed initial amount invested to the value of the investment at the
end of the period. For purposes of computing total return, income dividends and
capital gains distributions paid on shares of the Fund are assumed to have been
reinvested when received.
The Fund may also from time to time include in advertisement the ranking of
those performance figures relative to such figures for groups of mutual funds
categorized by nationally recognized ranking agencies. The performance of the
Fund may also be compared to recognized indices, including, but not limited to,
the Standard & Poor's 500.
Shareholder Meetings
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-Laws of the Fund provide for annual
meetings only (a) for the election of directors as required by the 1940 Act, (b)
for approval of revised investment advisory agreements with respect to a
particular class or series of stock, (c) for approval of revisions to the Fund's
distribution plan as required in the 1940 Act with respect to particular class
or series of stock, and (d) upon the written request of holders of shares
entitled to cast not less than 10% 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, any
registration of the Fund with the SEC or any state, or as the Directors may
consider necessary or desirable. Each Director serves until the next meeting of
shareholders called for the purpose of considering the election or re-election
of such Director or of a successor to such Director, and until the election and
qualification of his or her successor, elected at such meeting, or until such
Director sooner dies, resigns, retires or is removed by the vote of the
shareholders.
Year 2000 Issue
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
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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 significant operating expenses or be required to incur
material costs to be year 2000 compliant. Although the Manager does not
anticipate that the year 2000 issue will have material impact of 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.
Custodian and Transfer Agent
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri
64105, is the custodian for the Fund's cash and securities. Reich & Tang
Services, Inc., 600 Fifth Avenue, New York, New York 10020, is the transfer
agent and dividend agent for the shares of the Fund. The Fund's custodian and
transfer agent do not assist in, and are not responsible for investment
decisions involving assets of the Fund.
Information for Shareholders
All shareholder inquiries should be directed to Delafield Fund, Inc., 600 Fifth
Avenue, New York, New York 10020 (telephone: 212-830-5220 or outside New York
State 800-221-3079).
The Fund will send to all its shareholders semi-annual unaudited and annual
audited reports, including a list of investment securities held.
The Fund maintains a web site (http://www.delafieldfund.com) which contains this
Prospectus and other information about the Fund and its shares For further
information with respect to the Fund and the shares offered hereby, reference is
made to the Fund's Registration Statement filed with the SEC, including the
exhibits thereto. The Registration Statement and the exhibits thereto may be
examined at the SEC and copies thereof may be obtained upon payment of certain
duplicating fees.
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TABLE OF CONTENTS
Table of Fees and Expenses.............................2
Financial Highlights...................................3
Introduction...........................................4
Investment Objectives, Policies and Risks..............4
Foreign Securities..................................6 DELAFIELD
Convertible Securities..............................6 FUND, INC.
Risks of Investing in Lower Rated Securities........6
Warrants............................................7
Short Sales.........................................7
Restricted Securities...............................8
Corporate Reorganizations...........................8 PROSPECTUS
Investment in Small, Unseasoned Companies...........8 May 1, 1998
Investment Restrictions................................8
The Manager............................................9
Description of Common Stock............................11
Distribution and Service Plan..........................12
Purchase of Shares.....................................13
New Shareholders....................................13
Present Shareholders................................14
Electronic Funds Transfers (EFT), Pre-authorized
Credit and Direct Deposit Privilege..............14
Redemption of Shares...................................14
Systematic Withdrawal Plan..........................15
Telephone Redemption Privilege......................15
Retirement Plans.......................................15
Exchange Privilege.....................................16
Dividends, Distributions and Taxes.....................17
Net Asset Value........................................18
General Information ...................................18
Performance.........................................18
Shareholder Meetings................................18
Year 2000 Issue.....................................18
Custodian and Transfer Agent........................19
Information for Shareholders .......................19
No dealer, salesman or other person has been authorized to give any information
or to make any representation other than those contained in this Prospectus, and
if given or made, such information and representation may not be relied upon as
authorized by the Fund, its Manager, Distributor or any affiliate thereof. This
Prospectus does not constitute an offer to sell or a solicitation of any offer
to buy any of the securities offered hereby in any state to any person to whom
it is unlawful to make such offer in such state.
<PAGE>
Rule 497(c)
Registration No. 33-69760
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DELAFIELD 600 Fifth Avenue, New York, NY 10020
FUND, INC. (212) 830-5220
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
Delafield Fund, Inc. (the "Fund") is an open-end, diversified management
investment company. The Fund's investment objectives are to seek long-term
preservation of capital (sufficient growth to outpace inflation over an extended
period of time) and growth of capital.
This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Fund's
prospectus dated May 1, 1998 (the "Prospectus"). This Statement of Additional
Information contains additional and more detailed information than that set
forth in the Prospectus and should be read in conjunction with the Prospectus,
additional copies of which may be obtained without charge by either writing or
telephoning the Fund at the address or telephone number set forth above.
Table of Contents
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
Investment Objectives,
Policies and Risks........................................2
Common Stock............................................2 Expense Limitation.................................6
Warrants................................................2 Management of the Fund.................................7
Foreign Securities......................................2 Compensation Table.....................................8
Converible Securities...................................2 Counsel and Auditors...................................8
Corporate Reorganizations...............................2 Distribution and Service Plan..........................9
Repurchase Agreements...................................3 The Glass-Steagall Act................................10
Risks of Investing in Lower Rated Securities............3 Description of Common Stock............................10
Other Matters...........................................4 Custodian Transfer Agent...............................11
Investment Restrictions.......................................4 Financial Statements...................................11
Portfolio Transactions........................................4 Performance............................................11
Purchase of Shares and Redemption of Shares...................5 Net Asset Value........................................12
Manager.......................................................5 Description of Ratings.................................13
</TABLE>
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<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
As stated in the Prospectus, the Fund is an open-end, diversified management
investment company. The Fund's investment objectives are to seek long-term
preservation of capital (sufficient growth to outpace inflation over an extended
period of time) and growth of capital. The Fund will seek to achieve these
objectives by investing primarily in the equity securities of domestic companies
which, based on the research of the Delafield Asset Management Division of Reich
& Tang Asset Management L.P. (the "Manager"), are considered to be undervalued
or to represent special situations (i.e., companies undergoing change that might
cause their market value to grow at a rate faster than the market generally).
Common Stock
The Fund intends to invest principally in the equity securities of domestic
companies. Investment in the Fund should be made with an understanding of the
risks that an investment in equity securities may entail. In particular, common
stocks represent the residual ownership interest in the issuer and are entitled
to the income and increase in the value of the assets and business of the entity
after all of the issuer's obligations, including preferred stock dividends, are
satisfied. Common stocks fluctuate in price in response to many factors
including historical and prospective earnings of the issuer, the value of its
assets, general economic conditions, interest rates, and investor perceptions of
market liquidity.
Warrants
The Fund may invest in warrants which entitle the holder to buy equity
securities at a specific price for a specific period of time. Warrants may be
considered more speculative than certain other types of investment in that they
do not entitle a holder to dividends or voting rights with respect to the
securities which may be purchased nor do they represent any rights in the assets
of the issuing company. Also, the value of a warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to the expiration date.
Foreign Securities
Investments may be made in both domestic and foreign companies. While the Fund
has no present intention to invest any significant portion of its assets in
foreign securities, it reserves the right to invest not more than 15% of the
value of its total assets (at the time of purchase and after giving effect
thereto) in the securities of foreign issuers and obligors.
Investments in foreign companies involve certain considerations which are not
typically associated with investing in domestic companies. An investment may be
affected by changes in currency rates and in exchange control regulations. There
may be less publicly available information about a foreign company than about a
domestic company. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. Foreign stock markets have substantially less
volume than the New York Stock Exchange and securities of some foreign companies
may be less liquid and more volatile than securities of comparable domestic
companies. There is generally less government regulation of stock exchanges,
brokers and listed companies in foreign countries than in the United States. In
addition, with respect to certain foreign countries, there is a possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments which could affect investments in those countries.
Individual foreign economies may differ favorably or unfavorably from the United
States' economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities which may include corporate notes
or preferred stock but are ordinarily a long-term debt obligation of the issuer
convertible at a stated exchange rate into common stock of the issuer. As with
all debt securities, the market value of convertible securities tends to decline
as interest rates increase and, conversely, to increase as interest rates
decline. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality. However, when the
market price of the common stock underlying a convertible security exceeds the
conversion price, the price of the convertible security tends to reflect the
value of the underlying common stock. As the market price of the underlying
common stock declines, the convertible security tends to trade increasingly on a
yield basis, and thus may not depreciate to the same extent as the underlying
common stock. Convertible securities rank senior to common stocks on an issuer's
capital structure and are consequently of higher quality and entail less risk
than the issuer's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed income security.
Corporate Reorganizations
The Fund may invest in securities for which a tender or exchange offer has been
made or announced and in securities of companies for which a merger,
consolidation, liquidation or reorganization proposal has been announced if, in
the judgment of the Manager, there is reasonable prospect of capital
appreciation significantly greater than the brokerage and other transaction
expenses involved. The primary risk of such investments is that if the
contemplated transaction is
2
<PAGE>
abandoned, revised, delayed or becomes subject to unanticipated uncertainties,
the market price of the securities may decline below the purchase price paid by
the Fund.
In general, securities which are the subject of such an offer or proposal sell
at a premium to their historic market price immediately prior to the
announcement of the offer or proposal. However, the increased market price of
such securities may also discount what the stated or appraised value of the
security would be if the contemplated transaction were approved or consummated.
Such investments may be advantageous when the discount significantly overstates
the risk of the contingencies involved; significantly undervalues the
securities, assets or cash to be received by shareholders of the prospective
portfolio company as a result of the contemplated transaction; or fails
adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of such contingencies requires unusually broad knowledge and experience on the
part of the Manager which must appraise not only the value of the issuer and its
component businesses as well as the assets or securities to be received as a
result of the contemplated transaction, but also the financial resources and
business motivation of the offerer as well as the dynamics of the business
climate when the offer or proposal is in process.
In making such investments, the Fund will not violate any of its diversification
requirements or investment restrictions (see below, "Investment Restrictions")
including the requirement that, except for the investment of up to 25% of its
total assets in any one company or industry, not more than 5% of its total
assets may be invested in the securities of any one issuer. Since such
investments are ordinarily short-term in nature, they will tend to increase the
turnover ratio of the Fund thereby increasing its brokerage and other
transaction expenses as well as make it more difficult for the Fund to meet the
tests for favorable tax treatment as a "Regulated Investment Company" specified
by the Internal Revenue Code (see the Prospectus, "Dividends, Distributions and
Taxes"). The Manager intends to select investments of the type described which,
in its view, have a reasonable prospect of capital appreciation which is
significant in relation to both the risk involved and the potential of available
alternate investments as well as monitor the effect of such investments on the
tax qualification tests of the Internal Revenue Code.
Repurchase Agreements
When the Fund enters into a repurchase agreement, the Fund requires the
continual maintenance of collateral (to be held by the Fund's custodian in a
segregated account) in an amount equal to, or in excess of, the vendor's
repurchase agreement commitment. The underlying securities are ordinarily U.S.
Treasury or other government obligations or high quality money market
instruments. In the event that a vendor defaults on its repurchase obligation,
the Fund might suffer a loss to the extent that the proceeds from the sale of
the collateral are less than the repurchase price. If the vendor becomes
bankrupt, the Fund might be delayed, or may incur costs or possible losses of
principal and income, in selling the collateral. Repurchase agreements may be
entered into with member banks of the Federal Reserve System or "primary
dealers" (as designated by the Federal Reserve Bank of New York) in U.S.
Government securities.
Risks of Investing in Lower Rated Securities
The Fund may invest less than 35% of its total assets in lower rated securities
(Baa by Moody's Investor Services, Inc. ("Moody's") or BBB by Standard & Poor's
Rating Services, a division of the McGraw-Hill Companies ("S&P") and comparable
unrated securities, collectively commonly known as "junk bonds") to the extent
described in the Prospectus. No minimum rating standard is required by the Fund.
These lower rated securities are considered speculative and, while generally
providing greater income than investments in higher rated securities, will
involve greater risk of principal and income (including the possibility of
default or bankruptcy of the issuers of such securities) and may involve greater
volatility of price (especially during periods of economic uncertainty or
change) than securities in the higher rating categories and because yields vary
over time, no specific level of income can ever be assured. These lower rated
securities generally tend to reflect economic changes (and the outlook for
economic growth) short-term corporate and industry developments and the market's
perception of their credit quality (especially during times of adverse
publicity) to a greater extent than higher rated securities which react
primarily to fluctuations in the general level of interest rates (although these
lower rated securities are also affected by changes in interest rates). In the
past, economic downturns or an increase in interest rates have, under certain
circumstances, caused a higher incidence of default by the issuers of these
securities and may do so in the future, especially in the case of highly
leveraged issuers. The prices for these securities may be affected by
legislative and regulatory developments. For example, federal rules require that
savings and loan associations gradually reduce their holdings of securities. An
effect of such legislation may be to depress the prices of outstanding lower
rated securities. In addition, investment in these lower rated securities may
involve greater liquidity and valuation risks than those for investment grade
securities. To the extent there is no established secondary market for these
securities, there could be thin trading of such securities which could adversely
impact the Board of Directors' ability to accurately value such securities and
the Fund's assets. Furthermore, the liquidity of these lower rated securities
may be affected by the market's perception of their credit quality. Therefore,
the Manager's judgment may at times play a greater role in valuing these
securities than in the case of investment grade securities, and it also may be
more difficult during times of certain adverse market conditions to dispose of
these lower rated securities to meet redemption requests or to respond to
changes in the market.
3
<PAGE>
While the Manager may refer to ratings issued by established credit rating
agencies, it is not the Fund's policy to rely exclusively on ratings issued by
these rating agencies, but rather to supplement such ratings with the Manager's
own independent and ongoing review of credit quality. To the extent the Fund
invests in these lower rated securities, the achievement of its investment
objectives may be more dependent on the Manager's own credit analysis than in
the case of a fund investing in investment grade securities.
Other Matters
In addition, for purposes of complying with the securities regulations of
certain states, the Fund has adopted the following additional investment
restrictions, which may be changed by the Fund's Board of Directors without
shareholder approval. The Fund may not purchase or retain the securities of any
issuer if the officers or directors of the Fund or Reich & Tang Asset
Management, Inc., the general partner of the Manager, own beneficially more than
1/2 of 1% of the securities of an issuer together own beneficially more than 5%
of that issuer.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions which are in addition
to those described in the Prospectus. Under the following restrictions, which
may not be changed without the approval of a majority of the Fund's
shareholders, the Fund may not:
1) Purchase or otherwise acquire interests in real estate, real estate
mortgage loans or interests in oil, gas or other mineral exploration or
development programs;
2) Invest in puts, calls, straddles, spreads or combination thereof;
3) Purchase or acquire commodities or commodity contracts;
4) Issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security in connection with any permitted borrowing;
5) Participate on a joint or a joint and several basis in any securities
trading account; and
6) Invest in companies for the purpose of exercising control.
PORTFOLIO TRANSACTIONS
The Manager makes the Fund's portfolio decisions and determines the broker to be
used in each specific transaction with the objective of negotiating a
combination of the most favorable commission and the best price obtainable on
each transaction (generally defined as best execution). When consistent with the
objective of obtaining best execution, brokerage may be directed to persons or
firms supplying investment information to the Manager or portfolio transactions
may be effected by the Manager. Neither the Fund nor the Manager has entered
into agreements or understandings with any brokers regarding the placement of
securities transactions because of research services they provide. To the extent
that such persons or firms supply investment information to the Manager for use
in rendering investment advice to the Fund, such information may be supplied at
no cost to the Manager and, therefore, may have the effect of reducing the
expenses of the Manager in rendering advise to the Fund. While it is impossible
to place an actual dollar value on such investment information, its receipt by
the Manager probably does not reduce the overall expenses of the Manager to any
material extent. Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking best execution,
the Manager may consider sales of shares of the Fund as a factor in the
selection of brokers to execute portfolio transactions for the Fund.
The investment information provided to the Manager is of the type described in
Section 28(e) of the Securities Exchange Act of 1934 and is designed to augment
the Manager's own internal research and investment strategy capabilities.
Research services furnished by brokers through which the Fund effects securities
transactions are used by the Manager in carrying out its investment management
responsibilities with respect to all its clients' accounts. There may be
occasions where the transaction cost charged by a broker may be greater than
that which another broker may charge if the Manager determines in good faith
that the amount of such transaction cost is reasonable in relation to the value
of brokerage and research services provided by the executing broker.
The Fund may deal in some instances in securities which are not listed on a
national securities exchange but are traded in the over-the-counter market. It
may also purchase listed securities through the third market. Where transactions
are executed in the over-the-counter market or the third market, the Fund will
seek to deal with the primary market makers; but when necessary in order to
obtain best execution, it will utilize the services of others. In all cases the
Fund will attempt to negotiate best execution.
The Distributor may from time to time effect transactions in the Fund's
portfolio securities. In such instances, the placement of orders with the
Distributor would be consistent with the Fund's objective of obtaining best
execution. With respect to orders placed with the Distributor for execution on a
national securities exchange, commissions received must conform to Section
17(e)(2)(A) of the Investment Company Act of 1940 (the "1940 Act"), as amended,
and Rule 17e-1
4
<PAGE>
thereunder, which permit an affiliated person of a registered investment company
(such as the Fund) to receive brokerage commissions from such registered
investment company provided that such commissions are reasonable and fair
compared to commissions received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time. In
addition, pursuant to Section 11(a) of the Securities Exchange Act of 1934, the
Distributor is restricted as to the nature and extent of the brokerage services
it may perform for the Fund. The Securities and Exchange Commission has adopted
rules under Section 11(a) which permit a distributor to a registered investment
company to receive compensation for effecting, on a national securities
exchange, transactions in portfolio securities of such investment company,
including causing such transactions to be transmitted, executed, cleared and
settled and arranging for unaffiliated brokers to execute such transactions. To
the extent permitted by such rules, the Distributor may receive compensation
relating to transactions in portfolio securities of the Fund provided that the
Fund enters into a written agreement, as required by such rules, with the
Distributor authorizing it to retain compensation for such services.
Transactions in portfolio securities placed with the Distributor which are
executed on a national securities exchange must be effected in accordance with
procedures adopted by the Board of Directors of the Fund pursuant to Rule 17e-1.
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.
The portfolio turnover rate for the fiscal year ended December 31, 1996 and
December 31, 1997 was 75.54% and 55.43%, respectively.
PURCHASE OF SHARES AND REDEMPTION OF SHARES
The material relating to the purchase and redemption of shares in the Prospectus
is herein incorporated by reference.
MANAGER
The investment manager for the Fund is the Delafield Asset Management Division
of Reich & Tang Asset Management L.P., a Delaware limited partnership with
principal offices at 600 Fifth Avenue, New York, New York 10020 (the "Manager").
As of March 31, 1998, the Manager was manager, adviser or supervisor with
respect to assets aggregating approximately $11.51 billion. The Manager acts as
manager or administrator of fifteen other investment companies and also advises
pension trust, 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. The recent name change of NEICLP
did not result in a change in control of the manager and has no impact upon the
Manager's performance of its responsibilities and obligations.
Reich & Tang Asset Management, Inc. is an indirect subsidiary of Metropolitan
Life Insurance Company ("MetLife"). Also, 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.
The Manager provides persons satisfactory to the Board of Directors of the Fund
to serve as officers of the Fund. Such officers, as well as certain other
employees and directors of the Fund, may be directors or officers of Reich &
Tang Asset Management Inc., or employees of the Manager or its affiliates.
MetLife is a mutual life insurance company with assets of $297.6 billion at
December 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.6 trillion at December 31, 1996 for MetLife and its
insurance affiliates. 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 Partnership, Greystone Partners, L.P., Harris Associates,
L.P.,
5
<PAGE>
Jurika & Voyles, L.P., Loomis, Sayles & Company, L.P., New England Funds, L.P.,
New England Investment 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.
On November 28, 1995 the Board of Directors, including a majority of the
directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved the Investment Management Contract effective
August 30, 1996, which has a term which extends to July 31, 1998 and may be
continued in force thereafter for successive twelve-month periods beginning each
August 1, provided that such continuance is specifically approved annually by
majority vote of the Fund's outstanding voting securities or by its Board of
Directors, and in either case by a majority of the directors who are not parties
to the Investment Management Contract or interested persons of any such party,
by votes cast in person at a meeting called for the purpose of voting on such
matter. The Investment Management Contract is terminable without penalty by the
Fund on sixty days' written notice when authorized either by majority vote of
its outstanding voting shares or by a vote of a majority of its Board of
Directors, or by the Manager on sixty days' written notice, and will
automatically terminate in the event of its assignment. The Investment
Management Contract provides that in the absence of willful misfeasance, bad
faith or gross negligence on the part of the Manager, or of reckless disregard
of its obligations thereunder, the Manager shall not be liable for any action or
failure to act in accordance with its duties thereunder.
Under the Investment Management Contract, the Manager receives from the Fund a
fee equal to .80% per annum of the Fund's average daily net assets. The fee
received by the Manager under the Investment Management Contract is higher than
the fee paid by most investment companies. The fees are accrued daily and paid
monthly. Any portion of the total fees received by the Manager may be used by
the Manager to provide shareholder services. (See "Distribution and Service
Plan" herein.) For the Fund's fiscal years ended September 30, 1995 and December
31, 1995, the fees payable to the Manager under the Investment Management
Contract were $104,515 of which $33,474 was voluntarily and irrevocably waived
and $86,832, none of which was waived. The Fund's net assets at the close of
business on September 30, 1995 and December 31, 1995, totaled $42,316,267 and
$45,730,034, respectively. For the Fund's fiscal year ended December 31, 1996,
the fee payable to the Manager under the Investment Management Contract was
$419,025. The Fund's net assets at the close of business on December 31, 1996
totaled $61,279,432. For the Fund's fiscal year ended December 31, 1997, the fee
payable to the Manager under the Investment Management Contract was $839,165.
The Fund's net assets at the close of business on December 31, 1997 totaled
$146,623,972.
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 bookkeeping and related services by Investors Fiduciary Trust
Company, the Fund's bookkeeping or recordkeeping agent, (ii) prepare reports to
and filings with regulatory authorities, and (iii) perform such other services
as the Fund may from time to time request of the Manager. The personnel
rendering such services may be employees of the Manager, of its affiliates or of
other organizations. The Manager, at its discretion, may voluntarily waive all
or a portion of the administrative services fee. For its services under the
Administrative Services Contract, the Manager receives from the Fund a fee equal
to .21% per annum of the Fund's average daily net assets. For the Fund's fiscal
years ended September 30, 1995 and December 31, 1995, the fees payable to the
Manager under the Administrative Services Contract were $26,129, all of which
was voluntarily and irrevocably waived and $22,088, none of which was waived.
For the Fund's fiscal year ended December 31, 1996, the fee payable to the
Manager under the Administrative Services Contract was $109,994. For the Fund's
fiscal year ended December 31, 1997, the fee payable to the Manager under the
Administrative Services Contract was $220,281.
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 and the administrative services 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).
Expense Limitation
The Manager has agreed, pursuant to the Investment Management Contract, to
reimburse the Fund for its expenses (exclusive of interest, taxes, brokerage,
and extraordinary expenses) which, in any year, exceed the limits on investment
company expenses prescribed by any state in which the Fund's shares are
qualified for sale. For the purpose of this obligation to reimburse expenses,
the Fund's annual expenses are estimated and accrued daily, and any appropriate
estimated payments are made to it on a monthly basis. Subject to the obligations
of the Manager to reimburse the Fund for its excess expenses as described above,
the Fund has, under the Investment Management Contract, confirmed its obligation
for payment of all its other expenses, including taxes, brokerage fees and
commissions, commitment fees, certain insurance premiums, interest charges and
expenses of the custodian, transfer agent and dividend disbursing agent's fees,
telecommunications expenses, auditing and legal expenses, bookkeeping agent
fees, costs of forming the corporation and maintaining corporate existence,
compensation of directors, officers and employees of the Fund and
6
<PAGE>
costs of other personnel performing services for the Fund who are not officers
of the general partner of the Manager or its affiliates, costs of investor
services, shareholder reports and corporate meetings, Securities and Exchange
Commission registration fees and expenses, state securities laws registration
fees and expenses, expenses of preparing and printing the Fund's prospectus for
delivery to existing shareholders and of printing application forms for
shareholder accounts and the fees payable to the Manager under the Investment
Management Contract and the Administrative Services 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 defined under "Distribution and Service Plan") as discussed
herein, and the management of the Fund intends to do so whenever it appears
advantageous to the Fund. The Fund's expenses for employees and for such
services are among the expenses subject to the expense limitation described
above. As a result of the recent passage of the National Securities Markets
Improvement Act of 1996, all state expense limitations have been eliminated at
this time.
MANAGEMENT OF THE FUND
The directors and officers of the Fund, and their principal occupations for the
past five years, are listed below. The address of each such person, unless
otherwise indicated, is 600 Fifth Avenue, New York, New York 10020. Directors
deemed to be "interested persons" of the Fund for the purposes of the 1940 Act
are indicated by an asterisk.
J. DENNIS DELAFIELD,* 62 - Chairman, Chief Executive Officer and a Director of
the Fund, is Managing Director of the Delafield Asset Management Division of the
Manager, with which he has been associated since September 1993. From December
1991 to September 1993, Mr. Delafield, acting as an investment adviser, was a
Managing Director of Reich & Tang L.P. and an officer of Reich & Tang, Inc.;
from October 1979 to December 1991, was President and Director of Delafield
Asset Management, Inc.
VINCENT SELLECCHIA, 46 - President of the Fund, is Managing Director of the
Delafield Asset Management Division of the Manager, with which he has been
associated since September 1993. From December 1991 to September 1993, Mr.
Sellecchia, acting as an investment adviser, was Vice President of Reich & Tang
L.P. and an officer of Reich & Tang, Inc.; from October 1980 to December 1991,
was Vice President, Director of Investment Analysis for Delafield Asset
Management, Inc.
DR. W. GILES MELLON, 67 - Director of the Fund, is a Professor of Business
Administration in the Graduate School of Management, Rutgers University, with
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 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., North Carolina Daily Municipal Income Fund, Inc.,
Pax World Money Market Fund, Inc., Reich & Tang Equity Fund, Inc., Short Term
Income Fund, Inc. and Virginia Daily Municipal Income Fund, Inc.; Trustee of
Florida Daily Municipal Income Fund, Institutional Daily Income Fund and
Pennsylvania Daily Municipal Income Fund.
ROBERT STRANIERE, 57 - Director of the Fund, is a Member of the New York State
Assembly and has been 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 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.,
Life Cycle Mutual Funds, Inc., Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pax World Money Market Fund, Inc., Reich & Tang Equity Fund, Inc.,
Short Term Income Fund, Inc. and Virginia Daily Municipal Income Fund, Inc.;
Trustee of Florida Daily Municipal Income Fund, Institutional Daily Income Fund
and Pennsylvania Daily Municipal Income Fund.
YUNG WONG, 59 - Director of the Fund, was a Director of Shaw Investment
Management (U.K.) Limited from October 1994 to October 1995, and formerly was a
General Partner of Abacus Limited Partnership (a general partner of a venture
capital investment firm) from 1984 to 1994. His address is 29 Alden Road,
Greenwich, Connecticut 06831. Dr. Wong is also 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., North Carolina
Daily Municipal Income Fund, Inc., Pax World Money Market Fund, Inc., Reich &
Tang Equity Fund, Inc., Short Term Income Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc.; Trustee of Eclipse Financial Asset Trust, Florida
Daily Municipal Income Fund, Institutional Daily Income Fund and Pennsylvania
Daily Municipal Income Fund.
BERNADETTE N. FINN, 50 - Vice President and Secretary of the Fund, has been Vice
President of the Mutual Funds division of the Manager since September 1993. Ms.
Finn was formerly Vice President and Assistant Secretary of Reich & Tang, Inc.
with which she was associated with from September 1970 to 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
7
<PAGE>
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.; Vice President and Secretary of
Institutional Daily Income Fund, Pax World Money Market Fund, Inc., Reich & Tang
Equity Fund, Inc. and Short Term Income Fund, Inc.
CYNTHIA L. JERAN, 42 - Vice President of the Fund, is an associate of the
Delafield Asset Management Division of the Manager, with which she has been
affiliated since September 1993. From December 1991 to September 1993, Ms. Jeran
was an associate of the Delafield Asset Management division of the Manager's
predecessor, and from April 1981 through December 1991 was an associate of
Delafield Asset Management, Inc.
RICHARD DE SANCTIS, 41 - Treasurer of the Fund, has been Vice President and
Treasurer of the Manager since September 1993. Mr. De Sanctis was formerly
Controller of Reich & Tang, Inc. from January 1991 to September 1993, 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.,
Florida Daily Municipal Income Fund, Institutional Daily Income Fund, Michigan
Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc.,
New York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pax World Money Market Fund, Inc., Pennsylvania Daily Municipal
Income Fund, Reich & Tang Equity Fund, Inc., Short Term Income Fund, Inc., Tax
Exempt Proceeds Fund, Inc. and Virginia Daily Municipal Income Fund, Inc.; Vice
President and Treasurer of Cortland Trust, Inc.
ROSANNE HOLTZER, 33 - Assistant Treasurer of the Fund, has been Vice President
of the Mutual Funds division of the Manager since December 1997. Ms. Holtzer was
formerly Manager of Fund Accounting for the Manager with which she was
associated with from June 1986. She is also Assistant 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., Florida Daily
Municipal Income Fund, Institutional Daily Income Fund, Michigan Daily Tax Free
Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York Daily
Tax Free Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pax World Money Market Fund, Inc., Pennsylvania Daily Municipal Income Fund,
Reich & Tang Equity Fund, Inc., Short Term Income Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc. and is Vice President and Assistant Treasurer of
Cortland Trust, Inc.
Directors of the Fund not affiliated with Reich & Tang Asset Management L.P.
receive from the Fund an annual retainer of $1,500 and a fee of $250 for each
Board of Directors meeting attended and are reimbursed for all out-of-pocket
expenses relating to attendance at such meetings. Directors who are affiliated
with Reich & Tang Asset Management L.P. do not receive compensation from the
Fund. See Compensation Table below.
<TABLE>
<CAPTION>
COMPENSATION TABLE
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Aggregate Compensation Pension or Retirement Total Compensation from
Name of Person, from Registrant for Benefits Accrued as Estimated Annual Fund and Fund Complex
Position Fiscal Year Part of Fund Expenses Benefits upon Retirement Paid to Directors*
W. Giles Mellon, $2,500 0 0 $52,000 (13 Funds)
Director
Robert Straniere, $2,500 0 0 $52,000 (13 Funds)
Director
Yung Wong, $2,500 0 0 $52,000 (13 Funds)
Director
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ending December 31, 1997 (and, with respect to certain of the
funds in the Fund Complex, estimated to be paid during the fiscal year ending
December 31, 1997). The parenthetical number represents the number of investment
companies (including the Fund) from which such person receives compensation that
are considered part of the same Fund complex as the Fund, because, among other
things, they have a common investment advisor.
Counsel and Auditors
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Battle Fowler LLP, 75 East 55th Street, New York, New York 10022.
8
<PAGE>
McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017, independent
certified public accountants, have been selected as auditors for the Fund.
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Securities and Exchange
Commission has required that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan permitted by Rule 12b-1. The Fund's Board of Directors has adopted a
Distribution and Service Plan (the "Plan") and, pursuant to the Plan, the Fund
and the Manager have entered into a Distribution Agreement and a Shareholder
Servicing Agreement with Reich & Tang Distributors, Inc. (the "Distributor") as
distributor of the Fund's shares.
Under the Plan, the Fund and the Distributor will enter into a Shareholder
Servicing Agreement, with respect to the Fund's shares. For its services under
the Shareholder Servicing Agreement, the Distributor is permitted to receive
payments from the Fund (i) to permit it to make payments to participating
organizations with which it has written agreements and whose clients or
customers are Fund shareholders (each a "Participating Organization"), for
providing personal shareholder services and for maintenance of shareholder
accounts and (ii) to reimburse it for costs in the provision of these services
by it to Fund shareholders up to .25% per annum of the Fund's average daily net
assets (the "Shareholder Servicing Fee").
Under the Distribution Agreement, the Distributor, for nominal consideration and
as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any orders will not be binding on the Fund until
acceptance 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 Fund's
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 in addition to the use of the Shareholder Servicing Fee,
the Manager may make payments from time to time from its own resources, which
may include the management fee and past profits for the following purposes: (i)
to defray the costs of, and to compensate others, including Participating
Organizations with whom the Distributor has entered into written agreements, for
performing shareholder servicing and related administrative functions on behalf
of the Fund; (ii) to compensate certain Participating Organizations for
providing assistance in distributing the Fund's shares; and (iii) to pay the
costs of printing and distributing the Fund's prospectus to prospective
investors, and to defray the cost of the preparation and printing of brochures
and other promotional materials, mailings to shareholders, including the
salaries and/or commissions of sales personnel in connection with the
distribution of the Fund's shares. The Distributor may also make payments from
time to time from its own resources, which may include the Shareholder Servicing
Fee and past profits for the purpose enumerated in (i) above. The Distributor
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 the Investment
Management Contract, the Administrative Services Contract or the Shareholder
Servicing Agreement in effect for that year.
For the Fund's fiscal year ended September 30, 1995, the Fund accrued
shareholder servicing fees of $32,661, all of which was voluntarily, permanently
and irrevocably waived. During such period, the Manager made payments from its
own resources aggregating $13,646 of which $2,065 was spent on sales personnel
and related expenses of the Manager, $1,374 was spent on travel and
entertainment, $9,831 was spent on prospectus and application printing and $376
was spent on miscellaneous expenses. For the Fund's fiscal year ended December
31, 1995, the Fund paid a distribution fee of $5,553 for expenditures pursuant
to the Plan. During such time, the Fund accrued shareholder servicing fees of
$27,135, of which $21,582 was voluntarily, permanently and irrevocably waived,
and the Manager made payments from its own resources aggregating $1,913 of which
$1,348 was spent on sales personnel and related expenses of the Manager, $311
was spent on travel and entertainment, $7 was spent on prospectus and
application printing and $247 was spent on miscellaneous expenses. For the
Fund's fiscal year ended December 31, 1996, the Fund paid a distribution fee of
$24,339 for expenditures pursuant to the Plan. During such time, the Fund
accrued shareholder servicing fees of $130,945, of which $106,606 was
voluntarily and irrevocably waived, and the Manager made payments from its own
resources aggregating $2,802 of which $376 was spent on sales personnel and
related expenses of the Manager, $89 was spent on travel and entertainment,
$2,331 was spent on prospectus and application printing and $5 was spent on
miscellaneous expenses. For the Fund's fiscal year ended December 31, 1997, the
Fund paid a distribution fee of $52,448 for expenditures pursuant to the Plan.
During such time, the Fund accrued shareholder servicing fees of $262,239, of
which $209,791 was voluntarily and irrevocably waived, and the Manager made
payments from its own resources aggregating $37,191 of which $558 was spent on
sales personnel and related expenses of the Manager, $1,099 was spent on travel
and entertainment, $35,404 was spent on prospectus, application and
miscellaneous printing and $130 was spent on miscellaneous expenses.
9
<PAGE>
In accordance with Rule 12b-1, the Plan provides that all written agreements
relating to the Plan entered into between either the Fund or the Distributor and
Participating Organizations or other organizations must be in a form
satisfactory to the Fund's Board of Directors. In addition, the Plan requires
the Fund and the Distributor to prepare, at least quarterly, written reports
setting forth all amounts expended for distribution purposes by the Fund and the
Distributor pursuant to the Plan and identifying the distribution activities for
which those expenditures were made.
The Plan provides that it may continue in effect for successive annual periods
provided it is approved by the Fund's shareholders or by the Board of Directors,
including a majority of directors who are not interested persons of the Fund and
who have no direct or indirect interest in the operation of the Plan, or
agreements related to the Plan. The Plan was approved by a majority of its
shareholders on November 16, 1993. The continuance of the Plan was most recently
approved by the Board of Directors on July 17, 1997 and shall continue in effect
until October 31, 1998. The Plan further provides that it may be spent by the
Fund for distribution pursuant to the Plan without shareholder approval, and the
other material amendments must be approved by the directors in the manner
described in the preceding sentence. The Plan may be terminated at any time by a
vote of a majority of the disinterested directors of the Fund or the Fund's
shareholders.
THE GLASS-STEAGALL ACT
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. However, it is the Fund's position
that banks are not prohibited from acting in other capacities for investment
companies, such as providing administrative and shareholder account maintenance
services and receiving compensation from the Distributor for providing such
services. However, this is an unsettled area of the law and if a determination
contrary to the Fund's position is made by a bank regulatory agency or court
concerning shareholder servicing and administration payments to banks from the
Distributor, any such payments will be terminated and any shares registered in
the banks' names, for their underlying customers, will be re-registered in the
name of the customers at no cost to the Portfolio or its shareholders. In
addition, state securities laws on this issue may differ from the interpretation
of federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Fund, which was incorporated on October 12,
1993 in Maryland, consists of twenty billion shares of stock having a par value
of one-tenth of one cent ($.001) per share. The Fund's Board of Directors is
authorized to divide the shares into separate series of stock, one for each of
the portfolios that may be created. Each share of any series of shares when
issued will have equal dividend, distribution and liquidation rights within the
series for which it was issued and each fractional share has those rights in
proportion to the percentage that the fractional share represents of a whole
share. Shares of all series have identical voting rights, except where, by law,
certain matters must be approved by a majority of the shares of the unaffected
series. Shares will be voted in the aggregate. There are no conversion or
preemptive rights in connection with any shares of the Fund. All shares, when
issued in accordance with the terms of the offering, will be fully paid and
nonassessable. Shares are redeemable at net asset value, at the option of the
shareholder.
On March 31, 1998 there were 10,264,211 shares of the Fund outstanding. As of
March 31, 1998, the amount of shares owned by all officers and directors of the
Fund, as a group, was 7.42% of the outstanding shares. Set forth below is
certain information as to persons who owned 5% or more of the Fund's outstanding
shares as of March 31, 1998:
<TABLE>
<CAPTION>
<S> <C> <C>
Nature of
Name and address % of Class Ownership
Charles Schwab and Co. 24.25% Record
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 8.38% Record
One World Financial Center
200 Liberty Street
New York, N.Y. 10281-1003
J. Dennis Delafield 5.65% Beneficial
c/o Delafield Asset Management
600 Fifth Avenue
New York, N.Y. 10020
</TABLE>
Under its Articles of Incorporation the Fund has the right to redeem for cash
shares of stock owned by any shareholder to the extent and at such times as the
Fund's Board of Directors determines to be necessary or appropriate to prevent
an undue concentration of stock ownership which would cause the Fund to become a
"personal holding company" for Federal income tax purposes. In this regard, the
Fund may also exercise its right to reject purchase orders.
10
<PAGE>
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so, and,
in that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. 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 directors as required by the 1940 Act, (b)
for approval of revised investment advisory agreements, with respect to a
particular class or series of stock, (c) for approval of revisions to the Fund's
distribution plan as required by the 1940 Act with respect to a particular class
or series of stock, and (d) upon the written request of holders of shares
entitled to cast not less than 10% 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, any
registration of the Fund with the Securities and Exchange Commission or any
state, or as the Directors may consider necessary or desirable. Each Director
serves until the next meeting of shareholders called for the purpose of
considering the election or re-election of such Director or of a successor to
such Director, and until the election and qualification of his or her successor,
elected at such meeting, or until such Director sooner dies, resigns, retires or
is removed by the vote of the shareholders.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri 64105
is custodian for its cash and securities. Reich & Tang Services L.P., 600 Fifth
Avenue, New York, New York 10020, is transfer agent and dividend disbursing
agent for the shares of the Fund. The custodian and transfer agent do not assist
in, and are not responsible for, investment decisions involving assets of the
Fund.
FINANCIAL STATEMENTS
The audited financial statements for the Fund for the fiscal year ended December
31, 1997 and the report of McGladrey & Pullen LLP thereon are herein
incorporated by reference to the Fund's Annual Report. The Annual Report is
available upon request and without charge.
PERFORMANCE
The Fund may from time to time include its yield, total return, and average
annual total return in advertisements or information furnished to present or
prospective shareholders. The Manager may also include performance information
in such advertisements or information furnished to current or prospective
shareholders regarding Mr. Delafield's personal investment performance since
1969 when he began managing investments for clients with similar objectives as
the Fund's and before Mr. Delafield joined the Manager's predecessor, Reich &
Tang L.P., in 1991. The Fund may also from time to time include in
advertisements the ranking of those performance figures relative to such figures
for groups of mutual funds categorized by the Lipper Analytical Services, Inc.,
CDA Investment Technologies, Inc., Morningstar Inc., Wiesenberger Investment
Company Service, Barron's, Business Week, Changing Times, Financial World,
Forbes, Fortune, Money, Personal Investor, Bank Rate Monitor, and The Wall
Street Journal as having the same investment objectives. The performance of the
Fund may also be compared to the Europe, Australia and Far East Index, an
unmanaged standard foreign securities index monitored by Capital International,
S.A. and to the Standard & Poor's 500 Stock Index and the Dow Jones Industrial
Average, both of which are recognized indices of domestic stocks' performance.
Average annual total return is a measure of the average annual compounded rate
of return of $1,000 invested at the maximum public offering price over a
specified period, which assumes that any dividends or capital gains
distributions are automatically reinvested in the Fund rather than paid to the
investor in cash. Total return is calculated with the same assumptions and shows
the aggregate return on an investment over a specified period.
The formula for total return used by the Fund includes three steps: (1) adding
to the total number of shares purchased by the hypothetical investment in the
portfolio of $1,000 (assuming the investment is made at a public offering price)
all additional shares that would have been purchased if all dividends and
distributions paid or distributed during the period had been automatically
reinvested; (2) calculating the value of the hypothetical initial investment as
of the end of the period by multiplying the total number of shares owned at the
end of the period by the net asset value per share on the last trading day of
the period; and (3) dividing this account value for the hypothetical investor by
the amount of the initial investment and annualizing the result for periods of
less than one year.
The Fund computes yield by annualizing net investment income per share for a
recent 30-day period and dividing that amount by a Fund share's maximum public
offering price (reduced by any undeclared earned income expected to be paid
shortly as a dividend) on the last trading day of that period. The Fund's yield
will vary from time to time depending upon market conditions, the composition of
the Fund and operating expenses of the Fund.
Total return and yield may be stated with or without giving effect to any
expense limitations in effect for the Fund.
11
<PAGE>
NET ASSET VALUE
The Fund does not determine its net asset value per share on the following
holidays: New Year's Day, President's Day, Martin Luther King Jr. Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
For purposes of determining the Fund's net asset value per share, readily
marketable portfolio securities listed on the New York Stock Exchange are
valued, except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the New York Stock Exchange on the business
day as of which such value is being determined. If there has been no sale on
such day, the securities are valued at the mean of the closing bid and asked
prices on such day. If no bid or asked prices are quoted on such day, then the
security is valued by such method as the Board of Directors shall determine in
good faith to reflect its fair market value. Readily marketable securities not
listed on the New York Stock Exchange but listed on other national securities
exchanges or admitted to trading on the National Association of Securities
Dealers Automated Quotations, Inc. ("NASDAQ") National List are valued in like
manner. Portfolio securities traded on more than one national securities
exchange are valued at the last sale price on the business day as of which such
value is being determined as reflected on the tape at the close of the exchange
representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market, including
listed securities whose primary market is believed by the Manager to be
over-the-counter but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the Board of
Directors deems appropriate to reflect their fair market value.
The Fund's Board of Directors has determined that U.S. Government obligations
and other debt instruments having sixty days or less remaining until maturity
are stated at amortized cost. All other investment assets, including restricted
and not readily marketable securities, are valued under procedures established
by and under the general supervision and responsibility of the Fund's Board of
Directors designed to reflect in good faith the fair value of such securities.
12
<PAGE>
DESCRIPTION OF RATINGS*
Moody's Investors Service, Inc. ("Moody's")
Aaa: Bonds which are rated Aaa are judged to be 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 fluctuations 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.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Unrated: Where no rating has been assigned or where a rating has been suspended
or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1) An application for rating was not received or accepted.
2) The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.
3) There is a lack of essential data pertaining to the issue or issuer.
4) The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa-1,
A-1, Baa-1 and B-1.
Standard & Poor's Rating Services, a division of the McGraw-Hill Companies
("S&P'")
AAA: Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
- --------------------------------------------------------------------------------
* As described by the rating agencies.
13
<PAGE>
A: Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in the highest rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of this obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics, they are
outweighed by large uncertainties of major risk exposures to adverse conditions.
C1: The rating C1 is reserved for income bonds on which no interest is being
paid.
D: Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
14
