As filed with the Securities and Exchange Commission on July 29, 1998
Registration No. 33-74470
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 6 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 6 [X]
(Check appropriate box or boxes)
INSTITUTIONAL DAILY INCOME FUND
(Exact Name of Registrant as Specified in Charter)
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 830-5200
BERNADETTE N. FINN
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Name and Address of Agent for Service)
Copy to: MICHAEL R. ROSELLA, ESQ.
Battle Fowler, L.L.P.
75 East 55th Street
New York, New York 10022
It is proposed that this filing will become effective: (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on [Date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (b)(2)
The Registrant has filed a 24f-2 Notice for the fiscal year ending March 31,
1998 on May 28, 1998.
<PAGE>
Registration Statement on Form N-1A
CROSS REFERENCE SHEET -
Pursuant to Rule 404(c)
Part A
Item No. Prospectus Heading
1. Cover Page................... Cover Page
2. Synopsis..................... Table of Fees and Expenses; Introduction
3. Condensed Financial
Information................. Financial Highlights
4. General Description
of Registrant and
Policies.................... General Information;Investment Objectives,
Policies and Risks; Risk Factors and
Additional Investment Information;
Investment Restrictions
5. Management of the Fund...... Management of the Fund; Custodian and
Transfer Agent
5a. Management's Discussion
of Fund Performance......... Not Applicable
6. Capital Stock and
Other Securities............ Description of Shares; How to Purchase and
Redeem Shares; Direct Purchase and
Redemption Procedures; General Information;
Dividends, Distributions and Taxes
7. Purchase of Securities
Being Offered............... Description of Shares; Distribution and
Servicing Plan; Dividends Distributions and
Taxes; How to Purchase and Redeem Shares;
Direct Purchase and Redemption Procedures;
Net Asset Value
8. Redemption
or Repurchase............... How to Purchase and Redeem Shares; Direct
Purchase and Redemption Procedures
9. Legal Proceedings........... Not Applicable
<PAGE>
Part B Caption in Statement of
Item No. Additional Information
10. Cover Page.................. Cover Page
11. Table of Contents........... Table of Contents
12. General Information
and History................. General Information
13. Investment Objectives
and Policies ............... Investment Objectives, Policies and Risks
14. Management of the Fund...... Management and Investment Management
............................... Contract
15. Control Persons and
Principal Holders
of Securities............... Management and Investment Management
Contract
16. Investment Advisory
and Other Services.......... Management and Investment Management
Contract; Custodian and Transfer Agent
17. Brokerage Allocation........ Portfolio Transactions
18. Capital Stock and
Other Securities............ Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered................ Purchase and Redemption of Shares and Other
Purchase and Redemption Provisions; Net
Asset Value
20. Tax Status................... Dividends, Distributions and Taxes
21. Underwriters................. Distribution and Service Plan
22. Calculation of Yield
Quotations of Money
Market Funds................. Yield Quotations
23. Financial Statements......... Independent Auditors' Report; Financial
Statements
<PAGE>
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INSTITUTIONAL 600 FIFTH AVENUE
DAILY INCOME FUND NEW YORK, N.Y. 10020
(212) 830-5220
===============================================================================
PROSPECTUS
August 1, 1998
The Institutional Daily Income Fund (the "Fund") is composed of the U.S.
Treasury Portfolio, the Money Market Portfolio and the Municipal Portfolio (each
a "Portfolio", collectively, the "Portfolios") designed to meet the short-term
investment needs of corporate and institutional investors ("Institutional
Investors"). There are no sales loads, exchange or redemption fees associated
with the Fund.
Each Portfolio offers two classes of shares to Institutional Investors - Class A
and Class B shares. The Class A shares of the Fund are subject to a service fee
pursuant to the Fund's Rule 12b-1 Distribution and Service Plan and are sold
through financial intermediaries who provide servicing to Class A shareholders
for which they receive compensation from the Manager or the Distributor. The
Class B shares of the Fund are not subject to a service fee and either are sold
directly to Institutional Investors or are sold through financial intermediaries
that do not receive compensation from the Manager or Distributor. In all other
respects, the Class A and Class B shares represent the same interest in the
income and assets of the Fund. See "Description of Shares."
U.S. Treasury Portfolio - seeks to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity and
maintain a stable net asset value of $1 per share by investing solely in U.S.
Treasury obligations and in other obligations backed by the full faith and
credit of the United States government with maturities of 397 days or less and
repurchase agreements which are collateralized by such obligations calling for
resale in 397 days or less.
Money Market Portfolio - seeks to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity and
maintain a stable net asset value of $1 per share by investing in short-term
money market obligations with maturities of 397 days or less, including bank
certificates of deposit, time deposits, bankers' acceptances, high quality
commercial paper, securities issued or guaranteed by the United States
Government, its agencies or instrumentalities, and repurchase agreements calling
for resale in 397 days or less backed by the foregoing securities.
Municipal Portfolio - seeks to maximize current tax exempt income to the extent
consistent with the preservation of capital and the maintenance of liquidity and
maintain a stable net asset value of $1 per share by investing in a portfolio of
obligations issued by states, territories and possessions of the United States
and their political subdivisions, public authorities and other entities
authorized to issue debt, the interest on which is exempt from regular federal
income taxes. This Portfolio has not yet been activated and is not offered for
sale or distribution.
This Prospectus sets forth concisely the information about each Portfolio that
prospective investors should know before investing in the Fund. Additional
information about each Portfolio, including additional information concerning
risk factors relating to an investment in each Portfolio, has been filed with
the Securities and Exchange Commission (the "SEC") and is available upon request
and without charge by calling or writing the Fund at the above address. The
"Statement of Additional Information" bears the same date as this Prospectus and
is incorporated by referenced into this Prospectus in its entirety. 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.
<PAGE>
Reich & Tang Asset Management L.P. acts as Manager of the Fund and is a
registered investment adviser. Reich & Tang Distributors, Inc. acts as
Distributor of the Fund's shares and is a registered broker-dealer and member of
the National Association of Securities Dealers, Inc.
MINIMUM INITIAL PURCHASE $1,000,000
An investment in the Fund is neither insured nor guaranteed by the United States
Government. Each Portfolio seeks to maintain an investment portfolio with a
dollar-weighted average maturity of 90 days or less, and to value its investment
portfolio at amortized cost and maintain a net asset value of $1.00 per share.
There can be no assurance that the Fund's objectives will be achieved or that
the Fund's stable net asset value of $1.00 per share can be maintained.
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.
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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.
<PAGE>
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TABLE OF FEES AND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Money U.S.
Market Treasury Municipal
Portfolio Portfolio Portfolio**
Class A Class B Class A Class B Class A Class B
Management Fees - After Fee Waiver * .08% .08% .08% .08% .08% .08%
12b-1 Fees .25% None .25% None .25% None
Other Expenses .12% .12% .09% .09% .12% .12%
Administration Fees - After Fee Waiver* .02% 02% .02% .02% .00% .00%
Total Fund Operating Expenses - After Fee
Waivers and Reimbursements* .45% .20% .42% .17% .45% .20%
==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Money U.S.
Market Treasury Municipal
Portfolio Portfolio Portfolio**
Class A Class B Class A Class B Class A Class B
Example
You would pay the following expenses on a $1,000 investment, assuming 5% annual
return and redemption at the end of each
time period: 1 year $ 5 $ 2 $ 4 $ 2 $ 5 $ 2
3 years $14 $ 6 $13 $ 5 $14 $ 6
5 years $25 $11 $24 $10 $25 $11
10 years $57 $26 $53 $22 $57 $26
</TABLE>
The purpose of the above fee table is to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a further discussion of these fees see "Management of the Fund"
and "Distribution and Service Plan" herein. With respect to both the Class A
shares and the Class B shares, the Manager has voluntarily waived a portion of
the Management and Administrative fees. Absent such waivers, Management and
Administration Fees for the Money Market Portfolio and U.S. Treasury Portfolio
would have been .12% and .05%, respectively, for both Class A and Class B
shares. Absent such fee waivers, Total Fund Operating Expenses for the Money
Market Portfolio for the Class A and Class B shares would have been .52% and
.27%, respectively. Absent such fee waivers, Total Fund Operating Expenses for
the U.S. Treasury Portfolio for the Class A and Class B shares would have been
.49% and .24%, respectively.
The figures reflected in this example should not be considered to be a
representation of past or future expenses. Actual expenses may be greater or
less than those shown above.
* Reimbursement applies only to Money Market Portfolio, waivers apply to both
Money Market and U.S. Treasury Portfolios.
** At this time, the Municipal Portfolio of the Fund has not yet been activated
by the Manager and expenses shown are at levels anticipated for the current
fiscal year.
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights of the Money Market Portfolio of
Institutional Daily Income Fund have been audited by McGladrey & Pullen, LLP,
Independent Certified Public Accountants, whose report thereon is incorporated
by reference in the Statement of Additional Information. The Money Market
Portfolio and the U.S. Treasury Portfolio were the only activated portfolios of
the Fund as of March 31, 1998.
<TABLE>
<CAPTION>
Money Market Portfolio
April 6, 1995
<S> <C> <C> <C>
CLASS A For the Year Ended March 31, (Commencement of Sales) to
1998 1997 March 31, 1996
---------- ---------- --------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period....... $ 1.00 $ 1.00 $ 1.00
---------- ---------- ----------
Income from investment operations:
Net investment income................... 0.053 0.050 0.054
Less distributions:
Dividends from net investment income.... ( 0.053) ( 0.050) ( 0.054)
--------- --------- ----------
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total Return............................... 5.38% 5.16% 5.58%*
Ratios/Supplemental Data
Net assets, end of period (000)............ $108,657 $ 38,220 $ 5
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+ 0.45% 0.42% 0.41%*
Net investment income................... 5.25% 5.07% 5.46%*
Expenses paid indirectly................ 0.00% 0.01% 0.04%
Management and administration fees waived 0.07% 0.09% 0.13%
Expenses reimbursed..................... 0.00% 0.00% 0.03%
</TABLE>
<TABLE>
<CAPTION>
Money Market Portfolio
April 14, 1994
<S> <C> <C> <C> <C>
CLASS B For the Year Ended March 31, (Commencement of Sales) to
1998 1997 1996 March 31, 1995
--------- --------- -------- --------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- ---------------- ---------------- -----
Income from investment operations:
Net investment income................... 0.055 0.053 0.057 0.045
Less distributions:
Dividends from net investment income.... ( 0.055) ( 0.053) (0.057) (0.045)
-------- --------------- --------------- -----
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00 $1.00
========= ================ ================ =====
Total Return............................... 5.64% 5.42% 5.85% 5.16%*
Ratios/Supplemental Data
Net assets, end of period (000)............ $ 227,893 $ 158,525 $127,282 $ 35,857
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+ 0.20% 0.17% 0.16% 0.02%*
Net investment income................... 5.50% 5.29% 5.64% 5.14%*
Expenses paid indirectly................ 0.00% 0.01% 0.04% 0.00%
Management and administration fees waived 0.07% 0.09% 0.13% 0.13%
Expenses reimbursed..................... 0.00% 0.00% 0.03% 0.25%
</TABLE>
* Annualized
+ Includes expenses paid indirectly.
<PAGE>
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FINANCIAL HIGHLIGHTS
The following financial highlights of the U.S. Treasury Portfolio of
Institutional Daily Income Fund have been audited by McGladrey & Pullen, LLP,
Independent Certified Public Accountants, whose report thereon is incorporated
by reference in the Statement of Additional Information. The Money Market
Portfolio and the U.S. Treasury Portfolio were the only activated portfolios of
the Fund as of March 31, 1998.
<TABLE>
<CAPTION>
U.S. Treasury Portfolio
November 29, 1995
<S> <C> <C> <C>
CLASS A For the Year Ended March 31, (Commencement of Operations) to
1998 1997 March 31, 1996
----------- ----------- --------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period....... $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------
Income from investment operations:
Net investment income................... 0.051 0.049 0.017
Less distributions:
Dividends from net investment income.... ( 0.051) ( 0.049) ( 0.017)
---------- ---------- ---------
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00
=========== =========== =========
Total Return............................... 5.24% 5.00% 5.18%*
Ratios/Supplemental Data
Net assets, end of period (000)............ $ 467,372 $ 310,290 $ 291,747
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+ 0.42% 0.42% 0.43%*
Net investment income................... 5.12% 4.89% 5.07%*
Expenses paid indirectly................ 0.00% 0.01% 0.00%
Management and administration fees waived 0.07% 0.05% 0.08%
</TABLE>
<TABLE>
<CAPTION>
U.S. Treasury Portfolio
For the Year November 18, 1996
<S> <C> <C>
CLASS B Ended (Commencement of Sales) to
March 31, 1998 March 31, 1997
-------------- --------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period....... $1.00 $1.00
------------- --------------
Income from investment operations:
Net investment income................... 0.054 0.019
Less distributions:
Dividends from net investment income.... (0.054) (0.019)
------------ ------------
Net asset value, end of period............. $ 1.00 $1.00
============== ===============
Total Return............................... 5.50% 5.27%*
Ratios/Supplemental Data
Net assets, end of period (000)............ $6,833 $7,799
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+ 0.17% 0.17%*
Net investment income................... 5.37% 5.14%*
Expenses paid indirectly................ 0.00% 0.01%*
Management and administration fees waived 0.07% 0.05%*
* Annualized
+ Includes expenses paid indirectly.
</TABLE>
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<PAGE>
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INTRODUCTION
Institutional Daily Income Fund (the "Fund") is a no-load, diversified, open-end
management investment company offering investors three managed portfolios of
money market instruments (the "Portfolios") together with a high degree of
liquidity. The net asset value of each Fund share is expected to remain constant
at $1.00, although this cannot be assured.
The investment objective of the Fund is, in accordance with the investment
policies of each of the Fund's Portfolios, to maximize current income to the
extent consistent with the preservation of capital and the maintenance of
liquidity. There is no assurance that the Fund will achieve its investment
objective. The investment objective of the Fund may not be changed without
shareholder approval.
The U.S. Treasury Portfolio attempts to achieve its objective through
investments limited to U.S. Treasury obligations and other obligations that are
issued or guaranteed by the U.S. Government and that are backed by the full
faith and credit of the United States with maturities of 397 days or less and
repurchase agreements backed by such obligations calling for resale in 397 days
or less. The Money Market Portfolio attempts to achieve its objective through
investment in short-term money market obligations with maturities of 397 days or
less, including bank certificates of deposit, time deposits, bankers'
acceptances, high quality commercial paper, securities issued or guaranteed by
the United States Government, its agencies or instrumentalities, and repurchase
agreements calling for resale in 397 days or less backed by the forgoing
securities. The Municipal Portfolio attempts to achieve its objective through
investment in a portfolio of obligations issued by states, territories and
possessions of the United States and political subdivisions, public authorities
and other entities authorized to issue debt, the interest on which is exempt
from regular federal income tax. Each Portfolio seeks to maintain an investment
portfolio with a dollar-weighted average maturity of 90 days or less, and to
value its investment portfolio at amortized cost and maintain a net asset value
of $1.00 per share. There can be no assurance that this value will be
maintained.
The Fund's investment manager is Reich & Tang Asset Management L.P. (the
"Manager"), which is a registered investment advisor and which currently acts as
manager or administrator to seventeen other open-end management investment
companies. (See "Management of the Fund" herein.) The Fund's shares are
distributed through Reich & Tang Distributors, Inc. (the "Distributor"), with
whom the Fund has entered into a Distribution Agreement and Shareholder
Servicing Agreement (with respect to Class A shares of the Fund only) pursuant
to the Fund's distribution and service plan adopted under Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"). (See "Distribution
and Service Plan" herein.)
On any day on which Investors Fiduciary Trust Company, the Fund's custodian (the
"Custodian") is open for trading ("Fund Business Day"), investors may, without
charge by the Fund, initiate purchases and redemptions of shares of the Fund's
common stock at their net asset value, which will be determined daily. (See "How
to Purchase and Redeem Shares" and "Net Asset Value" herein.) Dividends from
accumulated net income are declared by the Fund on each Fund Business Day. The
Fund pays interest dividends monthly on the last calendar day of the month or,
if the last calendar day of the month is not a Fund Business Day, on the
preceding Fund Business Day.
Net capital gains, if any, will be distributed at least annually, and in no
event later than within 60 days after the end of the Fund's fiscal year. All
dividends and distributions of capital gains are automatically invested in
additional shares of the same class of the Fund unless a shareholder has elected
by written notice to the Fund to receive either of such distributions in cash.
(See "Dividends, Distributions and Taxes" herein.)
The Fund currently has three Portfolios but only the Money Market Portfolio and
the U.S. Treasury Portfolio have been activated by the Manager.
6
<PAGE>
The Board of Trustees of the Fund may in the future determine to establish
additional portfolios, each of which will be consistent with the investment
objectives of the Fund. Set forth below are the investment policies for each of
the Fund's current Portfolios. The investment policies for the Money Market
Portfolio, as well as for any portfolios which the Board of Trustees may
determine to establish in the future, may be changed by the Board of Trustees of
the Fund without shareholder approval. The investment policies for the U.S.
Treasury Portfolio and the Municipal Portfolio may not be changed without
shareholder approval.
The Fund may from time to time advertise its current yield and effective yield
for each Portfolio (computed separately for each Class of shares). The Fund's
current yield is calculated by dividing its average daily net income per share
of each Portfolio (excluding realized gains or losses) for a recent seven-day
period by its constant net asset value per share of $1.00 and annualizing the
result on a 365-day basis. The Fund's effective yield is calculated by
increasing its current yield according to a formula that takes into account the
compounding effect of the reinvestment of dividends. The Class A shares of each
Portfolio will generally have a lower yield than the Class B shares due to the
expenses attributable to the Class A Shares which are not attributable to the
Class B shares, under the Fund's Distribution and Service Plan. Any fees charged
by a Participating Organization directly to a customer's account will not be
included in yield calculations. See "How to Purchase and Redeem Shares -
Investments through Participating Organizations."
An investment in the Portfolios of the Fund entails certain risks, including
risks associated with the purchase of when-issued securities, repurchase
agreements and with privately placed securities. With respect to the Money
Market Portfolio, certain risks are associated with the purchase of foreign
issues. Risk factors for each Portfolio are further described under "Risk
Factors and Additional Investment Information" herein.
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
U.S. Treasury Portfolio
The U.S. Treasury Portfolio seeks to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity
through investments limited to (i) U.S. Treasury obligations and other
obligations that are issued or guaranteed by the Government and that are backed
by the full faith and credit of the United States, provided that those
obligations have a remaining maturity of 397 days or less and (ii) repurchase
agreements backed by such, calling for resale in 397 days or less.
The investment policies of the U.S. Treasury Portfolio may produce a lower yield
than a policy of investing in other types of money market instruments. The yield
of the U.S. Treasury Portfolio is likely to be lower than the yield of the Money
Market Portfolio.
Permitted Investments:
United States Treasury Obligations: Obligations issued by the full faith and
credit of the United States. U.S. Treasury obligations include bills, notes and
bonds, which principally differ only in their interest rates, maturities and
time of issuance.
Other United States Government Obligations: Marketable securities and
instruments issued or guaranteed by the full faith and credit of the United
States Government. Such obligations that are guaranteed by the full faith and
credit of the United States Government include obligations of the Federal
Housing Administration, the Export-Import Bank of the United States, the Small
Business Administration, the Government National Mortgage Association, the
General Services Administration and the Maritime Administration.
Money Market Portfolio
The Money Market Portfolio seeks to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity
through investments in the securities described below, provided they have a
remaining
7
<PAGE>
maturity of 397 days or less or are subject to a repurchase agreement
calling for resale in 397 days or less. Investments in short-term instruments
may, in some circumstances, result in a lower yield than would be available from
investments in instruments with a longer term.
Permitted Investments:
United States Government Securities: Short-term obligations issued or guaranteed
by the United States Government, its agencies or instrumentalities. These
include issues of the United States Treasury, such as bills, certificates of
indebtedness, notes and bonds, and issues of agencies and instrumentalities
established under the authority of an act of Congress. Some of these securities
are supported by the full faith and credit of the United States Treasury, others
are supported by the right of the issuer to borrow from the Treasury, and still
others are supported only by the credit of the agency or instrumentality.
Although obligations of federal agencies and instrumentalities are not debts of
the United States Treasury, in some cases payment of interest and principal on
such obligations is guaranteed by the United States Government, e.g.,
obligations of the Federal Housing Administration, the Export-Import Bank of the
United States, the Small Business Administration, the Government National
Mortgage Association, the General Services Administration and the Maritime
Administration; in other cases payment of interest and principal is not
guaranteed, e.g., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank.
Domestic and Foreign Bank Obligations: Certificates of deposit, time deposits,
commercial paper, bankers' acceptances issued by domestic banks, foreign
branches of domestic banks, foreign subsidiaries of domestic banks, and domestic
and foreign branches of foreign banks and corporate instruments supported by
bank letters of credit. See "Risk Factors and Additional Investment Information"
herein. Certificates of deposit are certificates representing the obligation of
a bank to repay funds deposited with it for a specified period of time. Time
deposits are non-negotiable deposits maintained in a bank for a specified period
of time (in no event longer than seven days) at a stated interest rate. Time
deposits and certificates of deposit which may be held by the Portfolio will not
benefit from insurance from the Federal Deposit Insurance Corporation. Bankers'
acceptances are credit instruments evidencing the obligation of a bank to pay a
draft drawn on it by a customer. These instruments reflect the obligation both
of the bank and of the drawer to pay the face amount of the instrument upon
maturity. The Money Market Portfolio limits its investments in obligations of
domestic banks, foreign branches of domestic banks and foreign subsidiaries of
domestic banks to banks having total assets in excess of one billion dollars or
the equivalent in other currencies. The Money Market Portfolio limits its
investments in obligations of domestic and foreign branches of foreign banks to
dollar-denominated obligations of such banks which at the time of investment
have more than $5 billion, or the equivalent in other currencies, in total
assets and which are considered by the Fund's Board of Trustees to be First Tier
Eligible Securities (as defined below) at the time of acquisition. The Money
Market Portfolio generally limits investments in bank instruments to (a) those
which are fully insured as to principal by the FDIC or (b) those issued by banks
which at the date of their latest public reporting have total assets in excess
of $1.5 billion. However, the total assets of a bank will not be the sole factor
determining the Money Market Portfolio's investment decisions and the Money
Market Portfolio may invest in bank instruments issued by institutions which the
Board of Trustees believes present minimal credit risks.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
or foreign branches of foreign banks ("Eurodollar" obligations) and domestic
branches of foreign banks ("Yankee dollar" obligations). The Money Market
Portfolio will limit its aggregate investments in foreign bank obligations,
including Eurodollar obligations and Yankee dollar obligations, to 25% of its
total assets at the time of purchase, provided that there is no limitation on
the Money Market Portfolio investments in (a) Eurodollar obligations, if the
domestic parent of the foreign branch issuing
8
<PAGE>
the obligations is unconditionally liable in the event that the foreign branch
fails to pay on the Eurodollar obligation for any reason; and (b) Yankee dollar
obligations, if the U.S. branch of the foreign bank is subject to the same
regulation as U.S. banks. Eurodollar, Yankee dollar and other foreign bank
obligations include time deposits, which are non-negotiable deposits maintained
in a bank for a specified period of time at a stated interest rate. The Money
Market Portfolio will limit its purchases of time deposits to those which mature
in seven days or less, and will limit its purchases of time deposits maturing in
two to seven days to 10% of such Fund's total assets at the time of purchase.
Eurodollar and other foreign obligations involve special investment risks,
including the possibility that liquidity could be impaired because of future
political and economic developments, that the obligations may be less marketable
than comparable domestic obligations of domestic issuers, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that deposits may be seized or nationalized, that foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on those obligations,
that the selection of foreign obligations may be more difficult because there
may be less information publicly available concerning foreign issuers, that
there may be difficulties in enforcing a judgment against a foreign issuer or
that the accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign issuers may differ from those applicable to
domestic issuers. In addition, foreign banks are not subject to examination by
United States Government agencies or instrumentalities.
Since the Money Market Portfolio may contain securities issued by foreign
governments, or any of their political subdivisions, agencies or
instrumentalities, and by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, domestic and foreign branches of foreign banks,
and commercial paper issued by foreign issuers, the Money Market Portfolio may
be subject to additional investment risks with respect to those securities that
are different in some respects from those incurred by a fund which invests only
in debt obligations of the United States and domestic issuers, although such
obligations may be higher yielding when compared to the securities of the United
States and domestic issuers. In making foreign investments, therefore, the Money
Market Portfolio will give appropriate consideration to the following factors,
among others.
Foreign securities markets generally are not as developed or efficient as those
in the United States. Securities of some foreign issuers are less liquid and
more volatile than securities of comparable United States issuers. Similarly,
volume and liquidity in most foreign securities markets are less than in the
United States and, at times, volatility of price can be greater than in the
United States. The issuers of some of these securities, such as bank
obligations, may be subject to less stringent or different regulation than are
United States issuers. In addition, there may be less publicly available
information about a non-United States issuer and non-United States issuers
generally are not subject to uniform accounting and financial reporting
standards, practices and requirements comparable to those applicable to United
States issuers.
Because evidences of ownership of such securities usually are held outside the
United States, the Money Market Portfolio will be subject to additional risks
which include possible adverse political and economic developments, possible
seizure or nationalization of foreign deposits and possible adoption of
governmental restrictions which might adversely affect the payment of principal
and interest on the foreign securities or might restrict the payment of
principal and interest to the issuer, whether from currency blockage or
otherwise.
Furthermore, some of these securities may be subject to stamp or other excise
taxes levied by foreign governments, which have the effect of increasing the
cost of such securities and reducing the realized gain or increasing the
realized loss on such securities at the time of sale. Income earned
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or received by the Money Market Portfolio from sources within foreign countries
may be reduced by withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States, however, may reduce
or eliminate such taxes. The Manager will attempt to minimize such taxes by the
timing of transactions and other strategies, but there can be no assurance that
such efforts will be successful. All such taxes paid by the Money Market
Portfolio will reduce its net income available for distribution to shareholders.
The Manager will consider available yields, net of any required taxes, in
selecting foreign securities.
Variable Amount Master Demand Notes: unsecured demand notes that permit
investment of fluctuating amounts of money at variable rates of interest
pursuant to arrangements with issuers who meet the foregoing quality criteria.
The interest rate on a variable amount master demand note is periodically
redetermined according to a prescribed formula. Although there is no secondary
market in master demand notes, the payee may demand payment of the principal and
interest upon notice not exceeding five business or seven calendar days.
Commercial Paper and Certain Debt Obligations: commercial paper or short-term
debt obligations that have been determined by the Fund's Board of Trustees to
present minimal credit risks and that are First Tier Eligible Securities (as
defined below) at the time of acquisition, so that the Money Market Portfolio is
able to employ the amortized cost method of valuation. Commercial paper
generally consists of short-term unsecured promissory notes issued by
corporations, banks or other borrowers.
The Money Market Portfolio may only purchase securities that have been
determined by the Fund's Board of Trustees to present minimal credit risks and
that are First Tier Eligible Securities at the time of acquisition. The term
First Tier Eligible Security means (i) a security that has a remaining maturity
of 397 days or less and is a rated security that has received a short-term
rating from any two nationally recognized statistical rating organizations
("NRSROs") or in such categories by the only NRSRO that has rated the Municipal
Obligations (collectively, the "Requisite NRSROs") (acquisition in the latter
situation must also be ratified by the Board of Directors) in the highest
short-term rating category for debt obligations; (ii) a security that has a
remaining maturity of 397 days or less and is an unrated security that is, as
determined by the Fund's Board of Directors, to be of comparable quality; (iii)
a security otherwise meeting the requirements set forth in clauses (i) or (ii)
and having a Guarantee (as such term is defined in Rule 2a-7 of the 1940 Act)
which has received a rating from the Requisite NRSROs in the highest short-term
rating category for debt obligations; (iv) is security issued by a registered
investment company that is a money market fund; or (v) is a government security.
Where the issuer of a long-term security with a remaining maturity which would
otherwise qualify it as a First Tier Eligible Security does not have rated
short-term debt outstanding, the long-term security is treated as unrated but
may not be purchased if it has a long-term rating from any NRSRO that is below
the three highest long-term categories. A determination of comparability by the
Board of Trustees is made on the basis of its credit evaluation of the issuer,
which may include an evaluation of a letter of credit, guarantee, insurance or
other credit facility issued in support of the securities. While there are
several organizations that currently qualify as NRSROs, two examples of NRSROs
are Standard & Poor's Rating Services, a division of the McGraw-Hill
Companies("S&P") and Moody's Investors Service, Inc. ("Moody's"). The two
highest ratings by Moody's for debt securities are "Aaa" and "Aa" or by S&P are
"AAA" and "AA". The highest rating for domestic and foreign commercial paper is
"Prime-1" by Moody's or "A-1" by S&P and "SP-1/AA" by S&P or "VMIG-1" and
"VMIG-2" by Moody's in the case of variable and floating rate demand notes. (See
"Description of Ratings" in the Statement of Additional Information.)
Subsequent to its purchase by the Portfolio, the quality of an investment may
cease to be rated or its rating may be reduced so that it ceases to be a
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First Tier Eligible Security. If this occurs, the Board of Trustees of the Fund
shall promptly reassess whether the security presents minimal credit risks and
shall cause the Portfolio to take such action as the Board of Trustees
determines is in the best interest of the Portfolio and its shareholders.
However, reassessment is not required if the security is disposed of or matures
within five business days of the Manager becoming aware of the new rating and
provided further that the Board of Trustees is subsequently notified of the
Manager's actions.
In addition, in the event that a security (1) is in default, (2) ceases to be an
eligible investment under Rule 2a-7 or (3) is determined to no longer present
minimal credit risks, or an event of insolvency occurs with respect to the
issuer of a portfolio security or the provider of any Demand Feature or
Guarantee (as such terms are defined in Rule 2a-7 of the 1940 Act), the
Portfolio will dispose of the security absent a determination by the Fund's
Board of Trustees that disposal of the security would not be in the best
interest of the Portfolio. In the event that the security is disposed of, such
disposal shall occur as soon as practicable, consistent with achieving an
orderly disposition by sale, exercise of any demand feature, or otherwise. In
the event of a default with respect to a security which immediately before
default accounted for 1/2 of 1% or more of the Portfolio's total assets, the
Fund shall promptly notify the Securities and Exchange Commission of such fact
and of the actions that the Fund intends to take in response to the situation.
The Money Market Portfolio may enter into repurchase agreements providing for
resale in 397 days or less covering any of the foregoing securities which may
have maturities in excess of 397 days, provided that the instruments serving as
collateral for the agreements are eligible for inclusion in the Money Market
Portfolio.
Municipal Portfolio
The Municipal Portfolio seeks to provide as high a level of current income that
is exempt from regular federal income taxes as is consistent with the
preservation of capital and maintenance of liquidity by investing at least 80%
of its assets in a diversified portfolio of high quality, short-term municipal
obligations the interest income from which is exempt from regular federal income
taxes ("Municipal Securities"). Although the Supreme Court has determined that
Congress has the authority to subject the interest on bonds such as the
Municipal Securities to federal income taxation, existing law excludes such
interest from regular federal income tax. However, "exempt-interest dividends"
may be subject to the federal alternative minimum tax. Securities, the interest
income on which may be subject to the federal alternative minimum tax (including
participation certificates in such securities), may be purchased by the Fund
without limit. Securities, the interest income on which is subject to regular
federal, state and local income tax, will not exceed 20% of the value of the
Fund's total assets. (See "Dividends, Distributions and Taxes" herein.)
Permitted Investments:
Municipal Securities: Obligations which include debt obligations issued to
obtain funds for various public purposes, including the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
obtaining of funds for general operating expenses and lending such funds to
other public institutions and facilities. In addition, certain types of private
activity bonds or industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide for the construction, equipment,
repair or improvement of privately operated facilities. Such obligations are
considered to be Municipal Securities provided that the interest paid thereon
generally qualifies as exempt from regular federal income tax in the opinion of
bond counsel. However, interest on certain Municipal Securities may give rise to
federal alternative minimum tax liability and may have other collateral federal
income tax consequences.
The Municipal Portfolio may only purchase Municipal Securities that have been
determined by the Fund's Board of Trustees to present minimal credit risks and
that are First Tier Eligible
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Securities at the time of acquisition. The term First Tier Eligible Security
means (i) a security that has a remaining maturity of 397 days or less and is a
rated security that has received a short-term rating from any two nationally
recognized statistical rating organizations ("NRSROs") or in such categories by
the only NRSRO that has rated the Municipal Obligations (collectively, the
"Requisite NRSROs") (acquisition in the latter situation must also be ratified
by the Board of Directors) in the highest short-term rating category for debt
obligations; (ii) a security that has a remaining maturity of 397 days or less
and is an unrated security that is, as determined by the Fund's Board of
Directors, to be of comparable quality; (iii) a security otherwise meeting the
requirements set forth in clauses (i) or (ii) and having a Guarantee (as such
term is defined in Rule 2a-7 of the 1940 Act) which has received a rating from
the Requisite NRSROs in the highest short-term rating category for debt
obligations; (iv) is security issued by a registered investment company that is
a money market fund; or (v) is a government security. Where the issuer of a
long-term security with a remaining maturity which would otherwise qualify it as
a First Tier Eligible Security does not have rated short-term debt outstanding,
the long-term security is treated as unrated but may not be purchased if it has
a long-term rating from any NRSRO that is below the three highest long-term
rating categories. A determination of comparability by the Board of Trustees is
made on the basis of its credit evaluation of the issuer, which may include an
evaluation of a letter of credit, guarantee, insurance or other credit facility
issued in support of the Municipal Securities. The two highest ratings by
Moody's for debt securities are "Aaa" and "Aa" or by S&P are "AAA" and "AA". The
highest rating for domestic and foreign commercial paper is "Prime-1" by Moody's
and "A-1" by S&P and "SP-1/AA" by S&P or "VMIG-1" and "VMIG-2" by Moody's in the
case of variable and floating rate demand notes. (See "Description of Ratings"
in the Statement of Additional Information.)
Subsequent to its purchase by the Portfolio, the quality of an investment may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Portfolio. If this occurs, the Board of Trustees of the Fund
shall reassess whether the security presents minimal credit risks and shall
cause the Portfolio to take such action as the Board of Trustees determines is
in the best interest of the Portfolio and its shareholders. However,
reassessment is not required if the security is disposed of or matures within
five business days of the Manager becoming aware of the new rating and provided
further that the Board of Trustees is subsequently notified of the Manager's
actions.
In addition, in the event that a security (1) is in default, (2) ceases to be an
eligible investment under Rule 2a-7 or (3) is determined to no longer present
minimal credit risks, or an event of insolvency occurs with respect to the
issuer of a portfolio security or the provider of any Demand Feature or
Guarantee (as such terms are defined in Rule 2a-7 of the 1940 Act), the
Portfolio will dispose of the security absent a determination by the Fund's
Board of Trustees that disposal of the security would not be in the best
interest of the Portfolio. In the event that the security is disposed of, such
disposal shall occur as soon as practicable, consistent with achieving an
orderly disposition by sale, exercise of any demand feature, or otherwise. In
the event of a default with respect to a security which immediately before
default accounted for 1/2 of 1% or more of the Portfolio's total assets, the
Fund shall promptly notify the Securities and Exchange Commission of such fact
and of the actions that the Fund intends to take in response to the situation.
All investments by the Fund will mature or will be deemed to mature in 397 days
or less from the date of acquisition.
The Municipal Portfolio also may purchase any Municipal Securities which depend
on the credit of the United States Government and may invest in Municipal
Securities which are not rated if, in the opinion of the Board of Trustees, such
securities possess creditworthiness comparable to those rated obligations in
which the Municipal Portfolio
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<PAGE>
may invest. The Municipal Portfolio may, from time to time, on a temporary or
defensive basis, invest in short-term, high quality United States Government
Obligations, money market obligations and repurchase agreements. Income from any
such temporary investments would be taxable to shareholders as ordinary income.
It is the present policy of the Municipal Portfolio to invest only in securities
the interest on which is tax-exempt. This Portfolio will endeavor to be invested
at all times in Municipal Securities. It is a fundamental policy of the
Municipal Portfolio that its assets will be invested so that at least 80% of its
income will be exempt from regular federal income taxes. The Municipal Portfolio
may from time to time hold cash reserves.
RISK FACTORS AND ADDITIONAL
INVESTMENT INFORMATION
When-Issued and Delayed Delivery Securities
Each of the Portfolios may purchase securities on a when-issued or delayed
delivery basis. Delayed delivery agreements are commitments by any of the
Portfolios to dealers or issuers to acquire securities beyond the customary
same-day settlement for money market instruments. These commitments fix the
payment price and interest rate to be received on the investment. Delayed
delivery agreements will not be used as a speculative or leverage technique.
Rather, from time to time, the Portfolio's investment advisor can anticipate
that cash for investment purposes will result from scheduled maturities of
existing portfolio instruments or from net sales of shares of a Portfolio;
therefore, to assure that a Portfolio will be as fully invested as possible in
instruments meeting that Portfolio's investment objective, a Portfolio may enter
into delayed delivery agreements, but only to the extent of anticipated funds
available for investment during a period of not more than five business days.
Money Market Obligations and Municipal Securities are sometimes offered on a
"when-issued" basis, that is, the date for delivery of and payment for the
securities is not fixed at the date of purchase, but is set after the securities
are issued (normally within forty-five days after the date of the transaction).
The payment obligation and the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A
Portfolio will only make commitments to purchase such Money Market Instruments
or Municipal Securities with the intention of actually acquiring such
securities, but a Portfolio may sell these securities before the settlement date
if it is deemed advisable.
If a Portfolio enters into a delayed delivery agreement or purchases a
when-issued security, that Portfolio will direct the custodian to place cash or
other high grade securities (including Money Market Obligations and Municipal
Securities) in a separate account of such Fund in an amount equal to its delayed
delivery agreements or when-issued commitments. If the market value of such
securities declines, additional cash or securities will be placed in the account
on a daily basis so that the market value of the account will equal the amount
of such Portfolio's delayed delivery agreements and when-issued commitments. To
the extent that funds are in a separate account, they will not be available for
new investment or to meet redemptions. Investment in securities on a when-issued
basis and use of delayed agreements may increase a Portfolio's exposure to
market fluctuation; may increase the possibility that the Portfolio will incur a
short-term gain subject to federal taxation; or may increase the possibility
that a Portfolio will incur a short-term loss, if the Portfolio must engage in
portfolio transactions in order to honor a when-issued commitment or accept
delivery of a security under a delayed delivery agreement. The Portfolios will
employ techniques designed to minimize these risks.
No additional delayed delivery agreements or when-issued commitments will be
made if more than 25% of a Portfolio's net assets would become so committed. The
Portfolios will enter into when-issued and delayed delivery transactions only
when the time period between trade date and settlement date is at least 30 days
and not more than 120 days.
Repurchase Agreements
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When a Portfolio purchases securities, it may enter into a repurchase agreement
with the seller wherein the seller agrees, at the time of sale, to repurchase
the security at a mutually agreed upon time and price, thereby determining the
yield during the purchaser's holding period. This arrangement results in a fixed
rate of return insulated from market fluctuations during such period. The U.S.
Treasury Portfolio may only enter into repurchase agreements which are
collateralized by obligations issued or guaranteed by the U.S. Government. The
Money Market Portfolio and the Municipal Portfolio may enter into repurchase
agreements with member banks of the Federal Reserve System and with
broker-dealers who are recognized as primary dealers in United States government
securities by the Federal Reserve Bank of New York whose creditworthiness has
been reviewed and found to meet the investment criteria of the Portfolio.
Although the securities subject to the repurchase agreement might bear
maturities exceeding 397 days, settlement for the repurchase would never be more
than one year after the Portfolio's acquisition of the securities and normally
would be within a shorter period of time. The resale price will be in excess of
the purchase price, reflecting an agreed upon market rate effective for the
period of time the Portfolio's money will be invested in the security, and will
not be related to the coupon rate of the purchased security. At the time a
Portfolio enters into a repurchase agreement the value of the underlying
security, including accrued interest, will be equal to or exceed the value of
the repurchase agreement and, in the case of a repurchase agreement exceeding
one day, the seller will agree that the value of the underlying security,
including accrued interest, will at all times be equal to or exceed the value of
the repurchase agreement. Each Portfolio may engage in a repurchase agreement
with respect to any security in which that Portfolio is authorized to invest,
even though the underlying security may mature in more than one year. The
collateral securing the seller's obligation must be of a credit quality at least
equal to the Portfolio's investment criteria for Portfolio securities and will
be held by the Portfolio's custodian or in the Federal Reserve Book Entry
System. Nevertheless, if the seller of a repurchase agreement fails to
repurchase the obligation in accordance with the terms of the agreement, the
Portfolio which entered into the repurchase agreement may incur a loss to the
extent that the proceeds it realized on the sale of the underlying obligation
are less than the repurchase price. Repurchase agreements may be considered
loans to the seller of the underlying security. Income with respect to
repurchase agreements is not tax-exempt. If bankruptcy proceedings are commenced
with respect to the seller, the Portfolio's realization upon the collateral may
be delayed or limited. Each Portfolio may invest no more than 10% of its net
assets in illiquid securities including repurchase agreements maturing in more
than seven days. See "Investment Restrictions" herein. A Portfolio may, however,
enter into "continuing contract" or "open" repurchase agreements under which the
seller is under a continuing obligation to repurchase the underlying obligation
from the Portfolio on demand and the effective interest rate is negotiated on a
daily basis.
Securities purchased pursuant to a repurchase agreement are held by the Fund's
custodian and (i) are recorded in the name of the Portfolio with the Federal
Reserve Book Entry System or (ii) the Portfolio receives daily written
confirmation of each purchase of a security and a receipt from the custodian.
The Portfolios purchase securities subject to a repurchase agreement only when
the purchase price of the security acquired is equal to or less than its market
price at the time of purchase.
Puts for the Municipal Portfolio
The Municipal Portfolio may purchase municipal bonds or notes with the right to
resell them at an agreed price or yield within a specified period prior to
maturity to facilitate portfolio liquidity. This right to resell is known as a
"put." The Municipal Portfolio may also acquire a "Stand-by Commitment" when it
purchases municipal bonds or notes, which is essentially equivalent to a "put"
option. A Stand-by Commitment is a right of the
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Municipal Portfolio, when it purchases Municipal Securities for its portfolio
from a broker, dealer or other financial institution, to sell the same principal
amount of such securities back to the seller, at the Municipal Portfolio's
option, at a specified price. The aggregate price paid for securities with puts
may be higher than the price which otherwise would be paid. Consistent with the
investment objectives of this Portfolio and subject to the supervision of the
Trustees, the purpose of this practice is to permit the Portfolio to be fully
invested in tax exempt securities while maintaining the necessary liquidity to
purchase securities on a when-issued basis, to meet unusually large redemptions
and to purchase at a later date securities other than those subject to the put.
The acquisition or exercisibility of a Stand-by Commitment by the Municipal
Portfolio will not affect the valuation of the average weighted maturity of its
underlying portfolio securities. The principal risk of puts is that the put
writer may default on its obligation to repurchase. The Manager will monitor
each writer's ability to meet its obligations under puts. See "Investment
Restrictions" and "Tax Status" in the Statement of Additional Information.
The amortized cost method is used by the Money Market Portfolio and the
Municipal Portfolio to value any municipal securities; no value is assigned to
any puts on such municipal securities. The cost of any such put is carried as an
unrealized loss from the time of purchase until it is exercised or expires.
Privately Placed Securities
The Money Market Portfolio and the Municipal Portfolio may invest in securities
issued as part of privately negotiated transactions between an issuer and one or
more purchasers. Except with respect to certain commercial paper issued in
reliance on the exemption from regulations in Section 4(2) of the Securities Act
of 1933 (the "Securities Act") and securities subject to Rule 144A of the
Securities Act which are discussed below, these securities are typically not
readily marketable and are therefore considered illiquid securities. The price
these Portfolios pay for illiquid securities, and any price received upon
resale, may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly, the valuation of privately placed securities
purchased by a Portfolio will reflect any limitations on their liquidity. As a
matter of policy, a Portfolio will not invest more than 10% of the market value
of the net assets of the Portfolio in repurchase agreements maturing in over
seven days and other illiquid investments.
These Portfolios may purchase securities that are not registered ("restricted
securities") under the Securities Act, but can be offered and sold to "qualified
institutional buyers" under Rule 144A of the Securities Act. These Portfolios
may also purchase certain commercial paper issued in reliance on the exemption
from regulations in Section 4(2) of the Securities Act ("4(2) Paper"). However,
a Portfolio will not invest more than 10% of its net assets in illiquid
investments, which include securities for which there is no readily available
market, securities subject to contractual restriction on resale, certain
investments in asset-backed and receivable-backed securities and restricted
securities (unless, with respect to these securities and 4(2) Paper, the Fund's
Trustees continuously determine, based on the trading markets for the specific
restricted security, that it is liquid). The Trustees may adopt guidelines and
delegate to the Manager the daily function of determining and monitoring
liquidity of restricted securities and 4(2) Paper. The Trustees, however, will
retain sufficient oversight and be ultimately responsible for these
determinations.
Since it is not possible to predict with assurance exactly how this market for
restricted securities sold and offered under Rule 144A will develop, the
Trustees will carefully monitor the Portfolios' investments in these securities,
focusing on such factors, among others, as valuation, liquidity and availability
of information. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities.
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<PAGE>
INVESTMENT RESTRICTIONS
The Fund operates under the following investment restrictions which, together
with the investment objective of the Fund, may not be changed without
shareholder approval and which apply to each of the Portfolios.
The Fund may not:
a) invest more than 5% of the total market value of any Portfolio's assets
(determined at the time of the proposed investment and giving effect
thereto) in the securities of any one issuer other than the United States
Government, its agencies or instrumentalities;
b) with respect to the U.S. Treasury Portfolio and the Money Market Portfolio,
invest more than 25% of the value of the Portfolio's total assets in
securities of companies in the same industry (excluding United States
government securities and, as to the Money Market Portfolio only,
certificates of deposit and bankers' acceptances of domestic banks) and,
with respect to the Municipal Portfolio, purchase (i) pollution control and
industrial revenue bonds or (ii) securities which are not Municipal
Obligations if in either case the purchase would cause more than 25% of the
value of the Portfolio's total assets to be invested in companies in the
same industry (for the purpose of this restriction wholly-owned finance
companies are considered to be in the industry of their parents if their
activities are similarly related to financing the activities of their
parents);
c) acquire securities that are not readily marketable or repurchase agreements
calling for resale within more than seven days if, as a result thereof,
more than 10% of the value of its net assets would be invested in such
illiquid securities;
d) with respect to 75% of the value of a Portfolio's total assets, the Fund
may not invest more than 10% of a Portfolio's assets in securities that are
subject to underlying puts from the same institution, and no single bank
shall issue its letter of credit and no single financial institution shall
issue a credit enhancement covering more than 10% of the total assets of
the Fund. However, the Portfolio may only invest more that 10% of its
assets in securities subject to puts from the same institution if such puts
are issued by a non-controlled person (as defined in the 1940 Act);
e) make loans, except that the Fund may purchase for a Portfolio the debt
securities described above under "Investment Objectives, Policies and
Risks" and may enter into repurchase agreements as therein described;
f) borrow money, unless (i) the borrowing does not exceed 10% of the total
market value of the assets of the Portfolio with respect to which the
borrowing is made (determined at the time of borrowing but without giving
effect thereto) and the money is borrowed from one or more banks as a
temporary measure for extraordinary or emergency purposes or to meet
unexpectedly heavy redemption requests and furthermore each Portfolio will
not make additional investments when borrowings exceed 5% of the
Portfolio's net assets or (ii) with respect to the U.S. Treasury Portfolio,
otherwise provided herein and permissible under the 1940 Act; and
g) pledge, mortgage, assign or encumber any of a Portfolio's assets except to
the extent necessary to secure a borrowing permitted by clause (d) made
with respect to a Portfolio.
MANAGEMENT OF THE FUND
Management and Investment
Management Contract
The Fund's Board of Trustees, which is responsible for the overall management
and supervision of the Fund, has employed the Manager to serve as the investment
manager of the Fund under an Investment Management Contract. The Manager
provides persons satisfactory to the Fund's Board of Trustees to serve as
officers of the Fund. Such officers, as
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well as certain other employees and Trustees of the Fund, may be officers of the
Manager, the sole general partner of the Manager or employees of the Manager or
its affiliates. Due to the services performed by the Manager, the Fund currently
has no employees and its officers are not required to devote full-time to the
affairs of the Fund. The Statement of Additional Information contains general
background information regarding each Trustee and principal officer of the Fund.
The Manager is a Delaware limited partnership and a registered investment
advisor, under the 1940 Act, with its principal office at 600 Fifth Avenue, New
York, New York 10020.
The Manager, as of June 30, 1998, was investment manager, advisor or supervisor
with respect to assets aggregating in excess of $11.3 billion. The Manager acts
as manager or administrator of seventeen 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,
replaced NEICOP as the limited partner and owner of a 99.5% interest in the
Manager.
Reich & Tang Asset Management, Inc. (a 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.
Nvest 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 unites, 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.
The name change 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.
The Investment Management Contract has a term which extends to March 31, 1999
and may be continued in force thereafter for successive twelve-month periods
beginning each April 1, provided that such majority vote of the Fund's
outstanding voting securities or by a majority of the directors who are not
parties to the Investment Management Contract or interested persons of any such
party, by votes cast in person at a meeting called for the purpose of voting on
such matter.
Pursuant to the Investment Management Contract for each Portfolio, the Manager
manages each Portfolio's portfolio of securities and makes the decisions with
respect to the purchase and sale of investments, subject to the general control
of the
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Board of Trustees of the Fund.
Under the Investment Management Contract each of the Portfolios will pay an
annual management fee of .12% of such Portfolio's average daily net assets. The
management fees are accrued daily and paid monthly. The Manager, at its
discretion may voluntarily waive all or a portion of the Management Fee.
Pursuant to an Administrative Services Agreement for each Portfolio, 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 administrative 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 Agreement, the
Manager receives an annual fee of .05% of each Portfolio's average daily net
assets. Any portion of the total fees received by the Manager and its past
profits may be used to provide shareholder services and for distribution of Fund
shares. (See "Distribution and Service Plan" herein.) The fees are accrued daily
and paid monthly.
In addition, the Distributor receives a servicing fee equal to .25% per annum of
the average daily net assets of the Class A shares (the "Shareholder Servicing
Fee") of the Fund under the Shareholder Servicing Agreement. The fees are
accrued daily and paid monthly. Investment management fees and operating
expenses, which are attributable to both Classes of shares of the Fund, will be
allocated daily to each Class of shares based on the percentage of shares
outstanding for each Class at the end of the day.
DESCRIPTION OF SHARES
The Fund was established as a Massachusetts Business Trust under the laws of
Massachusetts by an Agreement and Declaration of Trust dated January 20, 1994.
The Fund has an unlimited authorized number of shares of beneficial interest.
These shares are entitled to one vote per share with proportional voting for
fractional shares. There are no conversion or preemptive rights in connection
with any shares of the Fund. All shares when issued in accordance with the terms
of the offering will be fully paid and non-assessable. Shares of the Fund are
redeemable at net asset value, at the option of the shareholders. As of June 30,
1998 the amount of shares owned by all officers and trustees of the Fund, as a
group, was less than 1% of the outstanding shares.
Each Portfolio of the Fund is subdivided into two classes of shares of
beneficial interest, Class A and Class B. Each share, regardless of Class, will
represent an interest in the same portfolio of investments and will have
identical voting, dividend, liquidation and other rights, preferences, powers,
restrictions, limitations, qualifications, designations and terms and
conditions, except that: (i) the Class A and Class B shares will have different
class designations; (ii) only the Class A shares will be assessed a Shareholder
Servicing Fee of .25% of the average daily net assets of the Class A shares of
the Fund pursuant to the Rule 12b-1 Distribution and Service Plan of the Fund;
(iii) only the holders of the Class A shares will be entitled to vote on matters
pertaining to the Plan and any related agreements in accordance with provisions
of Rule 12b-1; and (iv) the exchange privilege will permit shareholders to
exchange their shares only for shares of the same class of any other Portfolio
of the Fund. Payments that are made under the Plans will be calculated and
charged daily to the appropriate Class prior to determining daily net asset
value per share and dividends/distributions.
Generally, all shares will be voted in the aggregate, except if voting by Class
is required by law or the matter involved affects only one Class, in which case
shares will be voted separately by Class. The shares of the Fund have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares
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outstanding voting for the election of trustees can elect 100% of the trustees
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 Trustees.
The Fund's By-laws provide the holders of a majority 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.
HOW TO PURCHASE AND REDEEM SHARES
Investors who have accounts with Participating Organizations may invest in the
Fund through their Participating Organizations in accordance with the procedures
established by the Participating Organizations. Certain Participating
Organizations are compensated by the Distributor from its Shareholder Servicing
Fee and by the Manager from its management fee for the performance of these
services. An investor who purchases shares through a Participating Organization
that receives payment from the Manager or the Distributor will become a Class A
shareholder. (See "Investments Through Participating Organizations" herein.) All
other investors, and investors who have accounts with Participating
Organizations but who do not wish to invest in the Fund through their
Participating Organizations, may invest in the Fund directly as Class B
shareholders of the Fund and not receive the benefit of the servicing functions
performed by a Participating Organization. Class B shares may also be offered to
investors who purchase their shares through Participating Organizations who do
not receive compensation from the Distributor or the Manager because they may
not be legally permitted to receive such as fiduciaries. The Manager pays the
expenses incurred in the distribution of Class B shares. Participating
Organizations whose clients become Class B shareholders will not receive
compensation from the Manager or Distributor for the servicing they may provide
to their clients. (See "Direct Purchase and Redemption Procedures" herein.) With
respect to both Classes of shares, the minimum initial investment in the Fund
with respect to each Portfolio is $1,000,000. The minimum amount for subsequent
investments is $10,000 for all shareholders.
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a sales charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent which
accepts orders for purchases and redemptions from the Distributor and from
shareholders directly.
In order to maximize earnings on its Portfolios, the Fund normally has its
assets as fully invested as is practicable. Many securities in which the Fund
invests require immediate settlement in funds of Federal Reserve member banks on
deposit at a Federal Reserve bank (commonly known as "Federal Funds").
Accordingly, the Fund does not accept a subscription or invest an investor's
payment in portfolio securities until the payment has been converted into
Federal Funds.
Shares will be issued as of the first determination of the Fund's net asset
value per share for each Class made after acceptance of the investor's purchase
order. An investor's funds will not be invested by the Fund during the period
before the Fund's receipt of Federal Funds and its issuance of Fund shares. The
Fund reserves the right to reject any purchase order to its shares.
Shares are issued as of 2:30 p.m., New York City time, on any Fund Business Day,
as defined herein, on which an order for the shares and accompanying Federal
Funds are received by the Fund's transfer agent before 2:30 p.m., New York City
time. Orders accompanied by Federal Funds and received after 2:30 p.m., New York
City time on a Fund Business Day will not result in share issuance until the
following Fund Business Day. Fund shares begin accruing income on the day the
shares are issued to an investor.
There is no redemption charge, no minimum period of investment and no
restriction on frequency of withdrawals. Proceeds of redemptions are paid by
check or bank wire. Unless other instructions are given in proper form to the
Fund's transfer agent, a check for the proceeds of a redemption will be sent to
the
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<PAGE>
shareholder's address of record. If a shareholder elects to redeem all the
shares of the Fund he owns, all dividends credited to the shareholder up to the
date of redemption are paid to the shareholder in addition to the proceeds of
the redemption.
The date of payment upon redemption may not be postponed for more than seven
days after shares are tendered for redemption, and the right of redemption may
not be suspended, except for any period during which the New York Stock
Exchange, Inc. is closed (other than customary weekend and holiday closings) or
during which the SEC determines that trading thereon is restricted, or for any
period during which an emergency (as determined by the SEC) exists as a result
of which disposal by the Fund of its securities is not reasonably practicable or
as a result of which it is not reasonably practicable for the Fund fairly to
determine the value of its net assets, or for such other period as the SEC may
by order permit for the protection of the shareholders of the Fund.
Redemption requests received by the Fund's transfer agent before 2:30 p.m., New
York City time, on any day on which the New York Stock Exchange, Inc. is open
for trading become effective at 2:30 p.m. that day. A redemption request
received after 2:30 p.m. on any day on which the New York Stock Exchange, Inc.
is open for trading becomes effective on the next Fund Business Day. Shares
redeemed are not entitled to participate in dividends declared on the day or
after the day a redemption becomes effective.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in his account after a withdrawal is
less than $250,000. Written notice of any such mandatory redemption will be
given at least 30 days in advance to any shareholder whose account is to be
redeemed or the Fund may impose a monthly service charge of $10 on such
accounts. During the notice period any shareholder who receives such a notice
may (without regard to the normal $10,000 requirement for an additional
investment) make a purchase of additional shares to increase his total net asset
value at least to the minimum amount and thereby avoid such mandatory
redemption.
The Fund has reserved the right to charge individual shareholder accounts for
expenses actually incurred by such account for postage, wire transfers and
certain other shareholder expenses, as well as to impose a monthly service
charge for accounts whose net asset value falls below the minimum amount.
Investments Through
Participating Organizations
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks and financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the Distributor with respect to investment of their
customer accounts in the Fund. When instructed by its customer to purchase or
redeem Fund shares, the Participating Organization, on behalf of the customer,
transmits to the Fund's transfer agent a purchase or redemption order, and in
the case of a purchase order, payment for the shares being purchased.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Fund shares for the customers'
accounts. Also, Participating Organizations may send their customers periodic
account statements showing the total number of Fund shares owned by each
customer as of the statement closing date, purchases and redemptions of Fund
shares by each customer during the period covered by the statement and the
income earned by Fund shares of each customer during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Participant Investors whose Participating Organizations have not undertaken to
provide such statements will receive them from the Fund directly.
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption
20
<PAGE>
procedures offered to Participant Investors by the Participating Organizations.
In addition, Participating Organizations offering purchase and redemption
procedures similar to those offered to shareholders who invest in the Fund
directly may impose charges, limitations, minimums and restrictions in addition
to or different from those applicable to shareholders who invest in the Fund
directly. Accordingly, the net yield to investors who invest through
Participating Organizations may be less than by investing in the Fund directly.
A Participant Investor should read this Prospectus in conjunction with the
materials provided by the Participating Organization describing the procedures
under which Fund shares may be purchased and redeemed through the Participating
Organization.
In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 2:30 p.m., New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day provided that the Federal Funds required in connection with the orders
are received by the Fund's transfer agent before 2:30 p.m., New York City time,
on that day. Orders for which Federal Funds are received after 2:30 p.m., New
York City time, will not result in share issuance until the following Fund
Business Day. Participating Organizations are responsible for instituting
procedures to insure that purchase orders by their respective clients are
processed expeditiously.
DIRECT PURCHASE AND
REDEMPTION PROCEDURES
The following purchase and redemption procedures apply to investors who wish to
invest in the Fund directly. These investors may obtain the subscription order
form necessary to open an account by telephoning the Fund at either 212-830-5220
(within New York State) or at 800-241-3263 (toll free outside New York State).
All shareholders will receive from the Fund a monthly statement listing the
total number of shares of each Portfolio owned as of the statement closing date,
purchases and redemptions of shares of each Portfolio during the month covered
by the statement and the dividends paid on shares of each Portfolio of each
shareholder during the statement period (including dividends paid in cash or
reinvested in additional shares of each Portfolio). Certificates for Fund shares
will not be issued to an investor.
Initial Purchase of Shares
Mail
Investors may send a check made payable to the Fund along with a completed
subscription order form to:
Institutional Daily Income Fund
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member bank of the Federal Reserve
System can normally be converted into Federal Funds within two business days
after receipt of the check. Checks drawn on a non-member bank may take
substantially longer to convert into Federal Funds and to be invested in Fund
shares. An investor's subscription will not be accepted until the Fund receives
Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, an investor should first obtain a new account number by telephoning
the Fund at either 212-830-5220 (within New York State) or at 800-241-3263
(outside New York State) and then instruct a member commercial bank to wire
money immediately to:
For U.S. Treasury Portfolio
Investors Fiduciary Trust Company
ABA #101003621
Reich & Tang Funds
DDA #890752-9546
For Institutional Daily Income Fund
U.S. Treasury Portfolio
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<PAGE>
Account of (Investor's Name)
Fund Account # ____________________
SS #/Tax I.D.# ____________________
For Money Market Portfolio
Investors Fiduciary Trust Company
ABA #101003621
Reich & Tang Funds
DDA #890752-9546
For Institutional Daily Income Fund
Money Market Portfolio
Account of (Investor's Name)
Fund Account #____________________
SS #/Tax I.D.#_____________________
For Municipal Portfolio
Investors Fiduciary Trust Company
ABA #101003621
Reich & Tang Funds
DDA #890752-9546
For Institutional Daily Income Fund
Municipal Portfolio
Account of (Investor's Name)
Fund Account #____________________
SS #/Tax I.D.#_____________________
The investor should then promptly complete and mail the subscription order form.
An investor planning to wire funds should instruct his bank early in the day so
the wire transfer can be accomplished the same day. There may be a charge by the
investor's bank for transmitting the money by bank wire, and there also may be a
charge for use of Federal Funds. The Fund does not charge investors in the Fund
for its receipt of wire transfers. Payment in the form of a "bank wire" received
prior to 2:30 p.m., New York City time, on a Fund Business Day will be treated
as a Federal Funds payment received on that day.
Redemption of Shares
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share of each
Class of each Portfolio following receipt by the Fund's transfer agent of the
redemption order. Normally payment for redeemed shares is made on the Fund
Business Day the redemption is effected, provided the redemption request is
received prior to 2:30 p.m., New York City time and on the next Fund Business
Day if the redemption request is received after 2:30 p.m., New York City time.
However, redemption requests will not be effected unless the check (including a
certified or cashier's check) used for investment has been cleared for payment
by the investor's bank, currently considered by the Fund to occur within 15 days
after investment.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee. When a
signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature and guaranteed by an eligible guarantor
institution which includes a domestic bank, a domestic savings and loan
institution, a domestic credit union, a member bank of the Federal Reserve
System or a member firm of a national securities exchange, pursuant to the
Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written request
to:
Institutional Daily Income Fund
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
All written requests for redemption must be signed by the shareholder with
signature guaranteed. Normally the redemption proceeds are paid by check mailed
to the shareholder of record.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option. The proceeds of a telephone redemption
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<PAGE>
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. Redemptions following an investment by check will not be
effected until the check has cleared, which could take up to 15 days after
investment. 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. Telephone requests to wire redemption
proceeds must be for amounts in excess of $10,000. 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.
A shareholder making a telephone withdrawal should call the Fund at
212-830-5220; outside New York State at 800-241-3263 and state (i) the name of
the shareholder appearing on the Fund's records, (ii) his account number with
the Fund, (iii) the amount to be withdrawn and (iv) the name of the person
requesting the redemption. Usually, the proceeds are sent to the investor on the
same Fund Business Day the redemption is effected, provided the redemption
request is received prior to 2:30 p.m., New York City time and on the next Fund
Business Day if the redemption request is received after 2:30 p.m., New York
City time.
Exchange of Shares
An investor may, without cost, exchange shares of the same Class from one
Portfolio of the Fund into the same Class of shares of any other Portfolio of
the Fund, subject to the $1,000,000 minimum initial investment requirement per
Portfolio, the availability of such shares and the maintenance of the suggested
minimum balance of $250,000. Shares are exchanged on the basis of relative net
asset value per share. Exchanges are in effect redemptions from one Portfolio
and purchases of another Portfolio; and the Portfolio's purchase and redemption
procedures and requirements are applicable to exchanges. An exchange pursuant to
this exchange privilege is treated for federal income tax purposes as a sale on
which a shareholder may realize a taxable gain or loss. See "Purchase and
Redemption of Shares" herein.
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 Reich & Tang Distributors, Inc. 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 herein or, for shareholders who have elected that
option, by telephone. The Fund reserves the right to reject any exchange request
and will notify shareholders accordingly.
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 Trustees and Class A shareholders adopted a distribution and
service plan (the "Plan") and, pursuant to the Plan, the Fund and Reich & Tang
Distributors, Inc.. (the "Distributor") entered into a Distribution Agreement
and a Shareholder Servicing Agreement (with respect to the Class A shares of the
Fund only).
Under the Distribution Agreement, the Distributor serves as distributor of the
Fund's shares and, for nominal consideration as agent for the Fund, will solicit
orders for the purchase of the Fund's shares, provided that any orders will not
be
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<PAGE>
binding on the Fund until accepted by the Fund as principal.
Under the Shareholder Servicing Agreement, the Distributor receives, with
respect to the Class A shares, a service fee equal to .25% per annum of the
Class A shares' average daily net assets (the "Shareholder Servicing Fee") for
providing personal shareholder services and for the maintenance of shareholder
accounts. The fee is accrued daily and paid monthly and any portion of the fee
may be deemed to be used by the Distributor for payments to Participating
Organizations with respect to their provision of such services to their clients
or customers who are shareholders of the Class A shares of the Fund. The Class B
shareholders do not receive the benefit of such services from Participating
Organizations and, therefore, will not be assessed a Shareholder Servicing Fee.
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunication
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Distributor and Participating Organizations in carrying out their
obligations under the Shareholder Servicing Agreement with respect to Class A
shares and (ii) preparing, printing and delivering the Fund's prospectus to
existing shareholders of the Fund and preparing and printing subscription
application forms for shareholder accounts.
The Plan 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 on behalf of the Class
A shares of the Fund; (ii) to compensate certain Participating Organizations for
providing assistance in distributing the Class A shares; and (iii) to pay the
costs of printing and distributing the Fund's prospectus to prospective
investors, and to defray the cost of the preparation and printing of brochures
and other promotional materials, mailings to prospective shareholders,
advertising, and other promotional activities, including the salaries and/or
commissions of sales personnel in connection with the distribution of the Fund's
Class A shares. The Distributor may also make payments from time to time from
its own resources, which may include the Shareholder Servicing Fee (with respect
to Class A shares) and past profits, for the purposes enumerated in (i) above.
The Distributor will determine the amount of such payments made pursuant to the
Plan, provided that such payments will not increase the amount which the Fund is
required to pay to the Manager and Distributor for any fiscal year under either
the Investment Management Contract in effect for that year or under the
Shareholder Servicing Agreement in effect for that year.
For the fiscal year ended March 31, 1998, the total amount spent pursuant to the
Plan for the Money Market Portfolio was .09% of the average daily net assets of
the Fund, all of which was paid by the Fund to the Distributor. Pursuant to the
Shareholder Servicing Agreement, no payments were made by the Manager. For the
fiscal year ended March 31, 1998, the total amount spent pursuant to the Plan
for the U.S. Treasury Portfolio was .23% of the average daily net assets of the
Fund, of which all was paid by the Fund to the Distributor. Pursuant to the
Shareholder Servicing Agreement no payments were made by the Manager.
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 Trustees will
consider appropriate modifications to the Fund's operations, including
discontinuance of any payments then being made under the Plan to banks and other
depository institutions, in the
24
<PAGE>
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.
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 reinvested in additional shares of the same Class shares of the
applicable Portfolio 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. A shareholder who elects to reinvest in additional shares will be
treated for tax purposes as if it had received and reinvested the cash dividend.
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 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. Except as described herein, each Portfolio's net investment
income (including net realized short-term capital gains, if any) will be
declared as a dividend on each Fund Business Day. The Fund declares dividends
for Saturdays, Sundays and holidays on the previous Fund Business Day. The Fund
pays dividends monthly after the close of business on the last calendar day of
each month or after the close of business on the previous Fund Business Day if
the last calendar day of each month is not a Fund Business Day. 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 Class A shares will bear the Shareholder Servicing Fee under the Plan. As a
result, the net income of and the dividends payable to the Class A shares will
be lower than the net income of and dividends payable to the Class B shares of
the Fund. Dividends paid to each Class of shares of the Fund will, however, be
declared and paid on the same days at the same times and, except as noted with
respect to the Shareholder Servicing Fee payable under the Plan, will be
determined in the same manner and paid in the same amounts.
The Fund intends to continue to qualify for special treatment applicable to a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended, for each Portfolio. To qualify as a regulated investment company, each
Portfolio must meet certain complex tests concerning its investments and
distributions. For each year a Portfolio qualifies as a regulated investment
company, the Portfolio will not be subject to federal income tax on income
distributed to its shareholders in the form of dividends or capital gains
distributions. Additionally, each Portfolio will not be subject to a federal
excise tax if the Portfolio distributes at least 98% of its ordinary income and
98% of its capital gain income to its shareholders. Dividends of net ordinary
income and distributions of net short-term capital gains are taxable to the
recipient shareholders as ordinary income but will not be eligible, in the case
of corporate shareholders, for the dividend-received deduction.
The Fund is required by Federal law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions and
25
<PAGE>
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 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.
Distributions from the United States Government Portfolio that are derived from
interest on certain obligations of the United States Government and agencies
thereof may be exempt from state and local taxes in certain states. Investors
should consult their own tax advisors regarding specific questions as to
Federal, state or local taxes.
NET ASSET VALUE
The Fund determines the net asset value of the shares of each Portfolio
(computed separately for each Class of shares) of the Fund as of 2:30 p.m., New
York City time, by dividing the value of each Portfolio'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 of that Portfolio 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 any day on which the Fund's custodian is
open for trading. 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. (See "Purchase and Redemption of Shares" and "Other Purchase
and Redemption Procedures" herein.)
In order to maintain a stable net asset value per share for each Class of $1.00,
the Fund's portfolio securities are valued at their amortized cost. Amortized
cost valuation involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium, except
that if fluctuating interest rates cause the market value of the Fund's
portfolio to deviate more than 1/2 of 1% from the value determined on the basis
of amortized cost, the Board of Trustees will consider whether any action should
be initiated to prevent any material dilative effect on investors. Although the
amortized cost method provides certainty in valuation, it may result in periods
during which the stated value of an instrument is higher or lower than the price
an investment company would receive if the instrument were sold. There is no
assurance that the Portfolios will maintain a stable net asset value per share
of $1.00.
GENERAL INFORMATION
The Fund was established as a Massachusetts business trust under the laws of
Massachusetts on January 20, 1994 and it is registered with the SEC as a
diversified, open-end management investment company.
The Fund prepares semi-annual unaudited and annual audited reports which include
a list of investment securities held by the Fund and which are sent to
shareholders.
Under Massachusetts law, trustees and shareholders of a business trust may, in
certain circumstances, be held personally liable for its obligations. The
Declaration of Trust of the Fund provides that no trustee or shareholder will be
personally liable for obligations of the Fund and that every written contract
made by the Fund must contain a provision to that effect. If any trustee or
shareholder were required to pay any liability of the Fund, that person would be
entitled to reimbursement from the general assets of the Fund.
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 and
copies thereof may be obtained upon payment of certain duplicating fees.
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 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
26
<PAGE>
year 2000. Based on information currently available, the Manager does not expect
that the Fund will incur material costs to be year 2000 compliant. Although the
Manager does not anticipate that the year 2000 Issue will have a material impact
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.
27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS INSTITUTIONAL
________________________________ DAILY
Table of Fees and Expenses......... INCOME
Financial Highlights............... FUND
Introduction.......................
Investment Objectives,
Policies and Risks..............
U.S. Treasury Portfolio....
Money Market Portfolio.....
Municipal Portfolio........
Risk Factors and Additional
Investment Information..........
Investment Restrictions............
Management of the Fund.............
Description of Shares.............. PROSPECTUS
How to Purchase and Redeem Shares.. August 1. 1998
Investments Through
Participating Organizations.....
Direct Purchase and
Redemption Procedures ..........
Initial Purchase of Shares.
Redemption of Shares.......
Exchange of Shares.........
Distribution and Service Plan......
Dividends, Distributions and Taxes.
Net Asset Value....................
General Information ...............
Year 2000 Issue ...................
Custodian and Transfer Agent.......
<PAGE>
- -------------------------------------------------------------------------------
PINNACLE SHARES OF
INSTITUTIONAL P.O. Box 260208
DAILY INCOME FUND Encino, CA 91426-0208
(818) 906-0881
===============================================================================
PROSPECTUS
August 1, 1998
The Institutional Daily Income Fund (the "Fund") is composed of the U.S.
Treasury Portfolio, the Money Market Portfolio and the Municipal Portfolio (each
a "Portfolio", collectively, the "Portfolios") designed to meet the short-term
investment needs of corporate and institutional investors ("Institutional
Investors"). There are no sales loads, exchange or redemption fees associated
with the Fund. This Prospectus relates exclusively to the Pinnacle Shares of the
Fund ("Pinnacle Shares").
Each Portfolio offers two classes of shares to the general public, however only
Class B shares are offered by this Prospectus. The Class A shares of the Fund
are subject to a service fee pursuant to the Fund's Rule 12-b1 Distribution and
Service Plan and are sold through financial intermediaries who provide servicing
to Class A shareholders for which they receive compensation from the Manager and
the Distributor. The Class B shares of the Fund are not subject to a service fee
and either are sold directly to Institutional Investors or are sold through
financial intermediaries that do not receive compensation from the Manager or
Distributor. In all other respects, the Class A and Class B shares represent the
same interest in the income and assets of the Fund. See "Description of Shares."
U.S. Treasury Portfolio - seeks to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity and
maintain a stable net asset value of $1 per share by investing solely in U.S.
Treasury obligations and in other obligations backed by the full faith and
credit of the United States government with maturities of 397 days or less and
repurchase agreements which are collateralized by such obligations calling for
resale in 397 days or less.
Money Market Portfolio - seeks to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity and
maintain a stable net asset value of $1 per share by investing in short-term
money market obligations with maturities of 397 days or less, including bank
certificates of deposit, time deposits, bankers' acceptances, high quality
commercial paper, securities issued or guaranteed by the United States
Government, its agencies or instrumentalities, and repurchase agreements calling
for resale in 397 days or less backed by the foregoing securities.
Municipal Portfolio - seeks to maximize current tax exempt income to the extent
consistent with the preservation of capital and the maintenance of liquidity and
maintain a stable net asset value of $1 per share by investing in a portfolio of
obligations issued by states, territories and possessions of the United States
and their political subdivisions, public authorities and other entities
authorized to issue debt, the interest on which is exempt from regular federal
income taxes. This Portfolio has not yet been activated and is not offered for
sale or distribution.
This Prospectus sets forth concisely the information about each Portfolio that
prospective investors should know before investing in the Fund. Additional
information about each Portfolio, including additional information concerning
risk factors relating to an investment in each Portfolio, has been filed with
the Securities and Exchange Commission (the "SEC") and is available upon request
and without charge by
<PAGE>
calling or writing the Fund at the above address. The "Statement of Additional
Information" bears the same date as this Prospectus and is incorporated by
reference into this Prospectus in its entirety. 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.
Reich & Tang Asset Management L.P. acts as Manager of the Fund and is a
registered investment adviser. Reich & Tang Distributors, Inc. acts as
Distributor of the Fund's shares and is a registered broker-dealer and member of
the National Association of Securities Dealers, Inc.
Investors should be aware that the Pinnacle Shares may not be purchased other
than through certain securities dealers with whom Cowles, Sabol & Co. has
entered into agreements for this purpose, directly from Cowles, Sabol & Co. or
through certain "Participating Organizations" (see "Investments Through
Participating Organizations") with whom they have accounts. Pinnacle Shares have
been created for the primary purpose of providing a short-term investment
product for customers of Cowles, Sabol & Co. Shares of the Fund other than the
Pinnacle Shares are offered pursuant to a separate prospectus.
MINIMUM INITIAL PURCHASE $1,000,000
An investment in the Fund is neither insured nor guaranteed by the United States
Government. Each Portfolio seeks to maintain an investment portfolio with a
dollar-weighted average maturity of 90 days or less, and to value its investment
portfolio at amortized cost and maintain a net asset value of $1.00 per share.
There can be no assurance that the Fund's objectives will be achieved or that
the Fund's stable net asset value of $1.00 per share can be maintained.
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.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF FEES AND EXPENSES
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Money U.S.
Market Treasury Municipal
Portfolio Portfolio Portfolio**
Class A Class B Class A Class B Class A Class B
Management Fees - After Fee Waiver * .08% .08% .08% .08% .08% .08%
12b-1 Fees .25% None .25% None .25% None
Other Expenses - After Reimbursement * .12% .12% .09% .09% .12% .12%
Administration Fees - After Fee Waiver* .02% .02% .02% .02% .00% .00%
---- ----- ---- ---- -----
Total Fund Operating Expenses - After Fee
Waivers and Reimbursements* .45% .20% .42% .17% .45% .20%
==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Money U.S.
Market Treasury Municipal
Portfolio Portfolio Portfolio**
Class A Class B Class A Class B Class A Class B
EXAMPLE
You would pay the following expenses on a $1,000
investment, assuming 5% annual return and
redemption at the end of each time period:
1 year $ 5 $ 2 $ 4 $ 2 $ 5 $ 2
3 years $14 $ 6 $13 $ 5 $14 $ 6
5 years $25 $11 $24 $10 $25 $11
10 years $57 $26 $53 $22 $57 $26
</TABLE>
The purpose of the above feetable is to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a further discussion of these fees see "Management of the Fund"
and "Distribution and Service Plan" herein. With respect to both the Class A
shares and the Class B shares, the Manager voluntarily waived a portion of the
Management and Administrative fees. Absent such waivers, Management and
Administration Fees for the Money Market Portfolio and U.S. Treasury Portfolio
would have been .12% and .05%, respectively, for both Class A and Class B
shares. Absent such fee waivers, Total Fund Operating Expenses for the Money
Market Portfolio for the Class A and Class B shares would have been .52% and
.27%, respectively. Absent such fee waivers, Total Fund Operating Expenses for
the U.S. Treasury Portfolio for the Class A and Class B shares would have been
.49% and .24%, respectively.
THE FIGURES REFLECTED IN THIS EXAMPLE SHOULD NOT BE CONSIDERED TO BE A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN ABOVE.
* Reimbursement applies only to Money Market Portfolio, waivers apply to both
Money Market and U.S. Treasury Portfolios.
** At this time, the Municipal Portfolio of the Fund has not yet been activated
by the Manager and expenses shown are at levels anticipated for the
current fiscal year.
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights of the Money Market Portfolio of
Institutional Daily Income Fund have been audited by McGladrey & Pullen, LLP,
Independent Certified Public Accountants, whose report thereon is incorporated
by reference in the Statement of Additional Information. The Money Market
Portfolio and the U.S. Treasury Portfolio were the only activated portfolios of
the Fund as of March 31, 1998.
<TABLE>
<CAPTION>
Money Market Portfolio
April 6, 1995
<S> <C> <C> <C>
CLASS A For the Year Ended March 31, (Commencement of Sales) to
1998 1997 March 31, 1996
---------- ---------- --------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period....... $ 1.00 $ 1.00 $ 1.00
---------- ---------- ----------
Income from investment operations:
Net investment income................... 0.053 0.050 0.054
Less distributions:
Dividends from net investment income.... ( 0.053) ( 0.050) ( 0.054)
--------- --------- ----------
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total Return............................... 5.38% 5.16% 5.58%*
Ratios/Supplemental Data
Net assets, end of period (000)............ $ 108,657 $ 38,220 $ 5
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+ 0.45% 0.42% 0.41%*
Net investment income................... 5.25% 5.07% 5.46%*
Expenses paid indirectly................ 0.00% 0.01% 0.04%
Management and administration fees waived 0.07% 0.09% 0.13%
Expenses reimbursed..................... 0.00% 0.00% 0.03%
</TABLE>
<TABLE>
<CAPTION>
Money Market Portfolio
April 14, 1994
<S> <C> <C> <C> <C>
CLASS B For the Year Ended March 31, (Commencement of Sales) to
1998 1997 1996 March 31, 1995
--------- --------- -------- --------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period....... $ 1.00 $ 1.00 $1.00 $1.00
--------- ---------------- ---------------- -----
Income from investment operations:
Net investment income................... 0.055 0.053 0.057 0.045
Less distributions:
Dividends from net investment income.... ( 0.055) ( 0.053) ( 0.057) ( 0.045)
-------- --------------- --------------- -----
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ================ ================ =====
Total Return............................... 5.64% 5.42% 5.85% 5.16%*
Ratios/Supplemental Data
Net assets, end of period (000)............ $ 227,893 $ 158,525 $ 127,282 $ 35,857
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+ 0.20% 0.17% 0.16% 0.02%*
Net investment income................... 5.50% 5.29% 5.64% 5.14%*
Expenses paid indirectly................ 0.00% 0.01% 0.04% 0.00%
Management and administration fees waived 0.07% 0.09% 0.13% 0.13%
Expenses reimbursed..................... 0.00% 0.00% 0.03% 0.25%
* Annualized
+ Includes expenses paid indirectly.
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights of the U.S. Treasury Portfolio of
Institutional Daily Income Fund have been audited by McGladrey & Pullen, LLP,
Independent Certified Public Accountants, whose report thereon is incorporated
by reference in the Statement of Additional Information. The Money Market
Portfolio and the U.S. Treasury Portfolio were the only activated portfolios of
the Fund as of March 31, 1998.
<TABLE>
<CAPTION>
U.S. Treasury Portfolio
<S> <C> <C> <C>
November 29, 1995
CLASS A For the Year Ended March 31, (Commencement of Operations) to
1998 1997 March 31, 1996
----------- ----------- --------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period....... $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------
Income from investment operations:
Net investment income................... 0.051 0.049 0.017
Less distributions:
Dividends from net investment income.... ( 0.051) ( 0.049) ( 0.017)
---------- ---------- ---------
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00
=========== =========== =========
Total Return............................... 5.24% 5.00% 5.18%*
Ratios/Supplemental Data
Net assets, end of period (000)............ $ 467,372 $ 310,290 $ 291,747
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+ 0.42% 0.42% 0.43%*
Net investment income................... 5.12% 4.89% 5.07%*
Expenses paid indirectly................ 0.00% 0.01% 0.00%
Management and administration fees waived 0.07% 0.05% 0.08%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
U.S. Treasury Portfolio
For the Year November 18, 1996
CLASS B Ended (Commencement of Sales) to
March 31, 1998 March 31, 1997
-------------- --------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period....... $ 1.00 $1.00
-------------------------------- -----
Income from investment operations:
Net investment income................... 0.054 0.019
Less distributions:
Dividends from net investment income.... ( 0.054) ( 0.019)
------------ ------------
Net asset value, end of period............. $ 1.00 $1.00
================================ =====
Total Return............................... 5.50% 5.27%*
Ratios/Supplemental Data
Net assets, end of period (000)............ $ 6,833 $ 7,799
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+ 0.17% 0.17%*
Net investment income................... 5.37% 5.14%*
Expenses paid indirectly................ 0.00% 0.01%*
Management and administration fees waived 0.07% 0.05%*
* Annualized
+ Includes expenses paid indirectly.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INTRODUCTION
Institutional Daily Income Fund (the "Fund") is a no-load, diversified, open-end
management investment company offering investors three managed portfolios of
money market instruments (the "Portfolios") together with a high degree of
liquidity. The net asset value of each Fund share is expected to remain constant
at $1.00, although this cannot be assured.
The investment objective of the Fund is, in accordance with the investment
policies of each of the Fund's Portfolios, to maximize current income to the
extent consistent with the preservation of capital and the maintenance of
liquidity. There is no assurance that the Fund will achieve its investment
objective. The investment objective of the Fund may not be changed without
shareholder approval.
The U.S. Treasury Portfolio attempts to achieve its objective through
investments limited to U.S. Treasury obligations and other obligations that are
issued or guaranteed by the U.S. Government and that are backed by the full
faith and credit of the United States with maturities of 397 days or less and
repurchase agreements backed by such obligations calling for resale in 397 days
or less. The Money Market Portfolio attempts to achieve its objective through
investment in short-term money market obligations with maturities of 397 days or
less, including bank certificates of deposit, time deposits, bankers'
acceptances, high quality commercial paper, securities issued or guaranteed by
the United States Government, its agencies or instrumentalities, and repurchase
agreements calling for resale in 397 days or less backed by the forgoing
securities. The Municipal Portfolio attempts to achieve its objective through
investment in a portfolio of obligations issued by states, territories and
possessions of the United States and political subdivisions, public authorities
and other entities authorized to issue debt, the interest on which is exempt
from regular federal income tax. Each Portfolio seeks to maintain an investment
portfolio with a dollar-weighted average maturity of 90 days or less, and to
value its investment portfolio at amortized cost and maintain a net asset value
of $1.00 per share. There can be no assurance that this value will be
maintained.
The Fund's investment manager is Reich & Tang Asset Management L.P. (the
"Manager"), which is a registered investment advisor and which currently acts as
manager or administrator to seventeen other open-end management investment
companies. (See "Management of the Fund" herein.) The Fund's shares are
distributed through Reich & Tang Distributors, Inc. (the "Distributor"), with
whom the Fund has entered into a Distribution Agreement and Shareholder
Servicing Agreement (with respect to Class A shares of the Fund only) pursuant
to the Fund's distribution and service plan adopted under Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"). (See "Distribution
and Service Plan" herein.)
On any day on which Investors Fiduciary Trust Company, the Fund's custodian (the
"Custodian") is open for trading ("Fund Business Day"), investors may, without
charge by the Fund, initiate purchases and redemptions of shares of the Fund's
common stock at their net asset value, which will be determined daily. (See "How
To Purchase and Redeem Shares" and "Net Asset Value" herein.) Dividends from
accumulated net income are declared by the Fund on each Fund Business Day. The
Fund pays interest dividends monthly on the last calendar day of the month or,
if the last calendar day of the month is not a Fund Business Day, on the
preceding Fund Business Day.
Net capital gains, if any, will be distributed at least annually, and in no
event later than within 60 days after the end of the Fund's fiscal year. All
dividends and distributions of capital gains are automatically invested in
additional shares of the same class of the Fund unless a shareholder has elected
by written notice to the Fund to receive either of such distributions in cash.
(See "Dividends, Distributions and Taxes" herein.)
The Fund currently has three Portfolios but only the Money Market Portfolio and
the U.S. Treasury Portfolio have been activated by the Manager. The Board of
Trustees of the Fund may in the future determine to establish additional
portfolios, each of which will be consistent with the investment objectives of
the Fund. Set forth below are the investment policies for each of the Fund's
current Portfolios. The investment policies for the Money
6
<PAGE>
Market Portfolio, as well as for any portfolios which the Board of Trustees may
determine to establish in the future, may be changed by the Board of Trustees of
the Fund without shareholder approval. The investment policies for the U.S.
Treasury Portfolio and the Municipal Portfolio may not be changed without
shareholder approval.
The Fund may from time to time advertise its current yield and effective yield
for each Portfolio (computed separately for each Class of shares). The Fund's
current yield is calculated by dividing its average daily net income per share
of each Portfolio (excluding realized gains or losses) for a recent seven-day
period by its constant net asset value per share of $1.00 and annualizing the
result on a 365-day basis. The Fund's effective yield is calculated by
increasing its current yield according to a formula that takes into account the
compounding effect of the reinvestment of dividends. The Class A shares of each
Portfolio will generally have a lower yield than the Class B shares due to the
expenses attributable to the Class A Shares which are not attributable to the
Class B shares, under the Fund's Distribution and Service Plan. Any fees charged
by a Participating Organization directly to a customer's account will not be
included in yield calculations. See "How to Purchase and Redeem Shares -
Investments through Participating Organizations."
An investment in the Portfolios of the Fund entails certain risks, including
risks associated with the purchase of when-issued securities, repurchase
agreements and with privately placed securities. With respect to the Money
Market Portfolio, certain risks are associated with the purchase of foreign
issues. Risk factors for each Portfolio are further described under "Risk
Factors and Additional Investment Information" herein.
Pinnacle Shares have been created for the primary purpose of providing a
short-term investment product for investors who purchase shares directly from
Cowles, Sabol & Co., through dealers with whom Cowles, Sabol & Co. has entered
into agreements for this purpose or through certain "Participating
Organizations" (see "Investments though Participating Organizations") with whom
they have accounts. Pinnacle Shares are identical to other shares of the Fund,
which are offered pursuant to a separate prospectus, with respect to investment
objectives and yield, but differ with respect to certain other matters.
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
U.S. Treasury Portfolio
The U.S. Treasury Portfolio seeks to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity
through investments limited to (i) U.S. Treasury obligations and other
obligations that are issued or guaranteed by the Government and that are backed
by the full faith and credit of the United States, provided that those
obligations have a remaining maturity of 397 days or less and (ii) repurchase
agreements backed by such, calling for resale in 397 days or less.
The investment policies of the U.S. Treasury Portfolio may produce a lower yield
than a policy of investing in other types of money market instruments. The yield
of the U.S. Treasury Portfolio is likely to be lower than the yield of the Money
Market Portfolio.
Permitted Investments:
United States Treasury Obligations: Obligations issued by the full faith and
credit of the United States. U.S. Treasury obligations include bills, notes and
bonds, which principally differ only in their interest rates, maturities and
time of issuance.
Other United States Government Obligations: Marketable securities and
instruments issued or guaranteed by the full faith and credit of the United
States Government. Such obligations that are guaranteed by the full faith and
credit of the United States Government include obligations of the Federal
Housing Administration, the Export-Import Bank of the United States, the Small
Business Administration, the Government National Mortgage Association, the
General Services Administration and the Maritime Administration.
Money Market Portfolio
The Money Market Portfolio seeks to maximize current income to the extent
consistent with the
7
<PAGE>
preservation of capital and the maintenance of liquidity through investments in
the securities described below, provided they have a remaining maturity of 397
days or less or are subject to a repurchase agreement calling for resale in 397
days or less. Investments in short-term instruments may, in some circumstances,
result in a lower yield than would be available from investments in instruments
with a longer term.
Permitted Investments:
United States Government Securities: Short-term obligations issued or guaranteed
by the United States Government, its agencies or instrumentalities. These
include issues of the United States Treasury, such as bills, certificates of
indebtedness, notes and bonds, and issues of agencies and instrumentalities
established under the authority of an act of Congress. Some of these securities
are supported by the full faith and credit of the United States Treasury, others
are supported by the right of the issuer to borrow from the Treasury, and still
others are supported only by the credit of the agency or instrumentality.
Although obligations of federal agencies and instrumentalities are not debts of
the United States Treasury, in some cases payment of interest and principal on
such obligations is guaranteed by the United States Government, e.g.,
obligations of the Federal Housing Administration, the Export-Import Bank of the
United States, the Small Business Administration, the Government National
Mortgage Association, the General Services Administration and the Maritime
Administration; in other cases payment of interest and principal is not
guaranteed, e.g., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank.
Domestic and Foreign Bank Obligations: Certificates of deposit, time deposits,
commercial paper, bankers' acceptances issued by domestic banks, foreign
branches of domestic banks, foreign subsidiaries of domestic banks, and domestic
and foreign branches of foreign banks and corporate instruments supported by
bank letters of credit. See "Risk Factors and Additional Investment Information"
herein. Certificates of deposit are certificates representing the obligation of
a bank to repay funds deposited with it for a specified period of time. Time
deposits are non-negotiable deposits maintained in a bank for a specified period
of time (in no event longer than seven days) at a stated interest rate. Time
deposits and certificates of deposit which may be held by the Portfolio will not
benefit from insurance from the Federal Deposit Insurance Corporation. Bankers'
acceptances are credit instruments evidencing the obligation of a bank to pay a
draft drawn on it by a customer. These instruments reflect the obligation both
of the bank and of the drawer to pay the face amount of the instrument upon
maturity. The Money Market Portfolio limits its investments in obligations of
domestic banks, foreign branches of domestic banks and foreign subsidiaries of
domestic banks to banks having total assets in excess of one billion dollars or
the equivalent in other currencies. The Money Market Portfolio limits its
investments in obligations of domestic and foreign branches of foreign banks to
dollar-denominated obligations of such banks which at the time of investment
have more than $5 billion, or the equivalent in other currencies, in total
assets and which are considered by the Fund's Board of Trustees to be First Tier
Eligible Securities (as defined below) at the time of acquisition. The Money
Market Portfolio generally limits investments in bank instruments to (a) those
which are fully insured as to principal by the FDIC or (b) those issued by banks
which at the date of their latest public reporting have total assets in excess
of $1.5 billion. However, the total assets of a bank will not be the sole factor
determining the Money Market Portfolio's investment decisions and the Money
Market Portfolio may invest in bank instruments issued by institutions which the
Board of Trustees believes present minimal credit risks.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
or foreign branches of foreign banks ("Eurodollar" obligations) and domestic
branches of foreign banks ("Yankee dollar" obligations). The Money Market
Portfolio will limit its aggregate investments in foreign bank obligations,
including Eurodollar obligations and Yankee dollar obligations, to 25% of its
total assets at the time of purchase, provided that there is no limitation on
the Money Market Portfolio investments in (a) Eurodollar obligations, if the
8
<PAGE>
domestic parent of the foreign branch issuing the obligations is unconditionally
liable in the event that the foreign branch fails to pay on the Eurodollar
obligation for any reason; and (b) Yankee dollar obligations, if the U.S. branch
of the foreign bank is subject to the same regulation as U.S. banks. Eurodollar,
Yankee dollar and other foreign bank obligations include time deposits, which
are non-negotiable deposits maintained in a bank for a specified period of time
at a stated interest rate. The Money Market Portfolio will limit its purchases
of time deposits to those which mature in seven days or less, and will limit its
purchases of time deposits maturing in two to seven days to 10% of such Fund's
total assets at the time of purchase.
Eurodollar and other foreign obligations involve special investment risks,
including the possibility that liquidity could be impaired because of future
political and economic developments, that the obligations may be less marketable
than comparable domestic obligations of domestic issuers, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that deposits may be seized or nationalized, that foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on those obligations,
that the selection of foreign obligations may be more difficult because there
may be less information publicly available concerning foreign issuers, that
there may be difficulties in enforcing a judgment against a foreign issuer or
that the accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign issuers may differ from those applicable to
domestic issuers. In addition, foreign banks are not subject to examination by
United States Government agencies or instrumentalities.
Since the Money Market Portfolio may contain securities issued by foreign
governments, or any of their political subdivisions, agencies or
instrumentalities, and by foreign branches of domestic banks, foreign
subsidiaries of domestic banks, domestic and foreign branches of foreign banks,
and commercial paper issued by foreign issuers, the Money Market Portfolio may
be subject to additional investment risks with respect to those securities that
are different in some respects from those incurred by a fund which invests only
in debt obligations of the United States and domestic issuers, although such
obligations may be higher yielding when compared to the securities of the United
States and domestic issuers. In making foreign investments, therefore, the Money
Market Portfolio will give appropriate consideration to the following factors,
among others.
Foreign securities markets generally are not as developed or efficient as those
in the United States. Securities of some foreign issuers are less liquid and
more volatile than securities of comparable United States issuers. Similarly,
volume and liquidity in most foreign securities markets are less than in the
United States and, at times, volatility of price can be greater than in the
United States. The issuers of some of these securities, such as bank
obligations, may be subject to less stringent or different regulation than are
United States issuers. In addition, there may be less publicly available
information about a non-United States issuer and non-United States issuers
generally are not subject to uniform accounting and financial reporting
standards, practices and requirements comparable to those applicable to United
States issuers.
Because evidences of ownership of such securities usually are held outside the
United States, the Money Market Portfolio will be subject to additional risks
which include possible adverse political and economic developments, possible
seizure or nationalization of foreign deposits and possible adoption of
governmental restrictions which might adversely affect the payment of principal
and interest on the foreign securities or might restrict the payment of
principal and interest to the issuer, whether from currency blockage or
otherwise.
Furthermore, some of these securities may be subject to stamp or other excise
taxes levied by foreign governments, which have the effect of increasing the
cost of such securities and reducing the realized gain or increasing the
realized loss on such securities at the time of sale. Income earned or received
by the Money Market Portfolio from sources within foreign countries may be
reduced by withholding and other taxes imposed by such countries. Tax
conventions between certain
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countries and the United States, however, may reduce or eliminate such taxes.
The Manager will attempt to minimize such taxes by the timing of transactions
and other strategies, but there can be no assurance that such efforts will be
successful. All such taxes paid by the Money Market Portfolio will reduce its
net income available for distribution to shareholders. The Manager will consider
available yields, net of any required taxes, in selecting foreign securities.
Variable Amount Master Demand Notes: unsecured demand notes that permit
investment of fluctuating amounts of money at variable rates of interest
pursuant to arrangements with issuers who meet the foregoing quality criteria.
The interest rate on a variable amount master demand note is periodically
redetermined according to a prescribed formula. Although there is no secondary
market in master demand notes, the payee may demand payment of the principal and
interest upon notice not exceeding five business or seven calendar days.
Commercial Paper and Certain Debt Obligations: commercial paper or short-term
debt obligations that have been determined by the Fund's Board of Trustees to
present minimal credit risks and that are First Tier Eligible Securities (as
defined below) at the time of acquisition, so that the Money Market Portfolio is
able to employ the amortized cost method of valuation. Commercial paper
generally consists of short-term unsecured promissory notes issued by
corporations, banks or other borrowers.
The Money Market Portfolio may only purchase securities that have been
determined by the Fund's Board of Trustees to present minimal credit risks and
that are First Tier Eligible Securities at the time of acquisition. The term
First Tier Eligible Security means (i) a security that has a remaining maturity
of 397 days or less and is a rated security that has received that received a
short-term rating from any two nationally recognized statistical rating
organizations ("NRSROs") or in such categories by the only NRSRO that has rated
the Municipal Obligations (collectively, the "Requisite NRSROs") (acquistion in
the latter situation must also be ratified by the Board of Directors) in the
highest short-term rating category for debt obligations ; (ii) a security that
has a remaining maturity of 397 days or less and is an unrated security that is,
as determined by the Fund's Board of Directors, to be of comparable quality;
(iii) a security otherwise meeting the requirements set forth in clauses (i) or
(ii) and having a Guarantee (as such term is defined in Rule 2a-7 of the 1940
Act) which has received a rating from the Requisite NRSROs in the highest
short-term rating category for debt obligations; (iv) is security issued by a
registered investment company that is a money market fund; or (v) is a
government security. Where the issuer of a long-term security with a remaining
maturity which would otherwise qualify it as a First Tier Eligible Security does
not have rated short-term debt outstanding, the long-term security is treated as
unrated but may not be purchased if it has a long-term rating from any NRSRO
that is below the three highest long-term categories. A determination of
comparability by the Board of Trustees is made on the basis of its credit
evaluation of the issuer, which may include an evaluation of a letter of credit,
guarantee, insurance or other credit facility issued in support of the
securities. While there are several organizations that currently qualify as
NRSROs, two examples of NRSROs are Standard & Poor's Rating Services, a division
of the McGraw-Hill Companies ("S&P") and Moody's Investors Service, Inc.
("Moody's"). The two highest ratings by Moody's for debt securities are "Aaa"
and "Aa" or by S&P are "AAA" and "AA". The highest rating for domestic and
foreign commercial paper is "Prime-1" by Moody's or "A-1" by S&P and "SP-1/AA"
by S&P or "VMIG-1" and "VMIG-2" by Moody's in the case of variable and floating
rate demand notes. (See "Description of Ratings" in the Statement of Additional
Information.)
Subsequent to its purchase by the Portfolio, the quality of an investment may
cease to be rated or its rating may be reduced so that it ceases to be a First
Tier Eligible Security. If this occurs, the Board of Trustees of the Fund shall
reassess promptly whether the security presents minimal credit risks and shall
cause the Portfolio to take such action as the Board of Trustees determines is
in the best
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interest of the Portfolio and its shareholders. However, reassessment is not
required if the security is disposed of or matures within five business days of
the Manager becoming aware of the new rating and provided further that the Board
of Trustees is subsequently notified of the Manager's actions.
In addition, in the event that a security (1) is in default, (2) ceases to be an
eligible investment under Rule 2a-7 or (3) is determined to no longer present
minimal credit risks, or an event of insolvency occurs with respect to the
issuer of a portfolio security or the provider of any Demand Feature or
Guarantee (as such terms are defined in Rule 2a-7 of the 1940 Act), the
Portfolio will dispose of the security absent a determination by the Fund's
Board of Trustees that disposal of the security would not be in the best
interest of the Portfolio. In the event that the security is disposed of, such
disposal shall occur as soon as practicable, consistent with achieving an
orderly disposition by sale, exercise of any demand feature, or otherwise. In
the event of a default with respect to a security which immediately before
default accounted for 1/2 of 1% or more of the Portfolio's total assets, the
Fund shall promptly notify the Securities and Exchange Commission of such fact
and of the actions that the Fund intends to take in response to the situation.
The Money Market Portfolio may enter into repurchase agreements providing for
resale in 397 days or less covering any of the foregoing securities which may
have maturities in excess of 397 days, provided that the instruments serving as
collateral for the agreements are eligible for inclusion in the Money Market
Portfolio.
Municipal Portfolio
The Municipal Portfolio seeks to provide as high a level of current income that
is exempt from regular federal income taxes as is consistent with the
preservation of capital and maintenance of liquidity by investing at least 80%
of its assets in a diversified portfolio of high quality, short-term municipal
obligations the interest income from which is exempt from regular federal income
taxes ("Municipal Securities"). Although the Supreme Court has determined that
Congress has the authority to subject the interest on bonds such as the
Municipal Securities to federal income taxation, existing law excludes such
interest from federal income tax. Securities, the interest income on which may
be subject to the federal alternative minimum tax (including participation
certificates in such securities), may be purchased by the Fund without limit
"exempt-interest dividends" may be subject to the federal alternative minimum
tax. Securities, the interest income on which is subject to regular federal,
state and local income tax, will not exceed 20% of the value of the Fund's total
assets. (See "Dividends, Distributions and Taxes" herein.)
Permitted Investments:
Municipal Securities: Obligations which include debt obligations issued to
obtain funds for various public purposes, including the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
obtaining of funds for general operating expenses and lending such funds to
other public institutions and facilities. In addition, certain types of private
activity bonds or industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide for the construction, equipment,
repair or improvement of privately operated facilities. Such obligations are
considered to be Municipal Securities provided that the interest paid thereon
generally qualifies as exempt from regular federal income tax in the opinion of
bond counsel. However, interest on certain Municipal Securities may give rise to
federal alternative minimum tax liability and may have other collateral federal
income tax consequences.
The Municipal Portfolio may only purchase Municipal Securities that have been
determined by the Fund's Board of Trustees to present minimal credit risks and
that are First Tier Eligible Securities at the time of acquisition. The term
First Tier Eligible Security means (i) a security that has a remaining maturity
of 397 days or less and is a rated security that has received that received a
short-term rating from any two nationally recognized statistical rating
organizations ("NRSROs") or in such categories by the only
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<PAGE>
NRSRO that has rated the Municipal Obligations (collectively, the "Requisite
NRSROs") (acquistion in the latter situation must also be ratified by the Board
of Directors) in the highest short-term rating category for debt obligations ;
(ii) a security that has a remaining maturity of 397 days or less and is an
unrated security that is, as determined by the Fund's Board of Directors, to be
of comparable quality; (iii) a security otherwise meeting the requirements set
forth in clauses (i) or (ii) and having a Guarantee (as such term is defined in
Rule 2a-7 of the 1940 Act) which has received a rating from the Requisite NRSROs
in the highest short-term rating category for debt obligations; (iv) is security
issued by a registered investment company that is a money market fund; or (v) is
a government security. Where the issuer of a long-term security with a remaining
maturity which would otherwise qualify it as a First Tier Eligible Security does
not have rated short-term debt outstanding, the long-term security is treated as
unrated but may not be purchased if it has a long-term rating from any NRSRO
that is below the three highest long-term rating categories. A determination of
comparability by the Board of Trustees is made on the basis of its credit
evaluation of the issuer, which may include an evaluation of a letter of credit,
guarantee, insurance or other credit facility issued in support of the Municipal
Securities. The two highest ratings by Moody's for debt securities are "Aaa" and
"Aa" or by S&P are "AAA" and "AA". The highest rating for domestic and foreign
commercial paper is "Prime-1" by Moody's and "A-1" by S&P and "SP-1/AA" by S&P
or "VMIG-1" and "VMIG-2" by Moody's in the case of variable and floating rate
demand notes. (See "Description of Ratings" in the Statement of Additional
Information.)
Subsequent to its purchase by the Portfolio, the quality of an investment may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Portfolio. If this occurs, the Board of Trustees of the Fund
shall reassess whether the security presents minimal credit risks and shall
cause the Portfolio to take such action as the Board of Trustees determines is
in the best interest of the Portfolio and its shareholders. However,
reassessment is not required if the security is disposed of or matures within
five business days of the Manager becoming aware of the new rating and provided
further that the Board of Trustees is subsequently notified of the Manager's
actions.
In addition, in the event that a security (1) is in default, (2) ceases to be an
eligible investment under Rule 2a-7 or (3) is determined to no longer present
minimal credit risks, or an event of insolvency occurs with respect to the
issuer of a portfolio security or the provider of any Demand Feature or
Guarantee (as such terms are defined in Rule 2a-7 of the 1940 Act), the
Portfolio will dispose of the security absent a determination by the Fund's
Board of Trustees that disposal of the security would not be in the best
interest of the Portfolio. In the event that the security is disposed of, such
disposal shall occur as soon as practicable, consistent with achieving an
orderly disposition by sale, exercise of any demand feature, or otherwise. In
the event of a default with respect to a security which immediately before
default accounted for 1/2 of 1% or more of the Portfolio's total assets, the
Fund shall promptly notify the Securities and Exchange Commission of such fact
and of the actions that the Fund intends to take in response to the situation.
All investments by the Fund will mature or will be deemed to mature in 397 days
or less from the date of acquisition.
The Municipal Portfolio also may purchase any Municipal Securities which depend
on the credit of the United States Government and may invest in Municipal
Securities which are not rated if, in the opinion of the Board of Trustees, such
securities possess creditworthiness comparable to those rated obligations in
which the Municipal Portfolio may invest. The Municipal Portfolio may, from time
to time, on a temporary or defensive basis, invest in short-term, high quality
United States Government Obligations, money market obligations and repurchase
agreements. Income from any such temporary investments would be taxable to
shareholders as ordinary income. It is the present policy of the Municipal
Portfolio to invest only in
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<PAGE>
securities the interest on which is tax-exempt. This Portfolio will endeavor to
be invested at all times in Municipal Securities. It is a fundamental policy of
the Municipal Portfolio that its assets will be invested so that at least 80% of
its income will be exempt from regular federal income taxes. The Municipal
Portfolio may from time to time hold cash reserves.
RISK FACTORS AND ADDITIONAL
INVESTMENT INFORMATION
When-Issued and Delayed Delivery Securities
Each of the Portfolios may purchase securities on a when-issued or delayed
delivery basis. Delayed delivery agreements are commitments by any of the
Portfolios to dealers or issuers to acquire securities beyond the customary
same-day settlement for money market instruments. These commitments fix the
payment price and interest rate to be received on the investment. Delayed
delivery agreements will not be used as a speculative or leverage technique.
Rather, from time to time, the Portfolio's investment advisor can anticipate
that cash for investment purposes will result from scheduled maturities of
existing portfolio instruments or from net sales of shares of a Portfolio;
therefore, to assure that a Portfolio will be as fully invested as possible in
instruments meeting that Portfolio's investment objective, a Portfolio may enter
into delayed delivery agreements, but only to the extent of anticipated funds
available for investment during a period of not more than five business days.
Money Market Obligations and Municipal Securities are sometimes offered on a
"when-issued" basis, that is, the date for delivery of and payment for the
securities is not fixed at the date of purchase, but is set after the securities
are issued (normally within forty-five days after the date of the transaction).
The payment obligation and the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A
Portfolio will only make commitments to purchase such Money Market Instruments
or Municipal Securities with the intention of actually acquiring such
securities, but a Portfolio may sell these securities before the settlement date
if it is deemed advisable.
If a Portfolio enters into a delayed delivery agreement or purchases a
when-issued security, that Portfolio will direct the custodian to place cash or
other high grade securities (including Money Market Obligations and Municipal
Securities) in a separate account of such Fund in an amount equal to its delayed
delivery agreements or when-issued commitments. If the market value of such
securities declines, additional cash or securities will be placed in the account
on a daily basis so that the market value of the account will equal the amount
of such Portfolio's delayed delivery agreements and when-issued commitments. To
the extent that funds are in a separate account, they will not be available for
new investment or to meet redemptions. Investment in securities on a when-issued
basis and use of delayed agreements may increase a Portfolio's exposure to
market fluctuation; may increase the possibility that the Portfolio will incur a
short-term gain subject to federal taxation; or may increase the possibility
that a Portfolio will incur a short-term loss, if the Portfolio must engage in
portfolio transactions in order to honor a when-issued commitment or accept
delivery of a security under a delayed delivery agreement. The Portfolios will
employ techniques designed to minimize these risks.
No additional delayed delivery agreements or when-issued commitments will be
made if more than 25% of a Portfolio's net assets would become so committed. The
Portfolios will enter into when-issued and delayed delivery transactions only
when the time period between trade date and settlement date is at least 30 days
and not more than 120 days.
Repurchase Agreements
When a Portfolio purchases securities, it may enter into a repurchase agreement
with the seller wherein the seller agrees, at the time of sale, to repurchase
the security at a mutually agreed upon time and price, thereby determining the
yield during the purchaser's holding period. This arrangement results in a fixed
rate of return insulated from market fluctuations during such period. The U.S.
Treasury Portfolio may only enter into repurchase agreements which are
collateralized by obligations
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issued or guaranteed by the U.S. Government. The Money Market Portfolio and the
Municipal Portfolio may enter into repurchase agreements with member banks of
the Federal Reserve System and with broker-dealers who are recognized as primary
dealers in United States government securities by the Federal Reserve Bank of
New York whose creditworthiness has been reviewed and found to meet the
investment criteria of the Portfolio. Although the securities subject to the
repurchase agreement might bear maturities exceeding 397 days, settlement for
the repurchase would never be more than one year after the Portfolio's
acquisition of the securities and normally would be within a shorter period of
time. The resale price will be in excess of the purchase price, reflecting an
agreed upon market rate effective for the period of time the Portfolio's money
will be invested in the security, and will not be related to the coupon rate of
the purchased security. At the time a Portfolio enters into a repurchase
agreement the value of the underlying security, including accrued interest, will
be equal to or exceed the value of the repurchase agreement and, in the case of
a repurchase agreement exceeding one day, the seller will agree that the value
of the underlying security, including accrued interest, will at all times be
equal to or exceed the value of the repurchase agreement. Each Portfolio may
engage in a repurchase agreement with respect to any security in which that
Portfolio is authorized to invest, even though the underlying security may
mature in more than one year. The collateral securing the seller's obligation
must be of a credit quality at least equal to the Portfolio's investment
criteria for Portfolio securities and will be held by the Portfolio's custodian
or in the Federal Reserve Book Entry System. Nevertheless, if the seller of a
repurchase agreement fails to repurchase the obligation in accordance with the
terms of the agreement, the Portfolio which entered into the repurchase
agreement may incur a loss to the extent that the proceeds it realized on the
sale of the underlying obligation are less than the repurchase price. Repurchase
agreements may be considered loans to the seller of the underlying security.
Income with respect to repurchase agreements is not tax-exempt. If bankruptcy
proceedings are commenced with respect to the seller, the Portfolio's
realization upon the collateral may be delayed or limited. Each Portfolio may
invest no more than 10% of its net assets in illiquid securities including
repurchase agreements maturing in more than seven days. See "Investment
Restrictions" herein. A Portfolio may, however, enter into "continuing contract"
or "open" repurchase agreements under which the seller is under a continuing
obligation to repurchase the underlying obligation from the Portfolio on demand
and the effective interest rate is negotiated on a daily basis.
Securities purchased pursuant to a repurchase agreement are held by the Fund's
custodian and (i) are recorded in the name of the Portfolio with the Federal
Reserve Book Entry System or (ii) the Portfolio receives daily written
confirmation of each purchase of a security and a receipt from the custodian.
The Portfolios purchase securities subject to a repurchase agreement only when
the purchase price of the security acquired is equal to or less than its market
price at the time of purchase.
Puts for the Municipal Portfolio
The Municipal Portfolio may purchase municipal bonds or notes with the right to
resell them at an agreed price or yield within a specified period prior to
maturity to facilitate portfolio liquidity. This right to resell is known as a
"put." The Municipal Portfolio may also acquire a "Stand-by Commitment" when it
purchases municipal bonds or notes, which is essentially equivalent to a "put"
option. A Stand-by Commitment is a right of the Municipal Portfolio, when it
purchases Municipal Securities for its portfolio from a broker, dealer or other
financial institution, to sell the same principal amount of such securities back
to the seller, at the Municipal Portfolio's option, at a specified price. The
aggregate price paid for securities with puts may be higher than the price which
otherwise would be paid. Consistent with the investment objectives of this
Portfolio and subject to the supervision of the Trustees, the purpose of this
practice is to permit the Portfolio to be fully invested in tax exempt
securities while maintaining the necessary liquidity to purchase securities on a
when-issued basis, to meet unusually large redemptions and to purchase
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<PAGE>
at a later date securities other than those subject to the put. The acquisition
or exercisibility of a Stand-by Commitment by the Municipal Portfolio will not
affect the valuation of the average weighted maturity of its underlying
portfolio securities. The principal risk of puts is that the put writer may
default on its obligation to repurchase. The Manager will monitor each writer's
ability to meet its obligations under puts. See "Investment Restrictions" and
"Tax Status" in the Statement of Additional Information.
The amortized cost method is used by the Money Market Portfolio and the
Municipal Portfolio to value any municipal securities; no value is assigned to
any puts on such municipal securities. The cost of any such put is carried as an
unrealized loss from the time of purchase until it is exercised or expires.
Privately Placed Securities
The Money Market Portfolio and the Municipal Portfolio may invest in securities
issued as part of privately negotiated transactions between an issuer and one or
more purchasers. Except with respect to certain commercial paper issued in
reliance on the exemption from regulations in Section 4(2) of the Securities Act
of 1933 (the "Securities Act") and securities subject to Rule 144A of the
Securities Act which are discussed below, these securities are typically not
readily marketable and are therefore considered illiquid securities. The price
these Portfolios pay for illiquid securities, and any price received upon
resale, may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly, the valuation of privately placed securities
purchased by a Portfolio will reflect any limitations on their liquidity. As a
matter of policy, a Portfolio will not invest more than 10% of the market value
of the net assets of the Portfolio in repurchase agreements maturing in over
seven days and other illiquid investments.
These Portfolios may purchase securities that are not registered ("restricted
securities") under the Securities Act, but can be offered and sold to "qualified
institutional buyers" under Rule 144A of the Securities Act. These Portfolios
may also purchase certain commercial paper issued in reliance on the exemption
from regulations in Section 4(2) of the Securities Act ("4(2) Paper"). However,
a Portfolio will not invest more than 10% of its net assets in illiquid
investments, which include securities for which there is no readily available
market, securities subject to contractual restriction on resale, certain
investments in asset-backed and receivable-backed securities and restricted
securities (unless, with respect to these securities and 4(2) Paper, the Fund's
Trustees continuously determine, based on the trading markets for the specific
restricted security, that it is liquid). The Trustees may adopt guidelines and
delegate to the Manager the daily function of determining and monitoring
liquidity of restricted securities and 4(2) Paper. The Trustees, however, will
retain sufficient oversight and be ultimately responsible for these
determinations.
Since it is not possible to predict with assurance exactly how this market for
restricted securities sold and offered under Rule 144A will develop, the
Trustees will carefully monitor the Portfolios' investments in these securities,
focusing on such factors, among others, as valuation, liquidity and availability
of information. This investment practice could have the effect of increasing the
level of illiquidity in a Portfolio to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities.
INVESTMENT RESTRICTIONS
The Fund operates under the following investment restrictions which, together
with the investment objective of the Fund, may not be changed without
shareholder approval and which apply to each of the Portfolios.
The Fund may not:
a) invest more than 5% of the total market value of any Portfolio's assets
(determined at the time of the proposed investment and giving effect
thereto) in the securities of any one issuer other than the United States
Government, its agencies or instrumentalities;
b) with respect to the U.S. Treasury Portfolio and the Money Market Portfolio,
invest more than 25% of the value of the Portfolio's total assets in
securities of companies in the same industry
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<PAGE>
(excluding United States government securities and, as to the Money Market
Portfolio only, certificates of deposit and bankers' acceptances of
domestic banks) and, with respect to the Municipal Portfolio, purchase (i)
pollution control and industrial revenue bonds or (ii) securities
which are not Municipal Obligations if in either case the purchase
would cause more than 25% of the value of the Portfolio's total assets to
to be invested in companies in the same industry (for the purpose of this
this restriction wholly-owned finance companies are considered to be in
the industry of their parents if their activities are similarly related
to financing the activities of their parents);
c) acquire securities that are not readily marketable or repurchase agreements
calling for resale within more than seven days if, as a result thereof, more
than 10% of the value of its net assets would be invested in such illiquid
securities;
d) with respect to 75% of the value of a Portfolio's total assets, the Fund may
not invest more than 10% of a Portfolio's assets in securities that are
subject to underlying puts from the same institution, and no single bank
shall issue its letter of credit and no single financial institution shall
issue a credit enhancement covering more than 10% of the total assets of the
Fund. However, the Portfolio may only invest more that 10% of its assets in
securities subject to puts from the same institution if such puts are issued
by a non-controlled person (as defined in the 1940 Act);
e) make loans, except that the Fund may purchase for a Portfolio the debt
securities described above under "Investment Objectives, Policies and Risks"
and may enter into repurchase agreements as therein described;
f) borrow money, unless (i) the borrowing does not exceed 10% of the total
market value of the assets of the Portfolio with respect to which the
borrowing is made (determined at the time of borrowing but without giving
effect thereto) and the money is borrowed from one or more banks as a
temporary measure for extraordinary or emergency purposes or to meet
unexpectedly heavy redemption requests and furthermore each Portfolio will
not make additional investments when borrowings exceed 5% of the Portfolio's
net assets or (ii) with respect to the U.S. Treasury Portfolio, otherwise
provided herein and permissible under the 1940 Act; and
g) pledge, mortgage, assign or encumber any of a Portfolio's assets except to
the extent necessary to secure a borrowing permitted by clause (d) made with
respect to a Portfolio.
MANAGEMENT OF THE FUND
Management and Investment
Management Contract
The Fund's Board of Trustees, which is responsible for the overall management
and supervision of the Fund, has employed the Manager to serve as the investment
manager of the Fund under an Investment Management Contract. The Manager
provides persons satisfactory to the Fund's Board of Trustees to serve as
officers of the Fund. Such officers, as well as certain other employees and
Trustees of the Fund, may be officers of the Manager, the sole general partner
of the Manager or employees of the Manager or its affiliates. Due to the
services performed by the Manager, the Fund currently has no employees and its
officers are not required to devote full-time to the affairs of the Fund. The
Statement of Additional Information contains general background information
regarding each Trustee and principal officer of the Fund.
The Manager is a Delaware limited partnership and a registered investment
advisor, under the 1940 Act, with its principal office at 600 Fifth Avenue, New
York, New York 10020.
The Manager, as of June 30, 1998, was investment manager, advisor or supervisor
with respect to assets aggregating in excess of $11.3 billion. The Manager acts
as manager or administrator of seventeen other registered investment companies
and also advises pension trusts, profit-sharing trusts and endowments.
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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, replaced
NEICOP as the limited partner and owner of a 99.5% interest in the Manager.
Reich & Tang Asset Management, Inc. (a 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.
Nvest 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 unites, 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.
The name change 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.
The Investment Management Contract has a term which extends to March 31, 1999
and may be continued in force thereafter for successive twelve-month periods
beginning each April 1, provided that such majority vote of the Fund's
outstanding voting securities or by a majority of the directors who are not
parties to the Investment Management Contract or interested persons of any such
party, by votes cast in person at a meeting called for the purpose of voting on
such matter.
Pursuant to the Investment Management Contract for each Portfolio, the Manager
manages each Portfolio's portfolio of securities and makes the decisions with
respect to the purchase and sale of investments, subject to the general control
of the Board of Trustees of the Fund.
Under the Investment Management Contract each of the Portfolios will pay an
annual management fee of .12% of such Portfolio's average daily net assets. The
management fees are accrued daily and paid monthly. The Manager, at its
discretion may voluntarily waive all or a portion of the Management Fee.
Pursuant to an Administrative Services Agreement for each Portfolio, 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 administrative 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 Agreement, the
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Manager receives an annual fee of .05% of each Portfolio's average daily net
assets. Any portion of the total fees received by the Manager and its past
profits may be used to provide shareholder services and for distribution of Fund
shares. (See "Distribution and Service Plan" herein.) The fees are accrued daily
and paid monthly.
In addition, the Distributor receives a servicing fee equal to .25% per annum of
the average daily net assets of the Class A shares (the "Shareholder Servicing
Fee") of the Fund under the Shareholder Servicing Agreement. The fees are
accrued daily and paid monthly. Investment management fees and operating
expenses, which are attributable to both Classes of shares of the Fund, will be
allocated daily to each Class of shares based on the percentage of shares
outstanding for each Class at the end of the day.
DESCRIPTION OF SHARES
The Fund was established as a Massachusetts Business Trust under the laws of
Massachusetts by an Agreement and Declaration of Trust dated January 20, 1994.
The Fund has an unlimited authorized number of shares of beneficial interest.
These shares are entitled to one vote per share with proportional voting for
fractional shares. There are no conversion or preemptive rights in connection
with any shares of the Fund. All shares when issued in accordance with the terms
of the offering will be fully paid and non-assessable. Shares of the Fund are
redeemable at net asset value, at the option of the shareholders. As of June 30,
1998 the amount of shares owned by all officers and trustees of the Fund, as a
group, was less than 1% of the outstanding shares.
Each Portfolio of the Fund is subdivided into two classes of shares of
beneficial interest, Class A and Class B. Each share, regardless of Class, will
represent an interest in the same portfolio of investments and will have
identical voting, dividend, liquidation and other rights, preferences, powers,
restrictions, limitations, qualifications, designations and terms and
conditions, except that: (i) the Class A and Class B shares will have different
class designations; (ii) only the Class A shares will be assessed a Shareholder
Servicing Fee of .25% of the average daily net assets of the Class A shares of
the Fund pursuant to the Rule 12b-1 Distribution and Service Plan of the Fund;
(iii) only the holders of the Class A shares will be entitled to vote on matters
pertaining to the Plan and any related agreements in accordance with provisions
of Rule 12b-1; and (iv) the exchange privilege will permit shareholders to
exchange their shares only for shares of the same class of any other Portfolio
of the Fund. Payments that are made under the Plans will be calculated and
charged daily to the appropriate Class prior to determining daily net asset
value per share and dividends/distributions.
Generally, all shares will be voted in the aggregate, except if voting by Class
is required by law or the matter involved affects only one Class, in which case
shares will be voted separately by Class. The shares of the Fund have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares outstanding voting for the election of trustees can elect 100% of the
trustees if the holders choose to do so, and, in that event, the holders of the
remaining shares will not be able to elect any person or persons to the Board of
Trustees. The Fund's By-laws provide the holders of a majority 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.
Pinnacle Shares have been created for the primary purpose of providing a
short-term investment product for investors who purchase shares directly from
Cowles, Sabol & Co., though dealers with whom Cowles, Sabol & Co. has entered
into agreements for this purpose or though certain "Participating Organizations"
(see "Investments though Participating Organizations") with whom they have
accounts. Pinnacle Shares are identical to other shares of the Fund, which are
offered pursuant to a separate prospectus, with respect to investment objectives
and yield, but differ with respect to certain other matters.
HOW TO PURCHASE AND REDEEM
PINNACLE SHARES
Investors may invest in Pinnacle Shares through Cowles, Sabol & Co. or through
dealers with whom
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Cowles, Sabol & Co. has entered into agreements for this purpose as described
herein and those who have accounts with Participating Organizations may invest
in Pinnacle Shares through their Participating Organization in accordance with
the procedures established by the Participating Organizations. An investor who
purchases Pinnacle Shares through a Participating Organization that receives
payment from the Manager or the Distributor will become a Class B shareholder.
(See "Investments Through Participating Organizations" herein.) All other
investors, and investors who have accounts with Participating Organizations but
who do not wish to invest in the Fund through their Participating Organizations,
may invest in the Fund directly as Class B shareholders of the Fund and not
receive the benefit of the servicing functions performed by a Participating
Organization. Class B shares may also be offered to investors who purchase their
shares through Participating Organizations who do not receive compensation from
the Distributor or the Manager because they may not be legally permitted to
receive such as fiduciaries. The Manager pays the expenses incurred in the
distribution of Class B shares. Participating Organizations whose clients become
Class B shareholders will not receive compensation from the Manager or
Distributor for the servicing they may provide to their clients. (See "Direct
Purchase and Redemption Procedures" herein.) With respect to both Classes of
shares, the minimum initial investment in the Fund with respect to each
Portfolio is $1,000,000. The minimum amount for subsequent investments is
$10,000 for all shareholders.
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a sales charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent which
accepts orders for purchases and redemptions from the Distributor and from
shareholders directly.
In order to maximize earnings on its Portfolios, the Fund normally has its
assets as fully invested as is practicable. Many securities in which the Fund
invests require immediate settlement in funds of Federal Reserve member banks on
deposit at a Federal Reserve bank (commonly known as "Federal Funds").
Accordingly, the Fund does not accept a subscription or invest an investor's
payment in portfolio securities until the payment has been converted into
Federal Funds.
Shares will be issued as of the first determination of the Fund's net asset
value per share for each Class made after acceptance of the investor's purchase
order. An investor's funds will not be invested by the Fund during the period
before the Fund's receipt of Federal Funds and its issuance of Fund shares. The
Fund reserves the right to reject any purchase order to its shares.
Shares are issued as of 2:30 p.m., New York City time, on any Fund Business Day,
as defined herein, on which an order for the shares and accompanying Federal
Funds are received by the Fund's transfer agent before 2:30 p.m., New York City
time. Orders accompanied by Federal Funds and received after 2:30 p.m., New York
City time on a Fund Business Day will not result in share issuance until the
following Fund Business Day. Fund shares begin accruing income on the day the
shares are issued to an investor.
There is no redemption charge, no minimum period of investment and no
restriction on frequency of withdrawals. Proceeds of redemptions are paid by
check or bank wire. Unless other instructions are given in proper form to the
Fund's transfer agent, a check for the proceeds of a redemption will be sent to
the shareholder's address of record. If a shareholder elects to redeem all the
shares of the Fund he owns, all dividends credited to the shareholder up to the
date of redemption are paid to the shareholder in addition to the proceeds of
the redemption.
The date of payment upon redemption may not be postponed for more than seven
days after shares are tendered for redemption, and the right of redemption may
not be suspended, except for any period during which the New York Stock
Exchange, Inc. is closed (other than customary weekend and holiday closings) or
during which the SEC determines that trading thereon is restricted, or for any
period during which an emergency (as determined by the SEC) exists as a result
of which disposal by the Fund of its securities is not
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reasonably practicable or as a result of which it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or for such other
period as the SEC may by order permit for the protection of the shareholders of
the Fund.
Redemption requests received by the Fund's transfer agent before 2:30 p.m., New
York City time, on any day on which the New York Stock Exchange, Inc. is open
for trading become effective at 2:30 p.m. that day. A redemption request
received after 2:30 p.m. on any day on which the New York Stock Exchange, Inc.
is open for trading becomes effective on the next Fund Business Day. Shares
redeemed are not entitled to participate in dividends declared on the day or
after the day a redemption becomes effective.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in his account after a withdrawal is
less than $250,000. Written notice of any such mandatory redemption will be
given at least 30 days in advance to any shareholder whose account is to be
redeemed or the Fund may impose a monthly service charge of $10 on such
accounts. During the notice period any shareholder who receives such a notice
may (without regard to the normal $10,000 requirement for an additional
investment) make a purchase of additional shares to increase his total net asset
value at least to the minimum amount and thereby avoid such mandatory
redemption.
The Fund has reserved the right to charge individual shareholder accounts for
expenses actually incurred by such account for postage, wire transfers and
certain other shareholder expenses, as well as to impose a monthly service
charge for accounts whose net asset value falls below the minimum amount.
Investments Through
Participating Organizations
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks and financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the Distributor with respect to investment of their
customer accounts in the Fund. When instructed by its customer to purchase or
redeem Fund shares, the Participating Organization, on behalf of the customer,
transmits to the Fund's transfer agent a purchase or redemption order, and in
the case of a purchase order, payment for the shares being purchased.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Fund shares for the customers'
accounts. Also, Participating Organizations may send their customers periodic
account statements showing the total number of Fund shares owned by each
customer as of the statement closing date, purchases and redemptions of Fund
shares by each customer during the period covered by the statement and the
income earned by Fund shares of each customer during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Participant Investors whose Participating Organizations have not undertaken to
provide such statements will receive them from the Fund directly.
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures offered to
Participant Investors by the Participating Organizations. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Fund directly. A Participant Investor should read
this Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Fund shares may be purchased
and redeemed through the Participating Organization.
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In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 2:30 p.m., New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day provided that the Federal Funds required in connection with the orders
are received by the Fund's transfer agent before 2:30 p.m., New York City time,
on that day. Orders for which Federal Funds are received after 2:30 p.m., New
York City time, will not result in share issuance until the following Fund
Business Day. Participating Organizations are responsible for instituting
procedures to insure that purchase orders by their respective clients are
processed expeditiously.
Initial Purchase of Pinnacle Shares
Mail
Investors may send a check made payable to the Fund along with a completed
subscription order form to:
Pinnacle Shares of Institutional Daily
Income Fund
c/o Cowles, Sabol & Co., Inc.
P.O. Box 260208
Encino, CA 91426-0208
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member bank of the Federal Reserve
System can normally be converted into Federal Funds within two business days
after receipt of the check. Checks drawn on a non-member bank may take
substantially longer to convert into Federal Funds and to be invested in Fund
shares. An investor's subscription will not be accepted until the Fund receives
Federal Funds.
Bank Wire
To purchase Pinnacle Shares of the Fund using the wire system for transmittal of
money among banks, an investor should first obtain a new account number by
telephoning Cowles, Sabol & Co. at (818) 906-0881 and then instruct a member
commercial bank to wire money immediately to:
Chase Manhattan Bank, New York, NY
ABA #021 000 021
Account of National Financial
Acct. # 066196-221
for further credit to:____________
customer name_______________
An investor planning to wire funds should instruct his bank early in the day so
the wire transfer can be accomplished the same day. There may be a charge by the
investor's bank for transmitting the money by bank wire, and there also may be a
charge for use of Federal Funds. The Fund does not charge investors in the Fund
for its receipt of wire transfers. Payment in the form of a "bank wire" received
prior to 2:30 p.m., New York City time, on a Fund Business Day will be treated
as a Federal Funds payment received on that day.
Redemption of Pinnacle Shares
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share of each
Class of each Portfolio following receipt by the Fund's transfer agent of the
redemption order. Normally payment for redeemed shares is made on the Fund
Business Day the redemption is effected, provided the redemption request is
received prior to 2:30 p.m., New York City time and on the next Fund Business
Day if the redemption request is received after 2:30 p.m., New York City time.
However, redemption requests will not be effected unless the check (including a
certified or cashier's check) used for investment has been cleared for payment
by the investor's bank, currently considered by the Fund to occur within 15 days
after investment.
A shareholder's original new account application permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee. When a
signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature and guaranteed by an eligible guarantor
institution which includes a domestic bank, a
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domestic savings and loan institution, a domestic credit union, a member bank of
the Federal Reserve System or a member firm of a national securities exchange,
pursuant to the Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written request
to:
Pinnacle Shares of Institutional Daily
Income Fund
c/o Cowles, Sabol & Co., Inc.
P.O. Box 260208
Encino, CA 91426-0208
All written requests for redemption must be signed by the shareholder with
signature guaranteed. Normally the redemption proceeds are paid by check mailed
to the shareholder of record.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option. 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. Redemptions following an investment by check will not be effected
until the check has cleared, which could take up to 15 days after investment.
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. Telephone requests to wire redemption
proceeds must be for amounts in excess of $10,000. 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.
A shareholder making a telephone withdrawal should call the Fund at
212-830-5220; outside New York State at 800-241-3263 and state (i) the name of
the shareholder appearing on the Fund's records, (ii) his account number with
the Fund, (iii) the amount to be withdrawn and (iv) the name of the person
requesting the redemption. Usually, the proceeds are sent to the investor on the
same Fund Business Day the redemption is effected, provided the redemption
request is received prior to 2:30 p.m., New York City time and on the next Fund
Business Day if the redemption request is received after 2:30 p.m., New York
City time.
Exchange of Shares
An investor may, without cost, exchange shares of the same class from one
Portfolio of the Fund into the same Class of shares of any other Portfolio of
the Fund, subject to the $1,000,000 minimum initial investment requirement per
Portfolio, the availability of such shares and the maintenance of the suggested
minimum balance of $250,000. Shares are exchanged on the basis of relative net
asset value per share. Exchanges are in effect redemptions from one Portfolio
and purchases of another Portfolio; and the Portfolio's purchase and redemption
procedures and requirements are applicable to exchanges. An exchange pursuant to
this exchange privilege is treated for federal income tax purposes as a sale on
which a shareholder may realize a taxable gain or loss. See "Purchase and
Redemption of Shares" herein.
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 Reich & Tang Distributors, Inc. 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 herein or, for shareholders who have elected that
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<PAGE>
option, by telephone. The Fund reserves the right to reject any exchange request
and will notify shareholders accordingly.
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.
Effective January 26, 1995, the Fund's Board of Trustees and Class A
shareholders adopted a distribution and service plan (the "Plan") and, pursuant
to the Plan, the Fund and Reich & Tang Distributors, Inc. (the "Distributor")
entered into a Distribution Agreement and a Shareholder Servicing Agreement
(with respect to the Class A shares of the Fund only).
Under the Distribution Agreement, the Distributor serves as distributor of the
Fund's shares and, for nominal consideration 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 receives, with
respect to the Class A shares, a service fee equal to .25% per annum of the
Class A shares' average daily net assets (the "Shareholder Servicing Fee") for
providing personal shareholder services and for the maintenance of shareholder
accounts. The fee is accrued daily and paid monthly and any portion of the fee
may be deemed to be used by the Distributor for payments to Participating
Organizations with respect to their provision of such services to their clients
or customers who are shareholders of the Class A shares of the Fund. The Class B
shareholders do not receive the benefit of such services from Participating
Organizations and, therefore, will not be assessed a Shareholder Servicing Fee.
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunication
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Distributor and Participating Organizations in carrying out their
obligations under the Shareholder Servicing Agreement with respect to Class A
shares and (ii) preparing, printing and delivering the Fund's prospectus to
existing shareholders of the Fund and preparing and printing subscription
application forms for shareholder accounts.
The Plan 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 on behalf of the Class
A shares of the Fund; (ii) to compensate certain Participating Organizations for
providing assistance in distributing the Class A shares; and (iii) to pay the
costs of printing and distributing the Fund's prospectus to prospective
investors, and to defray the cost of the preparation and printing of brochures
and other promotional materials, mailings to prospective shareholders,
advertising, and other promotional activities, including the salaries and/or
commissions of sales personnel in connection with the distribution of the Fund's
Class A shares. The Distributor may also make payments from time to time from
its own resources, which may include the Shareholder Servicing Fee (with respect
to Class A shares) and past profits, for the purposes enumerated in (i) above.
The Distributor will determine the amount of such payments made pursuant to the
Plan, provided that such payments will not increase the amount which the Fund is
required to pay to the Manager and Distributor for any fiscal year under either
the Investment Management Contract in effect for that year or under the
Shareholder Servicing Agreement in effect for that year.
For the fiscal year ended March 31, 1998, the total amount spent pursuant to the
Plan for the Money Market Portfolio was .09% of the average daily net assets of
the Fund, all of which was paid by the Fund to the Distributor. Pursuant to the
Shareholder Servicing Agreement no payments were made by the Manager. For the
fiscal year ended March 31, 1998, the total amount spent pursuant to the Plan
for the U.S. Treasury Portfolio was .23% of the
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average daily net assets of the Fund, of which all was paid by the Fund to the
Distributor. Pursuant to the Shareholder Servicing Agreement no payments were
made by the Manager.
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 Trustees will
consider appropriate modifications to the Fund's operations, including
discontinuance of any payments then being made under the Plan to banks and other
depository institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to provide the
above-mentioned services. It is not anticipated that the discontinuance of
payments to such an institution would result in loss to shareholders or change
in the Fund's net asset value. In addition, state securities laws on this issue
may differ from the interpretations of Federal law expressed herein and banks
and financial institutions may be required to register as dealers pursuant to
state law.
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 the same Class shares of the applicable
Portfolio 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. A shareholder who elects to reinvest in additional shares will be
treated for tax purposes as if it had received and reinvested the cash dividend.
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 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. Except as described herein, each Portfolio's net investment
income (including net realized short-term capital gains, if any) will be
declared as a dividend on each Fund Business Day. The Fund declares dividends
for Saturdays, Sundays and holidays on the previous Fund Business Day. The Fund
pays dividends monthly after the close of business on the last calendar day of
each month or after the close of business on the previous Fund Business Day if
the last calendar day of each month is not a Fund Business Day. 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 Class A shares will bear the Shareholder Servicing Fee under the Plan. As a
result, the net income of and the dividends payable to the Class A shares will
be lower than the net income of and dividends payable to the Class B shares of
the Fund. Dividends paid to each Class of shares of the Fund will, however, be
declared and paid on the same days at the same times and, except as noted with
respect to the Shareholder Servicing Fee payable under the Plan, will be
determined in the same manner and paid in the same amounts.
The Fund intends to continue to qualify for special treatment applicable to a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended, for each Portfolio. To qualify as a regulated investment company, each
Portfolio must meet certain complex tests concerning its investments and
distributions. For each year a Portfolio qualifies as a regulated investment
24
<PAGE>
company, the Portfolio will not be subject to federal income tax on income
distributed to its shareholders in the form of dividends or capital gains
distributions. Additionally, each Portfolio will not be subject to a federal
excise tax if the Portfolio distributes at least 98% of its ordinary income and
98% of its capital gain income to its shareholders. Dividends of net ordinary
income and distributions of net short-term capital gains are taxable to the
recipient shareholders as ordinary income but will not be eligible, in the case
of corporate shareholders, for the dividend-received deduction.
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 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.
Distributions from the United States Government Portfolio that are derived from
interest on certain obligations of the United States Government and agencies
thereof may be exempt from state and local taxes in certain states. Investors
should consult their own tax advisors regarding specific questions as to
Federal, state or local taxes.
NET ASSET VALUE
The Fund determines the net asset value of the shares of each Portfolio
(computed separately for each Class of shares) of the Fund as of 2:30 p.m., New
York City time, by dividing the value of each Portfolio'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 of that Portfolio 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 any day on which the Fund's custodian is
open for trading. 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. (See "Purchase and Redemption of Shares" and "Other Purchase
and Redemption Procedures" herein.)
In order to maintain a stable net asset value per share for each Class of $1.00,
the Fund's portfolio securities are valued at their amortized cost. Amortized
cost valuation involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium, except
that if fluctuating interest rates cause the market value of the Fund's
portfolio to deviate more than 1/2 of 1% from the value determined on the basis
of amortized cost, the Board of Trustees will consider whether any action should
be initiated to prevent any material dilative effect on investors. Although the
amortized cost method provides certainty in valuation, it may result in periods
during which the stated value of an instrument is higher or lower than the price
an investment company would receive if the instrument were sold. There is no
assurance that the Portfolios will maintain a stable net asset value per share
of $1.00.
GENERAL INFORMATION
The Fund was established as a Massachusetts business trust under the laws of
Massachusetts on January 20, 1994 and it is registered with the SEC as a
diversified, open-end management investment company.
The Fund prepares semi-annual unaudited and annual audited reports which include
a list of investment securities held by the Fund and which are sent to
shareholders.
Under Massachusetts law, trustees and shareholders of a business trust may, in
certain circumstances, be held personally liable for its obligations. The
Declaration of Trust of the Fund provides that no trustee or shareholder will be
personally liable for obligations of the Fund and that every written contract
made by the Fund must contain a provision to that effect. If any trustee or
shareholder were required to pay any liability of the Fund, that person would be
entitled to reimbursement from the general assets of the Fund.
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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 and
copies thereof may be obtained upon payment of certain duplicating fees.
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 address this issue could have potentially serious
repercussions. The Manager is in the process of working with the Fund's service
providers to prepare for the year 2000. Based on information currently
available, the Manager does not expect that the Fund will incur material costs
to be year 2000 compliant. Although the Manager does not anticipate that the
year 2000 Issue will have a material impact 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.
TABLE OF CONTENTS
Table of Fees and Expenses..........................
Financial Highlights................................
Introduction........................................
Investment Objectives,
Policies and Risks...............................
U.S. Treasury Portfolio.....................
Money Market Portfolio......................
Municipal Portfolio.........................
Risk Factors and Additional
Investment Information............................
Investment Restrictions..............................
Management of the Fund...............................
Description of Shares................................
How to Purchase and Redeem
Pinnacle Shares...................................
Investments Through
Participating Organizations................
Initial Purchase of Pinnacle Shares...........
Redemption of Pinnacle Shares.................
Exchange of Shares............................
Distribution and Service Plan........................
Dividends, Distributions and Taxes...................
Net Asset Value......................................
General Information .................................
Year 2000 Issue .....................................
Custodian and Transfer Agent.........................
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26
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INSTITUTIONAL
DAILY INCOME FUND 600 Fifth Avenue
New York, N.Y. 10020
(212) 830-5220
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1998
Relating to the Institutional Daily Income Fund
Prospectus dated August 1, 1998 and the
Pinnacle Shares of Institutional Daily Income Fund
Prospectus dated August 1, 1998
This Statement of Additional Information, although not in itself a prospectus,
expands upon and supplements the information contained in the current
prospectuses of Institutional Daily Income Fund and the Pinnacle Shares of
Institutional Daily Income Fund (each the "Fund") and should be read in
conjunction with the respective prospectus. The Fund's respective prospectus may
be obtained without charge from any Participating Organization or by writing or
calling the Fund. This Statement of Additional Information is incorporated by
reference into the respective prospectus in its entirety.
If you wish to invest in shares of the Pinnacle Shares of Institutional Daily
Income Fund you should obtain a separate Prospectus by writing to Pinnacle
Shares of Institutional Daily Income Fund c/o Cowles, Sabol & Co., P.O.
Box 260208, Encino, CA 91426-0208.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Table of Contents
- --------------------------------------------------------------------------------
Investment Objectives, Policies and Risks.........2 Purchase & Redemption of Shares and Other
General Investment Objectives and Policies of the Purchase and Redemption Procedures...12
U.S. Treasury Portfolio.........................2 Yield Quotations.......................12
General Investment Objectives and Policies of the Management and Investment Management
Money Market Portfolio..........................3 Contract.............................13
General Investment Objectives and Policies of the Compensation Table.....................16
Municipal Money Market Portfolio................4 Distribution and Service Plan..........17
Investments and Investment Techniques Common Description of Shares..................18
to Two or More Portfolios.......................7 Custodian and Transfer Agent...........20
Investment Restrictions..........................11 Net Asset Value........................20
Portfolio Transactions...........................12 Financial Statements...................20
Description of Ratings.................21
</TABLE>
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<PAGE>
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INVESTMENT OBJECTIVES, POLICIES AND RISKS
The Institutional Daily Income Fund (the "Fund") is a diversified, no-load,
open-end management investment company consisting of three managed portfolios of
money market instruments (each a "Portfolio", collectively, the "Portfolios")
which are designed to meet the short-term investment needs of corporate and
institutional investors. There are no sales loads, exchange or redemption fees
associated with the Fund.
A detailed description of the types and quality of the securities in which the
Portfolios may invest is further described in the Fund's Prospectus and is
incorporated herein by reference. The investment objectives stated below for
each Portfolio are fundamental and may be changed only with the approval of a
majority of outstanding shares of that Portfolio.
General Investment Objectives and Policies of the U.S. Treasury Portfolio
The U.S. Treasury Portfolio's investment objectives are to maximize current
income and to maintain liquidity and a stable net asset value of $1.00 per share
of each Class. The U.S. Treasury Portfolio attempts to accomplish these
objectives by investing in U.S. Treasury obligations and other obligations that
are issued or guaranteed by the U.S. Government which have effective maturities
of 397 days or less that enable it to employ the amortized cost method of
valuation. At least 65% of the U.S. Treasury Portfolio's total assets will
consist of U.S. Treasury obligations (and repurchase agreements and reverse
purchase agreements which are collateralized by such obligations). There can be
no assurance that the U.S. Treasury Portfolio can achieve these objectives or
that it will be able to maintain a stable net asset value of $1.00 per share of
each Class.
Risk Factors
The investment objectives and policies of the U.S. Treasury Portfolio are sought
through the following additional strategies employed in the management of the
U.S. Treasury Portfolio which are described under "Investments and Investment
Techniques Common to Two or More Portfolios":
1. Change in Ratings
2. Amortized Cost Valuation of Portfolio Securities
3. When-Issued Securities
4. Repurchase Agreements
5. Reverse Repurchase Agreement
Reverse Repurchase Agreements
Reverse repurchase agreements involve the sale of securities held by a Portfolio
pursuant to an agreement to repurchase the securities at an agreed upon price
and date. The U.S. Treasury Portfolio is permitted to enter into reverse
repurchase agreements for liquidity purposes or when it is able to purchase
other securities which will produce more income than the cost of the agreement.
Each Portfolio is permitted to enter into reverse repurchase agreements may do
so only with those member banks of the Federal Reserve System and broker-dealers
who are recognized as primary dealers in U.S. government securities by the
Federal Reserve Bank of New York whose creditworthiness has been reviewed and
found to meet the investment criteria of the Portfolio. When engaging in reverse
repurchase transactions, the Fund will maintain, in a segregated account with
its Custodian, securities equal in value to those subject to the agreement.
These agreements are considered to be borrowings and therefore are included in
the asset restriction contained under "Investment Restrictions" relating to
borrowings which allows a Portfolio to borrow money from banks for extraordinary
or emergency purposes and to engage in reverse repurchase agreements provided
that such in the aggregate do not exceed one-third of the value of the total
assets of that Portfolio less its liabilities. Any Portfolio that utilizes
reverse repurchase agreements to this extent may be considered to be leveraging
its portfolio; however, since the Portfolios are required to maintain segregated
accounts to cover their positions on these reverse repurchase agreements, the
risks inherent in this leveraging technique are minimized.
The Portfolio could experience delays in recovering securities in the event of
the bankruptcy of the other party to a reverse repurchase agreement and could
experience a loss to the extent that the value of the securities may have
decreased in the meantime.
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<PAGE>
General Investment Objectives and Policies of the Money Market Portfolio
The Money Market Portfolio's investment objectives are to maximize current
income and to maintain liquidity and a stable net asset value of $1.00 per share
of each Class. The Money Market Portfolio attempts to accomplish these
objectives by investing exclusively in high quality, short-term money market
obligations with maturities of 397 days or less. The Money Market Portfolio will
only purchase high quality money market instruments that have been determined by
the Fund's Board of Trustees to present minimal credit risks and that are First
Tier Eligible Securities at the time of acquisition, so that the Portfolio is
able to employ the amortized cost method of valuation. The term First Tier
Eligible Securities means (i) securities that have remaining maturities of 397
days or less and are rated in the highest short-term rating category by any two
nationally recognized statistical rating organizations ("NRSROs") or in such
category by the only NRSRO that has rated the securities (collectively, the
"Requisite NRSROs") (acquisition in the latter situation must also be ratified
by the Board of Trustees in the highest short-term rating category for debt
obligations; (ii) a security that has a remaining maturity of 397 days or less
and is an unrated security that is, as determined by the Fund's Board of
Directors, to be of comparable quality; (iii) a security otherwise meeting the
requirements set forth in clauses (i) or (ii) and having a Guarantee (as such
term is defined in Rule 2a-7 of the 1940 Act) which has received a rating from
the Requisite NRSROs in the highest short-term rating category for debt
obligations; (iv) is security issued by a registered investment company that is
a money market fund; or (v) is a government security. Where the issuer of a
long-term security with a remaining maturity which would otherwise qualify it as
a First Tier Eligible Security does not have rated short-term debt outstanding,
the long-term security is treated as unrated but may not be purchased if it has
a long-term rating from any NRSRO that is below the three highest long-term
categories. A determination of comparability by the Board of Trustees is made on
the basis of its credit evaluation of the issuer, which may include an
evaluation of a letter of credit, guarantee, insurance or other credit facility
issued in support of the securities or participation certificates. There can be
no assurance that the Money Market Portfolio can achieve these objectives or
that it will be able to maintain a stable net asset value of $1.00 per share of
each Class.
Risk Factors
The Money Market Portfolio may invest in certain foreign securities. Investment
in obligations of foreign issuers and in foreign branches of domestic banks
involves somewhat different investment risks from those affecting obligations of
United States domestic issuers. There may be limited publicly available
information with respect to foreign issuers and foreign issuers are not
generally subject to uniform accounting, auditing and financial standards and
requirements comparable to those applicable to domestic companies. There may
also be less government supervision and regulation of foreign securities
exchanges, brokers and listed companies than in the United States. Foreign
securities markets have substantially less volume than national securities
exchanges and securities of some foreign companies are less liquid and more
volatile than securities of comparable domestic companies. Brokerage commissions
and other transaction costs on foreign securities exchanges are generally higher
than in the United States. Dividends and interest paid by foreign issuers may be
subject to withholding and other foreign taxes, which may decrease the net
return on foreign investments as compared to dividends and interest paid to the
Money Market Portfolio by domestic companies. Additional risks include future
political and economic developments, the possibility that a foreign jurisdiction
might impose or change withholding taxes on income payable with respect to
foreign securities, the possible seizure, nationalization or expropriation of
the foreign issuer or foreign deposits and the possible adoption of foreign
governmental restrictions such as exchange controls.
The investment objectives and policies of the Money Market Portfolio are sought
through the following additional strategies employed in the management of the
Money Market Portfolio which are described under "Investments and Investment
Techniques Common to Two or More Portfolios":
1. Change in Ratings
2. Amortized Cost Valuation of Portfolio Securities
3. Variable Rate Demand Instruments
4. When-Issued Securities
5. Repurchase Agreements
6. Participation Interests
7. Domestic and Foreign Bank Obligations, Certificates of Deposit, Commercial
Paper, Time Deposits and Bankers' Acceptances
3
<PAGE>
8. Privately Placed Securities
General Investment Objectives and Policies of the Municipal Portfolio
The Municipal Portfolio's investment objectives are to maximize current income
that is exempt from regular federal income tax and to maintain liquidity and a
stable net asset value of $1.00 per share of each Class. The Municipal Portfolio
attempts to accomplish these objectives by investing in high quality municipal
securities which, in the opinion of bond counsel at the date of issuance, earn
interest exempt from regular federal income tax and which have effective
maturities of 397 days or less. The Municipal Portfolio will only purchase high
quality tax exempt money market instruments ("Municipal Securities") that have
been determined by the Fund's Board of Trustees to present minimal credit risks
and that are Eligible Securities at the time of acquisition so that the
Municipal Portfolio is able to employ the amortized cost method of valuation.
The term First Tier Eligible Securities means any two nationally recognized
statistical rating organizations ("NRSROs") or in such categories by the only
NRSRO that has rated the Municipal Obligations (collectively, the "Requisite
NRSROs") (acquisition in the latter situation must also be ratified by the Board
of Directors.) Where the issuer of a long-term Municipal Security with a
remaining maturity which would otherwise qualify it as an Eligible Security,
does not have rated short-term debt outstanding, the long-term Municipal
Security is treated as unrated but may not be purchased if it has a long-term
rating from any NRSRO that is below the three highest long-term categories. A
determination of comparability by the Board of Trustees is made on the basis of
its credit evaluation of the issuer, which may include an evaluation of a letter
of credit, guarantee, insurance or other credit facility issued in support of
the Municipal Securities or participation certificates. Although the Supreme
Court has determined that Congress has the authority to subject the interest on
municipal securities, such as the securities in which the Portfolio will invest,
to federal income taxation, existing law excludes such interest from regular
federal income tax. Interest on these securities may be subject to state and
local taxes. See "Dividends, Distributions and Taxes" in the Prospectus. There
can be no assurance that the Municipal Portfolio can achieve these objectives or
that it will be able to maintain a stable net asset value of $1.00 per share of
each Class.
Risk Factors
(1) Municipal Bonds are debt obligations of states, cities, counties,
municipalities and municipal agencies (all of which are generally referred
to as "municipalities") which generally have a maturity at the time of
issue of one year or more and which are issued to raise funds for various
public purposes such as construction of a wide range of public facilities,
to refund outstanding obligations and to obtain funds for institutions and
facilities.
The two principal classifications of Municipal Bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by
the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Issuers of general obligation bonds
include states, counties, cities, towns and other governmental units. The
principal of, and interest on, revenue bonds are payable from the income of
specific projects or authorizations and generally are not supported by the
issuer's general power to levy taxes. In some cases, revenues derived from
specific taxes are pledged to support payments on a revenue bond.
In addition, certain kinds of "private activity bonds" are issued by or on
behalf of public authorities to provide funding for various privately
operated industrial facilities (hereinafter referred to as "industrial
revenue bonds" or "IRBs"). Interest on the IRBs is generally exempt, with
certain exceptions, from federal income tax pursuant to Section 103(a) of
the Internal Revenue Code (the "Code"), provided the issuer and corporate
obligor thereof continue to meet certain conditions. (See "Dividends,
Distributions and Taxes" in the Prospectus.) IRBs are, in most cases,
revenue bonds and do not generally constitute the pledge of the credit of
the issuer of such bonds. The payment of the principal and interest on IRBs
usually depends solely on the ability of the user of the facilities
financed by the bonds or other guarantor to meet its financial obligations
and, in certain instances, the pledge of real and personal property as
security for payment. If there is not an established secondary market for
the IRBs, the IRBs will be supported by letters of credit, guarantees,
insurance or other credit facilities that meet the high quality criteria of
the Municipal Portfolio stated in the Prospectus and provide a demand
feature which may be exercised by the Portfolio to provide liquidity. In
accordance with the investment restrictions, the Municipal Portfolio is
permitted to invest up to 10% of the portfolio in high quality, short-term
Municipal Securities (including IRBs) that may not be readily marketable or
have a liquidity feature.
(2) The principal kinds of Municipal Notes include tax anticipation notes, bond
anticipation notes, revenue anticipation notes and grant anticipation
notes. Notes sold in anticipation of collection of taxes, a bond sale or
receipt of other revenues are usually general obligations of the issuing
municipality or agency.
4
<PAGE>
(3) Issues of Municipal Commercial Paper typically represent very short term,
unsecured, negotiable promissory notes. These obligations are often issued
to meet seasonal working capital needs of municipalities or to provide
interim construction financing and are paid from general revenues of
municipalities or are refinanced with long term debt. In most cases
Municipal Commercial Paper is backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions which may be called upon in the
event of default by the issuer of the commercial paper.
(4) Municipal Leases, which may take the form of a lease or an installment
purchase or conditional sale contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities such as fire and sanitation vehicles, telecommunications
equipment and other capital assets. Municipal Leases frequently have
special risks not normally associated with general obligation or revenue
bonds. Leases and installment purchases or conditional sale contracts
(which normally provide for title to the leased asset to pass eventually to
the government issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. The debt-issuance
limitations of many state constitutions and statutes are deemed to be
inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses that provide that the governmental issuer has
no obligation to make future payments under the lease or contract unless
money is appropriated for such purpose by the appropriate legislative body
on a yearly or other periodic basis. These types of municipal leases may be
considered illiquid and subject to the 10% limitation of investment in
illiquid securities set forth under "Investment Restrictions" contained
herein. The Board of Trustees may adopt guidelines and delegate to the
Manager the daily function of determining and monitoring the liquidity of
municipal leases. In making such determination, the Board and the Manager
may consider such factors as the frequency of trades for the obligation,
the number of dealers willing to purchase or sell the obligations and the
number of other potential buyers and the nature of the marketplace for the
obligations, including the time needed to dispose of the obligations and
the method of soliciting offers. If the Board determines that any municipal
leases are illiquid, such leases will be subject to the 10% limitation on
investments in illiquid securities. The Board of Trustees is also
responsible for determining the credit quality of municipal leases, on an
ongoing basis, including an assessment of the likelihood that the lease
will not be canceled.
(5) The Fund expects that, on behalf of the Municipal Portfolio, it will not
invest more than 25% of each Portfolio's total assets in municipal
obligations whose issuers are located in the same state or more than 25% of
each Portfolio's total assets in municipal obligations the security of
which is derived from any one category. There could be economic, business
or political developments which might affect all municipal obligations of a
similar type. However, the Fund believes that the most important
consideration affecting risk is the quality of particular issues of
municipal obligations rather than factors affecting all, or broad classes
of, municipal obligations.
(6) When the Municipal Portfolio purchases Municipal Securities it may also
acquire stand-by commitments from banks and other financial institutions
with respect to such Municipal Securities. Under a stand-by commitment, a
bank or broker-dealer agrees to purchase at the Portfolio's option a
specified Municipal Securities at a specified price with same day
settlement. A stand-by commitment is the equivalent of a "put" option
acquired by the Portfolio with respect to a particular Municipal Securities
held in its portfolio.
The amount payable to the Portfolio upon its exercise of a stand-by commitment
normally would be (1) the acquisition cost of the Municipal Securities
(excluding any accrued interest that the Portfolio paid on the acquisition),
less any amortized market premium or plus any amortized market or original issue
discount during the period the Portfolio owned the security plus (2) all
interest accrued on the security since the last interest payment date during the
period the security was owned by the Portfolio. Absent unusual circumstances
relating to a change in market value, the Portfolio would value the underlying
Municipal Security at amortized cost. Accordingly, the amount payable by a bank
or dealer during the time a stand-by commitment is exercisable would be
substantially the same as the market value of the underlying Municipal Security.
The Municipal Portfolio's right to exercise a stand-by commitment would be
unconditional and unqualified. A stand-by commitment would not be transferable
by the Portfolio, although it could sell the underlying Municipal Security to a
third party at any time.
The Manager expects that stand-by commitments generally will be available
without the payment of any direct or indirect consideration. However, if
necessary and advisable, the Portfolio may pay for stand-by commitments either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to such a commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding
5
<PAGE>
stand-by commitments held in the Portfolio would not exceed 1/2 of 1% of the
value of the Portfolio's total assets calculated immediately after each stand-by
commitment was acquired.
The Municipal Portfolio would enter into stand-by commitments only with banks
and other financial institutions that, in the Manager's opinion, present minimal
credit risks and where the issuer of the Municipal Obligation meets the
investment criteria of the Municipal Portfolio. The Municipal Portfolio's
reliance upon the credit of these banks and broker-dealers would be supported by
the value of the underlying Municipal Securities held by the Portfolio that were
subject to the commitment.
The Municipal Portfolio intends to acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The purpose of this practice is to permit the
Municipal Portfolio to be fully invested in securities the interest on which is
exempt from federal income taxes while preserving the necessary liquidity to
purchase securities on a when-issued basis, to meet unusually large redemptions
and to purchase at a later date securities other than those subject to the
stand-by commitment.
The acquisition of a stand-by commitment would not affect the valuation or
assumed maturity of the underlying Municipal Securities which will continue to
be valued in accordance with the amortized cost method. Stand-by commitments
acquired by the Municipal Portfolio would be valued at zero in determining net
asset value. In those cases in which the Portfolio paid directly or indirectly
for a stand-by commitment, its cost would be reflected as unrealized
depreciation for the period during which the commitment is held by the
Portfolio. Stand-by commitments would not affect the dollar weighted average
maturity of the Portfolio. The maturity of a security subject to a stand-by
commitment is longer than the stand-by repurchase date.
The stand-by commitments that the Portfolios may enter into are subject to
certain risks, which include the ability of the issuer of the commitment to pay
for the securities at the time the commitment is exercised, the fact that the
commitment is not marketable by the Municipal Portfolio, and that the maturity
of the underlying security will generally be different from that of the
commitment.
In addition, the Municipal Portfolio may apply to the Internal Revenue Service
for a ruling, or seek from its counsel an opinion, that interest on Municipal
Obligations subject to stand-by commitments will be exempt from federal income
taxation (see "Dividends, Distributions and Taxes" in the Prospectus). In the
absence of a favorable tax ruling or opinion of counsel, the Municipal Portfolio
will not engage in the purchase of securities subject to stand-by commitments.
The Municipal Portfolio may purchase municipal bonds or notes with the right to
resell them at an agreed price or yield within a specified period prior to
maturity to facilitate portfolio liquidity. This right to resell is known as a
"put". The aggregate price paid for securities with puts may be higher than the
price which otherwise would be paid. Consistent with the investment objectives
of this Portfolio and subject to the supervision of the Trustees, the purpose of
this practice is to permit the Portfolio to be fully invested in tax exempt
securities while maintaining the necessary liquidity to purchase securities on a
when-issued basis, to meet unusually large redemptions and to purchase at a
later date securities other than those subject to the put. The principal risk of
puts is that the put writer may default on its obligation to repurchase. The
Manager will monitor each writer's ability to meet its obligations under puts.
See "Investment Restrictions" herein and "Dividends, Distributions and Taxes" in
the Prospectus.
The amortized cost method is used by the Money Market Portfolio and the
Municipal Portfolio to value any municipal securities; no value is assigned to
any puts on such municipal securities. The cost of any such put is carried as an
unrealized loss from the time of purchase until it is exercised or expires.
The investment objectives and policies of the Municipal Portfolio are sought
through the following additional strategies employed in the management of the
Municipal Portfolio which are described under "Investments and Investment
Techniques Common to Two or More Portfolios":
1. Change in Ratings
2. Amortized Cost Valuation of Portfolio Securities
3. Variable Rate Demand Instruments
4. When-Issued Securities
5. Repurchase Agreements
6. Participation Interests
7. Domestic and Foreign Bank Obligations, Certificates of Deposit and Bankers'
Acceptances
8. Privately Placed Securities
6
<PAGE>
Investments and Investment Techniques Common to Two or More Portfolios
Change in Ratings
Subsequent to its purchase by a Portfolio, an issue of securities may cease to
be rated or its rating may be reduced below the minimum required for purchases
by that Portfolio. To the extent that the ratings accorded by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Rating Services, a division of
the McGraw-Hill Companies ("S&P") for securities may change as a result of
changes in these ratings systems, the Manager will attempt to use comparable
ratings as standards for its investment in debt securities in accordance with
the investment policies contained therein. However, if these Portfolios hold any
variable rate demand instruments with stated maturities in excess of one year,
such instruments must maintain their high quality rating or must be sold from
these Portfolios. See "Variable Rate Demand Instruments" herein. With regard to
each Portfolio, the Board of Trustees of the Fund shall reassess promptly
whether the security presents minimal credit risks and shall cause these
Portfolios to take such action as the Board of Trustees determines is in the
best interest of these Portfolios and their shareholders. However, reassessment
is not required if the security is disposed of or matures within five business
days of the Manager becoming aware of the new rating and provided further that
the Board of Trustees is subsequently notified of the Manager's actions.
In addition, in the event that a security (1) is in default, (2) ceases to be an
Eligible Security under Rule 2a-7 of the Investment Company Act of 1940 (the
"1940 Act") or (3) is determined to no longer present minimal credit risks, or
an event of insolvency occurs with respect to the issuer of a portfolio security
or the provider of any Demand Feature or Guarantee (as such terms are defined in
Rule 2a-7 of the 1940 Act) these Portfolios will dispose of the security absent
a determination by the Fund's Board of Trustees that disposal of the security
would not be in the best interests of these Portfolios. In the event that the
security is disposed of, such disposal shall occur as soon as practicable
consistent with achieving an orderly disposition by sale, exercise of any demand
feature, or otherwise. In the event of a default with respect to a security
which immediately before default accounted for 1/2 of 1% or more of a
Portfolio's total assets, that Portfolio shall promptly notify the Securities
and Exchange Commission (the "SEC")of such fact and of the actions that such
Portfolio intends to take in response to the situation.
Amortized Cost Valuation of Portfolio Securities
Pursuant to Rule 2a-7 under the 1940 Act each of the Portfolios uses the
amortized cost method of valuing its investments, which facilitates the
maintenance of the Portfolios' per share net asset value at $1.00. The amortized
cost method involves initially valuing a security at its cost and thereafter
amortizing to maturity any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument.
Consistent with the provisions of Rule 2a-7, the Portfolios maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having effective maturities of 397 days or less, and invest only in
securities determined by or under the direction of the Board of Trustees to be
of high quality with minimal credit risks.
The Board of Trustees has also established procedures designed to stabilize, to
the extent reasonably possible, the Portfolios' price per share of each Class as
computed for the purpose of sales and redemptions at $1.00. Such procedures
include review of the Portfolios' investments by the Board of Trustees at such
intervals as they deem appropriate to determine whether each Portfolio's net
asset value calculated by using available market quotations or market
equivalents (i.e., determination of value by reference to interest rate levels,
quotations of comparable securities and other factors) deviates from $1.00 per
share of each Class based on amortized cost. Market quotations and market
equivalents used in such review may be obtained from an independent pricing
service approved by the Board of Trustees.
The extent of deviation between any Portfolio's net asset value based upon
available market quotations or market equivalents and $1.00 per share based on
amortized cost, will be periodically examined by the Board of Trustees. If such
deviation exceeds 1/2 of 1%, the Board of Trustees will promptly consider what
action, if any, will be initiated. In the event the Board of Trustees determines
that a deviation exists which may result in material dilution or other unfair
results to investors or existing shareholders, they will take such corrective
action as they regard to be necessary and appropriate, including the sale of
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; withholding part or all of dividends or
payment of distributions from capital or capital gains; redemptions of shares in
kind; or establishing a net asset value per share by using available market
quotations or equivalents. Each Portfolio may hold cash for the purpose of
stabilizing its net asset value per share. Holdings of cash, on which no return
is earned, would tend to lower the yield on the Portfolios' shares.
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Variable Rate Demand Instruments
The Money Market Portfolio and Municipal Portfolio may purchase variable rate
demand instruments. Variable rate demand instruments that the Portfolios will
purchase are tax exempt Municipal Securities or taxable (variable amount master
demand notes) debt obligations that provide for a periodic adjustment in the
interest rate paid on the instrument and permit the holder to demand payment of
the unpaid principal balance plus accrued interest at specified intervals upon a
specified number of days' notice either from the issuer or by drawing on a bank
letter of credit, a guarantee, insurance or other credit facility issued with
respect to such instrument.
The variable rate demand instruments in which the Portfolios may invest are
payable on not more than thirty calendar days' notice either on demand or at
specified intervals not exceeding one year depending upon the terms of the
instrument. The terms of the instruments provide that interest rates are
adjustable at intervals ranging from daily to up to one year and their
adjustments are based upon the prime rate of a bank or other appropriate
interest rate adjustment index as provided in the respective instruments. The
Fund will decide which variable rate demand instruments it will purchase in
accordance with procedures prescribed by its Board of Trustees to minimize
credit risks. A Portfolio utilizing the amortized cost method of valuation may
only purchase variable rate demand instruments if (i) the instrument is subject
to an unconditional demand feature, exercisable by the Portfolio in the event of
default in the payment of principal or interest on the underlying securities,
which itself qualifies as a First Tier Eligible Security or (ii) the instrument
is not subject to an unconditional demand feature but does qualify as a First
Tier Eligible Security and has a long-term rating by the Requisite NRSROs in one
of the two highest rating categories or, if unrated, is determined to be of
comparable quality by the Fund's Board of Trustees. If an instrument is ever
deemed to be of less than high quality, the Portfolio either will sell it in the
market or exercise the demand feature.
The variable rate demand instruments that the Portfolios may invest in include
participation certificates purchased by the Portfolios from banks, insurance
companies or other financial institutions in fixed or variable rate, tax-exempt
Municipal Securities (expected to be concentrated in IRBs) or taxable debt
obligations (variable amount master demand notes) owned by such institutions or
affiliated organizations. A participation certificate gives the Portfolios an
undivided interest in the obligation in the proportion that the Portfolio's
participation interest bears to the total principal amount of the obligation and
provides the demand repurchase feature described below. Where the institution
issuing the participation does not meet the Portfolio's high quality standards,
the participation is backed by an irrevocable letter of credit or guaranty of a
bank (which may be a bank issuing a confirming letter of credit, or a bank
serving as agent of the issuing bank with respect to the possible repurchase of
the certificate of participation or a bank serving as agent of the issuer with
respect to the possible repurchase of the issue) or insurance policy of an
insurance company that the Board of Trustees of the Fund has determined meets
the prescribed quality standards for the Portfolio. The Portfolio has the right
to sell the participation certificate back to the institution and, where
applicable, draw on the letter of credit, guarantee or insurance after no more
than 30 days' notice either on demand or at specified intervals not exceeding
397 days (depending on the terms of the participation), for all or any part of
the full principal amount of the Portfolio's participation interest in the
security, plus accrued interest. The Portfolios intend to exercise the demand
only (1) upon a default under the terms of the bond documents, (2) as needed to
provide liquidity to the Portfolio in order to make redemptions of the Portfolio
shares, or (3) to maintain a high quality investment portfolio. The institutions
issuing the participation certificates will retain a service and letter of
credit fee (where applicable) and a fee for providing the demand repurchase
feature, in an amount equal to the excess of the interest paid on the
instruments over the negotiated yield at which the participations were purchased
by the Portfolio. The total fees generally range from 5% to 15% of the
applicable "prime rate"1 or other interest rate index. With respect to
insurance, the Portfolios will attempt to have the issuer of the participation
certificate bear the cost of the insurance, although the Portfolios retain the
option to purchase insurance if necessary, in which case the cost of insurance
will be an expense of the Portfolio subject to the expense limitation on
investment company expenses prescribed by any state in which the Portfolio's
shares are qualified for sale. The Manager has been instructed by the Fund's
Board of Trustees to continually monitor the pricing, quality and liquidity of
the variable rate demand instruments held by the Portfolio, including the
participation certificates, on the basis of published financial information and
reports of the rating agencies and other bank analytical services to which the
Portfolio may subscribe. Although these instruments may be sold by the
Portfolio, the Portfolio intends to hold them until maturity, except under the
circumstances stated above (see "Dividends, Distributions and Taxes" in the
Prospectus).
- --------
1 The "prime rate" is generally the rate charged by a bank to its creditworthy
customers for short-term loans. The prime rate of a particular bank may differ
from other banks and will be the rate announced by each bank on a particular
day. Changes in the prime rate may occur with great frequency and generally
become effective on the date announced.
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While the value of the underlying variable rate demand instruments may change
with changes in interest rates generally, the variable rate nature of the
underlying variable rate demand instruments should minimize changes in value of
the instruments. Accordingly, as interest rates decrease or securities increase,
the potential for capital appreciation and the risk of potential capital
depreciation is less than would be the case with a portfolio of fixed income
securities. The Portfolios may contain variable rate demand instruments on which
stated minimum or maximum rates, or maximum rates set by state law limit the
degree to which interest on such variable rate demand instruments may fluctuate;
to the extent it does, increases or decreases in value may be somewhat greater
than would be the case without such limits. Additionally, the Portfolios may
contain variable rate demand participation certificates in fixed rate Municipal
Securities and taxable debt obligations (the Portfolios will not acquire a
variable note demand participation certificate in fixed rate municipal
securities without an opinion of counsel). The fixed rate of interest on these
obligations will be a ceiling on the variable rate of the participation
certificate. In the event that interest rates increased so that the variable
rate exceeded the fixed rate on the obligations, the obligations could no longer
be valued at par and this may cause the Portfolios to take corrective action,
including the elimination of the instruments. Because the adjustment of interest
rates on the variable rate demand instruments is made in relation to movements
of the applicable banks' prime rate, or other interest rate adjustment index,
the variable rate demand instruments are not comparable to long-term fixed rate
securities. Accordingly, interest rates on the variable rate demand instruments
may be higher or lower than current market rates for fixed rate obligations or
obligations of comparable quality with similar maturities.
For purposes of determining whether a variable rate demand instrument held by a
Portfolio matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (1) the period required
before the Portfolio is entitled to receive payment of the principal amount of
the instrument or (2) the period remaining until the instrument's next interest
rate adjustment. The maturity of a variable rate demand instrument will be
determined in the same manner for purposes of computing the Portfolios'
dollar-weighted average portfolio maturity. If a variable rate demand instrument
ceases to meet the investment criteria of the Portfolio, it will be sold in the
market or through exercise of the repurchase demand.
When-Issued Securities
All Portfolios may purchase debt obligations offered on a "when-issued" or
"delayed delivery" basis. When so offered, the price, which is generally
expressed in yield terms, is fixed at the time the commitment to purchase is
made, but delivery and payment for the when-issued securities take place at a
later date. Normally, the settlement date occurs within one month of the
purchase of debt obligations; during the period between purchase and settlement,
no payment is made by the purchaser to the issuer and no interest accrues to the
purchaser. To the extent that assets of a Portfolio are not invested prior to
the settlement of a purchase of securities, that Portfolio will earn no income;
however, it is intended that each Portfolio will be fully invested to the extent
practicable and subject to the policies stated above. While when-issued
securities may be sold prior to the settlement date, it is intended that each
Portfolio will purchase such securities with the purpose of actually acquiring
them unless a sale appears desirable for investment reasons. At the time the
Portfolio makes the commitment to purchase a debt obligation on a when-issued
basis, it will record the transaction and reflect the value of the security in
determining its net asset value. The Fund does not believe that the net asset
value or income of the Portfolios' securities will be adversely affected by
their purchase of debt obligations on a when-issued basis. Each Portfolio will
establish a segregated account in which it will maintain cash and marketable
securities equal in value to commitments for when-issued securities. Such
segregated securities either will mature or, if necessary, be sold on or before
the settlement date.
Repurchase Agreements
When a Portfolio purchases securities, it may enter into a repurchase agreement
with the seller wherein the seller agrees, at the time of sale, to repurchase
the security at a mutually agreed upon time and price. A Portfolio may enter
into repurchase agreements with member banks of the Federal Reserve System and
with broker-dealers who are recognized as primary dealers in United States
government securities by the Federal Reserve Bank of New York. Although the
securities subject to the repurchase agreement might bear maturities exceeding
one year, settlement for the repurchase would never be more than 397 days after
the Portfolio's acquisition of the securities and normally would be within a
shorter period of time. The resale price will be in excess of the purchase
price, reflecting an agreed upon market rate effective for the period of time
the Portfolio's money will be invested in the security, and will not be related
to the coupon rate of the purchased security. At the time a Portfolio enters
into a repurchase agreement the value of the underlying security, including
accrued interest, will be equal to or exceed the value of the repurchase
agreement, and, in the case of a repurchase agreement exceeding one day, the
seller will agree that the value of the underlying security, including accrued
interest, will at all times be equal to or exceed the value of the repurchase
agreement. Each Portfolio may engage in a
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<PAGE>
repurchase agreement with respect to any security in which that Portfolio is
authorized to invest, even though the underlying security may mature in more
than one year. The U.S. Treasury Portfolio may only invest in repurchase
agreements backed by obligations issued or guaranteed by the United States
Government calling for resale in 397 days or less. The collateral securing the
seller's obligation must be of a credit quality at least equal to the
Portfolio's investment criteria for Portfolio securities and will be held by the
Portfolio's custodian or in the Federal Reserve Book Entry System.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
a Portfolio to the seller subject to the repurchase agreement and is therefore
subject to that Portfolio's investment restriction applicable to loans. It is
not clear whether a court would consider the securities purchased by a Portfolio
subject to a repurchase agreement as being owned by that Portfolio or as being
collateral for a loan by that Portfolio to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the securities before repurchase of the security under a repurchase
agreement, a Portfolio may encounter delay and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the security. If the court characterized the transaction as a loan and a
Portfolio has not perfected a security interest in the security, that Portfolio
may be required to return the security to the seller's estate and be treated as
an unsecured creditor of the seller. As an unsecured creditor, a Portfolio would
be at the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt obligation purchased for a Portfolio,
the Manager seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the security, in which case a Portfolio
may incur a loss if the proceeds to that Portfolio of the sale to a third party
are less than the repurchase price. However, if the market value of the
securities subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Portfolio involved will direct the seller of the
security to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that a Portfolio will be unsuccessful in
seeking to impose on the seller a contractual obligation to deliver additional
securities.
Participation Interests
The Money Market Portfolio and Municipal Portfolio may purchase from banks
participation interests in all or part of specific holdings of Municipal or
other debt obligations (including corporate loans). Where the institution
issuing the participation does not meet the Portfolio's quality standards, the
participation may be backed by an irrevocable letter of credit or guarantee that
the Board of Trustees has determined meets the prescribed quality standards of
each Portfolio. Thus, even if the credit of the selling bank does not meet the
quality standards of a Portfolio, the credit of the entity issuing the credit
enhancement will. Each Portfolio will have the right to sell the participation
interest back to the bank for the full principal amount of the Portfolio's
interest in the Municipal or debt obligation plus accrued interest, but only (1)
as required to provide liquidity to that Portfolio, (2) to maintain the quality
standards of each Portfolio's investment portfolio or (3) upon a default under
the terms of the debt obligation. The selling bank may receive a fee from a
Portfolio in connection with the arrangement. When purchasing bank participation
interests, the Portfolio will treat both the bank and the underlying borrower as
the issuer of the instrument for the purpose of complying with the
diversification requirement of the investment restrictions discussed below.
Domestic and Foreign Bank Obligations, Certificates of Deposit and Bankers'
Acceptances
The Money Market Portfolio and Municipal Portfolio may purchase certificates of
deposit, time deposits, bankers' acceptances, commercial paper and other
obligations issued or guaranteed by the 50 largest banks in the United States.
For this purpose banks are ranked by total deposits as shown by their most
recent annual financial statements. The "other obligations" in which the
Portfolio may invest include instruments (such as bankers' acceptances,
commercial paper and certificates of deposit) issued by United States
subsidiaries of the 50 largest banks in the United States where the instruments
are guaranteed as to principal and interest by such banks. At the time the
Portfolio invests in any certificate of deposit, bankers' acceptance or other
bank obligation, the issuer or its parent must have its debt rated within the
quality standards of the Portfolio or if unrated be of comparable quality as
determined by the Fund's Board of Trustees.
Privately Placed Securities
The Money Market Portfolio and Municipal Portfolio may invest in securities
issued as part of privately negotiated transactions between an issuer and one or
more purchasers. Except with respect to certain commercial paper issued in
reliance on the exemption from regulations in Section 4(2) of the Securities Act
of 1933 (the "Securities Act") and securities subject to Rule 144A of the
Securities Act which are discussed below, these securities are typically not
readily marketable, and therefore are considered illiquid securities. The price
these Portfolios pay for illiquid securities, and any price received upon
resale, may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly, the
10
<PAGE>
valuation of privately placed securities by these Portfolios will reflect any
limitations on their liquidity. As a matter of policy, none of the Portfolios
will invest more than 10% of the market value of the total assets of the
Portfolio in repurchase agreements maturing in over seven days and other
illiquid investments. The Portfolios may purchase securities that are not
registered ("restricted securities") under the Securities Act, but can be
offered and sold to "qualified institutional buyers" under Rule 144A of the
Securities Act. The Portfolios may also purchase certain commercial paper issued
in reliance on the exemption from regulations in Section 4(2) of the Securities
Act ("4(2) Paper"). However, each Portfolio will not invest more than 10% of its
net assets in illiquid investments, which include securities for which there is
no ready market, securities subject to contractual restriction on resale,
certain investments in asset-backed and receivable-backed securities and
restricted securities (unless, with respect to these securities and 4(2) Paper,
the Fund's Trustees continuously determine, based on the trading markets for the
specific restricted security, that it is liquid). The Trustees may adopt
guidelines and delegate to the Manager the daily function of determining and
monitoring liquidity of restricted securities and 4(2) Paper. The Trustees,
however, will retain sufficient oversight and be ultimately responsible for the
determinations.
Since it is not possible to predict with assurance exactly how this market for
restricted securities sold and offered under Rule 144A will develop, the
Trustees will carefully monitor the Portfolios investments in these securities,
focusing on such factors, among others, as valuation, liquidity and availability
of information. This investment practice could have the effect of increasing the
level of illiquidity in the Portfolios to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted 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 Trustees without the
approval by a majority vote of the Fund's outstanding shares.
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 by a majority vote of the Fund's
outstanding shares and which apply to each of the Portfolios, the Fund may not:
(a) invest in securities of companies that have conducted operations for less
than three years, including the operations of predecessors;
(b) invest in or hold securities of any issuer if to the knowledge of the Fund,
officers and trustees of the Fund or officers and directors of the Manager,
individually own beneficially more than 1/2 of 1% of the securities of the
issuer, in the aggregate own more than 5% of the issuer's securities; and
(c) (1) make investments for purpose of exercising control over any issuer or
other person; (2) purchase securities having voting rights at the time of
purchase; (3) purchase securities of other investment companies, except in
connection with a merger, acquisition, consolidation, reorganization or
acquisition of assets; (4) invest in real estate, including real estate
limited partnerships, (other than debt obligations secured by real estate
or interests therein or debt obligations issued by companies which invest
in real estate or interests therein); (5) invest in commodities, commodity
contracts, commodity options, interests and leases in oil, gas or other
mineral exploration or development programs (a Fund may, however, purchase
and sell securities of companies engaged in the exploration, development,
production, refining transporting and marketing of oil, gas or minerals);
(6) purchase restricted securities or purchase securities on margin; (7)
make short sales of securities or intentionally maintain a short position
in any security or write, purchase or sell puts, calls, straddles, spreads
or any combination thereof; (8) act as an underwriter of securities or (9)
issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security in connection with any permitted borrowing.
In addition, the Fund may not, on behalf of the Portfolio or Portfolios
specified:
(d) with respect to the U.S. Treasury Portfolio and the Money Market Portfolio,
invest more than 25% of the value of the Portfolio's total assets in
securities of companies in the same industry (excluding U.S. Government
securities and, as to Money Market Portfolio only, certificates of deposit
and bankers' acceptances of domestic banks); and
(e) with respect to the Municipal Portfolio, purchase (i) pollution control and
industrial revenue bonds or (ii) securities which are not Municipal
Obligations, if in either case the purchase would cause more than 25% of
the value of the Portfolio's total assets to be invested in companies in
the same industry (for the purposes of this restriction wholly-
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<PAGE>
owned finance companies are considered to be in the industry of their parents if
their activities are primarily related to financing the activities of the
parents).
PORTFOLIO TRANSACTIONS
The Fund's purchases and sales of portfolio securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Purchases from underwriters of
portfolio securities include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. No preference in purchasing portfolio securities will
be given to banks or dealers that are Participating Organizations.
Investment decisions for the Fund will be made independently from those for any
other investment companies or accounts that may be or become managed by the
Manager or its affiliates. If, however, the Fund and other investment companies
or accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In some cases, this policy might adversely
affect the price paid or received by the Fund or the size of the position
obtainable for the Fund. In addition, when purchases or sales of the same
security for the Fund and for other investment companies managed by the Manager
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantage available to large denomination purchasers or
sellers.
No portfolio transactions are executed with the Manager or its affiliates acting
as principal. In addition, the Fund will not buy bankers' acceptances,
certificates of deposit or commercial paper from the Manager or its affiliates.
PURCHASE & REDEMPTION OF SHARES AND OTHER PURCHASE AND REDEMPTION PROCEDURES
The material relating to the purchase and redemption of shares of each Class in
the Prospectus is herein incorporated by reference.
YIELD QUOTATIONS
The Fund calculates a seven-day yield quotation (computed separately for each
Class of shares) using a standard method prescribed by the rules of the SEC.
Under that method, the Fund's yield figure, which is based on a chosen seven-day
period, is computed as follows: the Fund's return for the seven-day period
(which is obtained by dividing the net change in the value of a hypothetical
account having a balance of one share at the beginning of the period by the
value of such account at the beginning of the period, which is expected to
always be $1.00) is multiplied by (365/7) with the resulting annualized yield
figure carried to the nearest hundredth of one percent. For purposes of the
foregoing computation, the determination of the net change in account value
during the seven-day period reflects (i) dividends declared on the original
share and on any additional shares, including the value of any additional shares
purchased with dividends paid on the original share, and (ii) fees charged to
all shareholder accounts. Realized capital gains or losses and unrealized
appreciation or depreciation of the Fund's portfolio securities are not included
in the computation.
The Fund also compiles a compound effective yield quotation (computed separately
for each Class of shares) for a seven-day period by using a formula prescribed
by the SEC. Under that formula, the Fund's unannualized return for the seven-day
period (described in the preceding paragraph) is compounded by adding one to the
base period return, raising the sum to a power equal to 365/7 and subtracting
one from the result (i.e., effective yield = (base return +1) 365/7-1).
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield for each
Portfolio fluctuates from day to day and that the Fund's yield for any given
period for a Portfolio is not an indication, or representation by the Fund, of
future yields or rates of return on the Fund's shares. The Fund's yields are not
fixed or guaranteed, and an investment in the Fund is not insured. Accordingly,
the Fund's yield information may not necessarily be used to compare Fund shares
with investment alternatives which, like money market instruments or bank
accounts, may provide a fixed rate of interest. In addition, investments in the
Fund may not necessarily be used to compare with investment alternatives which
are insured or guaranteed.
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<PAGE>
Investors who purchase the Fund's shares directly may realize a higher yield
than Participant Investors because they will not be subject to any fees or
charges that may be imposed by Participating Organizations.
MANAGEMENT AND INVESTMENT MANAGEMENT CONTRACT
The Investment Manager for the Fund is Reich & Tang Asset Management L.P., a
Delaware limited partnership with principal offices at 600 Fifth Avenue, New
York, New York 10020 (the "Manager"). The Manager, as of May 31, 1998, was
investment manager, advisor or supervisor with respect to assets aggregating in
excess of $11.4 billion. In addition to the Fund, the Manager acts as investment
manager and administrator of seventeen other investment companies and also
advises pension trusts, profit sharing trusts and endowments.
Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") was the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager due to a restructuring by New England Investment
Companies, Inc. ("NEIC"). Subsequently, effective March 31, 1998, Nvest
Companies, L.P. ("Nvest Companies") due to a change in name of NEICOP, replaced
NEICOP as the limited partner and owner of a 99.5% interest in the Manager.
Reich & Tang Asset management, Inc. (an indirect wholly-owned subsidiary of
Nvest Companies) is the sole general partner and owner of the remaining 0.5%
interest of the Manager. Nvest Corporation, a Massachusetts Corporation
(formerly known as New England Investment Companies, Inc.), serves as the
managing general partner of Nvest Companies.
Reich & Tang Asset Management, Inc. is an indirect subsidiary of Metropolitan
Life Insurance Company ("MetLife"). Also, MetLife directly or 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.
Nvest is a holding company offering a broad array of investment styles across a
wide range of asset categories through thirteen subsidiaries, division and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units, in addition to the manager, include
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, Inc., Nvest Associates, Inc.,
Snyder Capital Management, L.P., Vaughan, Nelson, Scarborough & McCullough,
L.P., and Westpeak Investment Advisors, L.P. These affiliates in the aggregate
are investment advisors or managers to 80 other registered investment companies.
The name change 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.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Trustees of
the Fund.
The Manager provides persons satisfactory to the Board of Trustees of the Fund
to serve as officers of the Fund. Such officers, as well as certain other
employees and trustees of the Fund, may be officers of Reich & Tang Asset
Management, Inc., the sole general partner of the Manager or employees of the
Manager or its affiliates.
The Investment Management Contract is terminable without penalty by the Fund on
sixty days' written notice when authorized either by majority vote of its
outstanding voting shares or by a vote of a majority of its Board of Trustees,
or by the Manager on sixty days' written notice, and will automatically
terminate in the event of its assignment. The Investment Management Contract
provides that in the absence of willful misfeasance, bad faith or gross
negligence on the part of the Manager, or of reckless disregard of its
obligations thereunder, the Manager shall not be liable for any action or
failure to act in accordance with its duties thereunder.
For its services under the Investment Management Contract, the Manager receives
from the Fund a fee equal to .12% per annum of each Portfolio's average daily
net assets. The fees are accrued daily and paid monthly. Investment management
fees and operating expenses which are attributable to both Classes of the Fund
will be allocated daily to each Class based on the percentage of outstanding
shares at the end of the day. Additional shareholder services provided by
Participating Organizations to Class A shareholders pursuant to the Plan shall
be compensated by the Distributor from its shareholder servicing fee, the
Manager from its management fee and the Fund itself. Expenses incurred in the
distribution of Class B shares and the servicing of Class B shares shall be paid
by the Manager.
Pursuant to the Administrative Services Agreement 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
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<PAGE>
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 Agreement, the Manager receives from the Fund a fee
equal to .05% per annum of each Portfolio's average daily net assets. For the
fiscal year ended March 31, 1998, the amount payable to the Manager under the
Administrative Services Contract for the Money Market Portfolio of the Fund was
$145,134, of which $87,081 was voluntarily waived. For the fiscal year ended
March 31, 1998, the amount payable to the Manager under the Administrative
Services Contract for the U.S. Treasury Portfolio of the Fund was $195,035, of
which $117,021 was voluntarily waived.
For the Money Market Portfolio, the fee payable to the Manager under
the Investment Management Contract for the fiscal year ended March 31, 1998 was
$348,323, of which $115,985 was voluntarily waived. For the U.S. Treasury
Portfolio, the fee payable to the Manager under the Investment Management
Contract for the fiscal year ended March 31, 1998 was $468,085, of which
$156,029 was voluntarily waived.
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).
Investment management fees and operating expenses which are attributable to both
Classes of the Fund will be allocated daily to each Class based on the
percentage of outstanding shares at the end of the day. Additional shareholder
services provided by Participating Organizations to Class A shareholders
pursuant to the Plan will be compensated by the Distributor from its shareholder
servicing fee, the Manager from its management fee and the Fund itself. Expenses
incurred in the distribution of Class B shares and the servicing of Class B
shares shall be paid by the Manager.
Expense Limitation
The Manager has agreed, pursuant to the Investment Management Contract, 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 disinterested trustees, costs of investor services,
shareholder's reports and corporate meetings, SEC registration fees and
expenses, state securities laws registration fees and expenses, expenses of
preparing and printing the Fund's prospectus for delivery to existing
shareholders and of printing application forms for shareholder accounts and the
fees and reimbursements payable to the Manager under the Investment Management
Contract and the Administrative Services Agreement and the Distributor under the
Shareholder Servicing Agreement.
The Fund may from time to time contract to have management services performed by
third parties 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 such
services are among the expenses subject to the expense limitation described
above. As a result of the passage of the National Securities Markets Improvement
Act of 1996, all state expense limitations have been eliminated at this time.
The Fund has reserved the right to charge individual shareholder accounts for
expenses actually incurred by such account for postage, wire transfers and
certain other shareholder expenses, as well as to impose a monthly service
charge for accounts whose net asset value falls below the minimum amount.
Trustees and Officers
The trustees 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. Mr. Duff
may be deemed an "interested person" of the Fund, as defined in the 1940 Act, on
the basis of his affiliation with the Manager.
14
<PAGE>
Steven W. Duff, 44 - President and Trustee of the Fund, has been President of
the Mutual Funds division of the Manager since September 1994. Mr. Duff was
formerly Director of Mutual Fund Administration at NationsBank with which he was
associated with from June 1981 to August 1994. Mr. Duff is President and a
Director of Back Bay Funds, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax
Free Income Fund, Inc., Georgia Daily Municipal Income Fund, Inc., Michigan
Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc.,
New York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Short Term Income Fund, Inc. and Virginia Daily Municipal Income
Fund, Inc.; President and Trustee of Florida Daily Municipal Income Fund and
Pennsylvania Daily Municipal Income Fund, President of Cortland Trust, Inc.,
President and Chief Executive Officer of Tax Exempt Proceeds Fund, Inc.,
Executive Vice President of Reich & Tang Equity Fund, Inc.; and a Director of
Pax World Money Market Fund, Inc.
Dr. W. Giles Mellon, 67 - Trustee of the Fund, is Professor of Business
Administration and Area Chairman of Economics in the Graduate School of
Management, Rutgers University with which he has been associated since 1966. His
address is Rutgers University Graduate School of Management, 92 New Street,
Newark, New Jersey 07102. Dr. Mellon is also a Director of Back Bay Funds, Inc.,
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Georgia
Daily Municipal 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. and a Trustee of Florida Daily Municipal Income Fund and Pennsylvania Daily
Municipal Income Fund.
Robert Straniere, 57 - Trustee of the Fund, has been a member of the New York
State Assembly and a partner with The Straniere Law Firm since 1981. His address
is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is also a
Director of Back Bay Funds, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Life Cycle Mutual Funds, Inc., Georgia Daily Municipal
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. and a Trustee
of Florida Daily Municipal Income Fund and Pennsylvania Daily Municipal Income
Fund.
Dr. Yung Wong, 59 - Trustee of the Fund, was Director of Shaw Investment
Management (U.K.) Limited from 1994 to October 1995 and formerly was a General
Partner of Abacus Partners Limited Partnership (a general partner of a venture
capital investment firm) from 1984 to 1994. His address is 29 Alden Road,
Greenwich, Connecticut 06831. Dr. Wong has been a Director of Republic Telecom
Systems Corporation (a provider of telecommunications equipment) since January
1989 and of TelWatch, Inc. (a provider of network management software) since
August 1989. Dr. Wong is also a Director of Back Bay Funds, Inc., California
Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Daily Tax Free Income Fund, Inc., Delafield Fund Inc., Georgia Daily Municipal
Income Fund, Inc., 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., and a
Trustee of Florida Daily Municipal 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, Georgia
Daily Municipal Income Fund, Inc., Michigan Daily Tax Free Income Funds, Inc.,
New Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income
Fund, Inc., North Carolina Daily Municipal Income Fund, Inc., Pax World Money
Market Fund, Inc., Pennsylvania Daily Municipal Income Fund and Virginia Daily
Municipal Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc., a Vice President
and Secretary of Delafield Fund, Inc., Reich & Tang Equity Fund, Inc. and Short
Term Income Fund, Inc.
Molly Flewharty, 47 - Vice President of the Fund, has been Vice President of the
Mutual Funds division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. with which she was associated with
from December 1977 to September 1993. Ms. Flewharty is also a Vice President 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., Delafield Fund, Inc., Florida Daily Municipal Income Fund, Georgia
Daily Municipal Income Fund,
15
<PAGE>
Inc., Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal
Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina
Daily Municipal Income Fund, Inc., Pax World Money Market Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc.
Lesley M. Jones, 49 - Vice President of the Fund, has been Senior Vice President
of the Mutual Funds division of the Manager since September 1993. Ms. Jones was
formerly Senior Vice President of Reich & Tang, Inc. with which she was
associated with from April 1973 to September 1993. Ms. Jones is also a Vice
President of Back Bay Funds, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Florida Daily Municipal Income Fund, Georgia Daily
Municipal Income Fund, Inc.,, Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income Fund, Inc., Pax World Money Market
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., Short Term Income Fund, Inc. and Virginia Daily Municipal Income Fund,
Inc.
Dana E. Messina, 41 - Vice President of the Fund, has been Executive Vice
President of the Mutual Funds division of the Manager since January 1995 and was
Vice President from September 1993 to January 1995. Ms. Messina was formerly
Vice President of Reich & Tang, Inc. with which she was associated with from
December 1980 to September 1993. Ms. Messina is also Vice President of Back Bay
Funds, Inc., California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax
Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Florida Daily Municipal Income Fund, Georgia Daily
Municipal Income Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily
Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short Term Income Fund,
Inc., and Tax Exempt Proceeds Funds, 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 and Vice
President and Treasurer of Cortland Financial Group, Inc. and Vice President of
Cortland Distributors, Inc. from 1989 to December 1990. Mr. De Sanctis is also
Treasurer of Back Bay Funds, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Florida Daily Municipal Income Fund, Georgia Daily
Municipal Income Fund, Inc.,, Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily
Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short Term Income Fund,
Inc. and Tax Exempt Proceeds Fund, Inc. and is Vice President and Treasurer of
Cortland Trust, Inc.
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., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income
Fund, Inc., Delafield Fund, Inc., Florida Daily Municipal Income Fund, Georgia
Daily Municipal Income Fund, Inc., Michigan Daily Tax Free Income Fund, Inc.,
New Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income
Fund, Inc., North Carolina Daily Municipal Income Fund, Inc., Pax World Money
Market Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity
Fund, Inc., Short Term Income Fund, Inc., and Virginia Daily Municipal Income
Fund, Inc. and is Vice President and Assistant Treasurer of Cortland Trust, Inc.
Trustees of the Fund not affiliated with the Manager receive from the Fund, per
Portfolio, an annual retainer of $1000 and a fee of $250 for each Board of
Trustees meeting attended and are reimbursed for all out-of-pocket expenses
relating to attendance at such meetings. Trustees who are affiliated with the
Manager do not receive compensation from the Fund. See Compensation Table.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
COMPENSATION TABLE
(1) (2) (3) (4) (5)
Name of Person, Aggregate Compensation from Pension or Retirement Estimated Annual Total Compensation from
Position Registrant for Fiscal Year Benefits Accrued as Part Benefits upon Retirement Fund and Fund Complex
of Fund Expenses Paid to Directors*
Dr. W. Giles Mellon,
Director $4,000 0 0 $52,250 (13 Funds)
16
<PAGE>
Robert Straniere,
Director $4,000 0 0 $52,250 (13 Funds)
Dr. Yung Wong,
Director $4,000 0 0 $52,250 (13 Funds)
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ended March 31, 1998 (and, with respect to certain of the funds
in the Fund Complex, estimated to be paid during the fiscal year ended March 31,
1998). The parenthetical number represents the number of investment companies
(including the Fund) from which such person receives compensation that are
considered part of the same Fund complex as the Fund, because, among other
things, they have a common investment advisor.
Counsel and Auditors
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Battle Fowler LLP, 75 East 55th Street, New York, New York 10022.
Matters in connection with Massachusetts law are passed upon by Dechert, Price &
Rhoads, Ten Post Office Square South, Boston, Massachusetts 02109-4603.
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 SEC has required that an
investment company which bears any direct or indirect expense of distributing
its shares must do so only in accordance with a plan permitted by the Rule. The
Fund's Board of Trustees has adopted a distribution and service plan (the
"Plan") and, pursuant to the Plan, the Fund has entered into a Distribution
Agreement and a Shareholder Servicing Agreement (with respect to Class A shares
only) with the Reich & Tang Distributors, Inc., (the "Distributor") as
distributor of the Fund's shares.
Reich & Tang Asset Management, Inc. serves as the sole general partner for both
Reich & Tang Asset Management L.P. and the Distributor, and Reich & Tang Asset
Management L.P. serves as the sole limited partner of the Distributor.
Effective January 26, 1995, a majority of the Fund's Board of Trustees,
including a majority of trustees, who are not interested (as defined in the 1940
Act) approved the creation of a second class of shares of beneficial interest of
the Fund. In furtherance of this action, the Board of Trustees has reclassified
the authorized shares of beneficial interest of the Fund into Class A and Class
B shares (the shares of the Fund which were then outstanding were designated
Class B shares). The Class A shares will be offered to investors who desire
certain additional shareholder services from Participating Organizations that
are compensated by the Fund's Manager and Distributor for such services.
Under the Plan, the Fund and the Distributor will enter into a Shareholder
Servicing Agreement, with respect to the Fund's Class A shares. For its services
under the Shareholder Servicing Agreement (with respect to Class A shares only),
the Distributor receives from the Fund a fee equal to .25% per annum of the
Class A shares of the Fund's average daily net assets (the "Shareholder
Servicing Fee") for providing personal shareholder services and for the
maintenance of shareholder accounts. The fee is accrued daily and paid monthly
and any portion of the fee may be deemed to be used by the Distributor for
payments to Participating Organizations with respect to servicing their clients
or customers who are shareholders of the Class A shares of the Fund. The Class B
shareholders do not receive the benefit of such services from Participating
Organizations and, therefore, will not be assessed a 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 subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Participating Organizations and Distributor in carrying out their
obligations under the Shareholder Servicing Agreement with respect to the Fund's
Class A shares and (ii) preparing, printing and delivering the Fund's prospectus
to existing shareholders of the Fund and preparing and printing subscription
application forms for shareholder accounts.
The Plan provides that the Manager may make payments from time to time from
their own resources, which may include the management fee, and past profits for
the following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements for performing
17
<PAGE>
shareholder servicing and related administrative functions on behalf of the
Class A shares of the Fund; (ii) to compensate certain Participating
Organizations for providing assistance in distributing the Fund's Class A
shares; and (iii) to pay the costs of printing and distributing the Fund's
prospectus to prospective investors, and to defray the cost of the preparation
and printing of brochures and other promotional materials, mailings to
prospective shareholders, advertising, and other promotional activities,
including the salaries and/or commissions of sales personnel in connection with
the distribution of the Fund's shares. The Distributor may also make payments
from time to time from its own resources, which may include the Shareholder
Servicing Fee with respect to Class A shares and past profits for the purpose
enumerated in (i) above. The Distributor will determine the amount of such
payments made pursuant to the Plan, provided that such payments will not
increase the amount which the Fund is required to pay to the Manager and the
Distributor for any fiscal year under the Investment Management Contract, the
Administrative Services Contract or the Shareholder Servicing Agreement in
effect for that year.
The following applies only to Class A shares of the Fund. For the Fund's fiscal
year ended March 31, 1998, the amount payable to the Distributor under the Plan
and Shareholder Servicing Agreement adopted thereunder pursuant to the Rule
12b-1 under the 1940 Act, totaled $181,149 for the Money Market Portfolio.
During the same period, the Manager and Distributor made payments under the Plan
totaling $62,126, of which $34,716 was to or on behalf of participating
organizations. For the fiscal year ended March 31, 1998, the amount payable to
the Distributor under the Plan and Shareholder Servicing Agreement adopted
thereunder pursuant to the Rule 12b-1 under the 1940 Act, totaled $956,793 for
the U.S. Treasury Portfolio. During the same period, the Manager and Distributor
made payments under the Plan totaling $872,732, of which $858,536 was to or on
behalf of Participating Organizations.
In accordance with the Rule, the Plan provides that all written agreements
relating to the Plan entered into between either the Fund or the Distributor and
Participating Organizations or other organizations must be in a form
satisfactory to the Fund's Board of Trustees. In addition, the Plan requires the
Fund and the Distributor to prepare, at least quarterly, written reports setting
forth all amounts expended for distribution purposes by the Fund and the
Distributor pursuant to the Plan and identifying the distribution activities for
which those expenditures were made.
The Plan was most recently approved on October 16, 1997 by the Board of Trustees
including a majority of the Trustees who are not interested persons (as defined
in the 1940 Act) of the Fund or the Manager and shall continue until December
31, 1998. The Plan provides that it may continue in effect for successive annual
periods provided it is approved by the Class A shareholders or by the Board of
Trustees, including a majority of trustees who are not interested persons of the
Fund and who have no direct or indirect interest in the operation of the Plan or
in the agreements related to the Plan. The Plan further provides that it may not
be amended to increase materially the costs which may be spent by the Fund for
distribution pursuant to the Plan without Class A shareholder approval, and the
other material amendments must be approved by the trustees in the manner
described in the preceding sentence. The Plan may be terminated at any time by a
vote of a majority of the disinterested trustees of the Fund or the Fund's Class
A shareholders.
DESCRIPTION OF SHARES
The Fund was established as a Massachusetts business trust under the laws of
Massachusetts by an Agreement and Declaration of Trust dated January 20, 1994.
The Fund has an unlimited authorized number of shares of beneficial interest.
These shares are entitled to one vote per share with proportional voting for
fractional shares. There are no conversion or preemptive rights in connection
with any shares of the Fund. All shares when issued in accordance with the terms
of the offering will be fully paid and non-assessable. Shares of the Fund are
redeemable at net asset value, at the option of the shareholders. On March 15,
1994, the Manager purchased $100,000 of the Money Market Portfolio's shares at
an initial subscription price of $1.00 per share for each Class.
Each Portfolio of the Fund is subdivided into two classes of shares of
beneficial interest, Class A and Class B. Each share, regardless of class, will
represent an interest in the same portfolio of investments and will have
identical voting, dividend, liquidation and other rights, preferences, powers,
restrictions, limitations, qualifications, designations and terms and
conditions, except that: (i) the Class A and Class B shares will have different
class designations; (ii) only the Class A shares will be assessed a service fee
of .25% of the average daily net assets of the Class A shares of the Fund
pursuant to the Rule 12b-1 Distribution and Service Plan of the Fund; (iii) only
the holders of the Class A shares would be entitled to vote on matters
pertaining to the Plan and any related agreements in accordance with provisions
of Rule 12b-1; and (iv) the exchange privilege will permit shareholders to
exchange their shares only for shares of the same class of any Portfolio of the
Fund. Payments that are made under the Plans will be calculated and charged
daily to the appropriate class prior to determining daily net asset value per
share and dividends/distributions.
On June 30, 1998 there were 361,035,009 Money Market Portfolio shares and
552,138,255 U.S. Treasury Portfolio shares of the Fund outstanding. As of June
30, 1998 the amount of shares owned by all officers and trustees of the Fund, as
a
18
<PAGE>
group, was less than 1% of the outstanding shares. Set forth below is certain
information as to persons who owned 5% or more of the Fund's outstanding shares
as of June 30, 1998:
<TABLE>
<CAPTION>
<S> <C> <C>
Nature of
Name and address % of Class Ownership
U.S. Treasury Portfolio-Class A
Neuberger & Berman, as Agent 79.86% Record
11 Broadway
New York, NY 10004-1302
U.S. Treasury Portfolio-Class B
NFSC, as Agent for Exclusive Benefit 44.31% Record
of Customers for Pinnacle Shares
200 Liberty Street
New York, NY 10281
The Trust Co. of the Berkshires 38.82% Record
54 North Street
Pittsfield, MA 01201
Oscar L. Tang 11.35% Record
600 Fifth Avenue
New York, NY 10020
Jane Wan 5.74% Record
1725 York Avenue #21F
New York, NY 10128
Money Market Portfolio-Class A
Hambrecht and Quist 76.01% Record
34 Exchange Place
Jersey City, NJ 07311-3988
Money Market Portfolio-Class B
NFSC, as Agent for Exclusive Benefit 41.79% Record
of Customers for Pinnacle Shares
200 Liberty Street
New York, NY 10281
Nvest Companies, L.P. 7.72% Record
399 Boylston Street
Boston, MA 02116
Copley Investors Limited Partnership 5.96% Record
C/O AW Capital Management
225 Franklin Street
Boston, MA 02110
</TABLE>
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
trustees can elect 100% of the trustees if the holders choose to do so and, in
the event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Trustees. Unless specifically requested by an
investor, the Fund will not issue certificates evidencing Fund shares.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
meetings only (a) for the election of trustees, (b) for approval of revised
investment advisory contracts with respect to a particular class or series of
beneficial interest, (c) for approval of revisions to the
19
<PAGE>
Fund's distribution agreement with respect to a particular class or series of
beneficial interest 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
including the removal of Fund Trustee(s) and communication among shareholders,
any registration of the Fund with the SEC or any state, or as the Trustee may
consider necessary or desirable. For example, procedures for calling a
shareholder's meeting for the removal of Trustees of the Fund, similar to those
set forth in Section 16(c) of the 1940 Act, are available to shareholders of the
Fund. A meeting for such purpose can be called by the holders of at least 10% of
the Fund's outstanding shares of beneficial interest. The Fund will aid
shareholder communications with other shareholders as required under Section
16(c) of the 1940 Act. Each Trustee serves until the next meeting of the
shareholders called for the purpose of considering the election or reelection of
such Trustee or of a successor to such Trustee, and until the election and
qualification of his or her successor, elected at such a meeting, or until such
Trustee 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, Inc.,
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.
NET ASSET VALUE
Pursuant to rules of the SEC, the Board of Trustees has established procedures
to stabilize each Portfolio's net asset value at $1.00 per share of each Class.
These procedures include a review of the extent of any deviation of net asset
value per share, based on available market rates, from $1.00. Should that
deviation exceed 1/2 of 1%, the Board will consider whether any action should be
initiated to eliminate or reduce material dilution or other unfair results to
shareholders. Such action may include redemption of shares in kind, selling
portfolio securities prior to maturity, reducing or withholding dividends and
utilizing a net asset value per share as determined by using available market
quotations. Each Portfolio will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a remaining
maturity greater than 397 days or subject to a repurchase agreement having a
duration of greater than one year, will limit portfolio investments, including
repurchase agreements, to those United States dollar-denominated instruments
that each Portfolio's Board of Trustees determines present minimal credit risks,
and will comply with certain reporting and record-keeping procedures. Each
Portfolio has also established procedures to ensure that portfolio securities
meet the quality criteria as provided in Rule 2a-7 of the 1940 Act.
(See "Investment Objectives, Policies and Risks" in the Prospectus.)
FINANCIAL STATEMENTS
The audited financial statements for the Fund for the fiscal year ended March
31, 1998 and the report thereon of McGladrey & Pullen, LLP, are herein
incorporated by reference to the Fund's Annual Report. The Annual Report is
available upon request and without charge.
20
<PAGE>
DESCRIPTION OF RATINGS
Commercial Paper and Corporate Bond Ratings
Description of Prime-1 and A-1 Commercial Paper Ratings
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
(1) evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which exist with
the issuer; and (8) recognition by management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations.
Commercial paper rated A by S&P has the following characteristics. Liquidity
ratios are adequate to meet cash requirements. Long-term senior debt rating
should be A or better. In some cases, BBB credits may be allowed if other
factors outweigh the BBB rating. The issuer should have access to at least two
additional channels of borrowing. Basic earnings and cash flow should have an
upward trend with allowances made for unusual circumstances. Typically the
issuer's industry should be well established and the issuer should have a strong
position within its industry and the reliability and quality of management
should be unquestioned. Issuers rated A are further referred by use of numbers
1, 2 and 3 to denote relative strength within this highest classification.
Description of Aa and AA Corporate Bond Ratings
Bonds rate Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with bonds rated Aaa (Moody's highest rating) they comprise
what are generally known as high-grade bonds. Aa bonds are rated lower than the
best bonds because margins of protection may not be as large as Aaa securities
or fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
Bonds rated AA by S&P are judged to be high-quality debt obligations. Their
capacity to pay principal and interest is considered very strong, and in the
majority of instances they differ from AAA issues only in a small degree. Bonds
rated AAA are considered by S&P to be highest grade obligations and indicate an
extremely strong capacity to pay principal and interest.
21
<PAGE>
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements
Included in Prospectus Part A:
(1) Table of Fees and Expenses
(2) Financial Highlights
Incorporated by Reference in Statement of Additional Information
Part B:
(1) Report of McGladrey & Pullen, LLP, independent
certified public accountants, dated April 25, 1998;
(2) Statement of Assets and Liabilities, March 31, 1998
(audited);
(3) Note to Financial Statements, March 31, 1998
(4) Statement of Net Assets, March 31, 1998 (audited);
(5) Statement of Operations, March 31, 1998 (audited);
(6) Statement of Changes in Net Assets, March 31, 1998
(audited); and
(7) Notes to Financial Statements.
(b) Exhibits.
** (1) Declaration of Trust of the Registrant.
** (2) By-Laws of the Registrant.
(3) Not applicable.
(4) Not applicable.
* (5) Form of Investment Management Contract between the
Registrant and Reich & Tang Asset Management, L.P.
* (6) Form of Distribution Agreement between the Registrant
and Reich & Tang Distributors,
Inc.
(7) Not applicable.
** (8) Custody Agreement between the Registrant and Investors
Fiduciary Trust Company.
** (9) Transfer Agent Agreement between Registrant and Fundtech
Services L.P.
- -------------------------
* Filed herein.
** Filed with Pre-Effective Amendment No. 1 to Registration Statement
No. 33-74470 on April 8, 1994 and incorporated herein by reference.
(Filed herewith for Edgar Purposes Only)
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** (9.1) Administrative Services Agreement between the
Registrant and Reich & Tang Asset Management L.P.
** (10.1) Opinion of Battle Fowler LLP to the use of their
name under the headings "Dividends, Distributions, and
Taxes" and "Counsel and Auditors" in the Prospectus.
** (10.2) Opinion of Dechert, Price & Rhoads as to the legality
of the securities being registered, including their
consent to the filing thereof and to the use of their
name under the heading "Counsel and Auditors" in the
Statement of Additional Information.
* (11) Consent of Independent Certified Public Accountants.
(12) Not applicable.
** (13) Written assurance of New England Investment Companies,
L.P. that its purchase of shares of the registrant was
for investment purposes without any present intention
of redeeming or reselling
(14) Not applicable.
* (15.1) Form of Distribution and Service Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940.
(15.2) Form of Distribution Agreement between the Registrant
and Reich & Tang Distributors, Inc. (filed herein-see
Exhibit 6.)
**** (15.3) Shareholder Servicing Agreement and Administrative
Services Contract between the Registrant and Reich &
Tang Distributors, Inc..
*** (16) Powers of Attorney
(17) Financial Data Schedule Filed herein for Edgar Purposes
Only.
Item 25. Persons controlled by or Under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
Title of Class Number of Record Holders
Shares of Beneficial Interest as of June 30, 1998
(par value $.01)
Money Market Portfolio
Class A 210
Class B 60
Shares of Beneficial Interest
(par value $.01)
U.S. Treasury Portfolio
Class A 703
Class B 5
- --------------------------
* Filed herein.
** Filed with Pre-Effective Amendment No. 1 to Registration Statement No.
33-74470 on April 8, 1994 and incorporated herein by reference. (Filed
herewith for Edgar Purposes Only)
*** Filed with Post-Effective Amendment No. 1 to Registration Statement
No. 33-74470 on October 28, 1994 and incorporated herein by reference.
**** Filed with Post-Effective Amendment No. 2 to Registration Statement
No. 33-74470 on January 31, 1995 and incorporated herein by reference.
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Item 26. Number of Holders of Securities (continued)
Title of Class Number of Record Holders
Shares of Beneficial Interest as of June 30, 1998
(par value $.01)
Pinnacle Shares Money
Market Portfolio
Class A 1
------
Shares of Beneficial Interest
(par value $.01)
Pinnacle Shares
U.S. Treasury Portfolio
Class A 1
- -------
Item 27. Indemnification.
The Registrant incorporates herein by reference the response to Item 27
of the Registration Statement filed with the SEC on July 28, 1997.
Item 28. Business and Other Connections of Investment Adviser.
The description of Reich & Tang Asset Management L.P. under the caption
"Management of the Fund" in the Prospectus and "Management and Investment
Management Contract" of the Fund in the Statement of Additional Information
constituting parts A and B, respectively, of the Registration Statement are
incorporated herein by reference.
The Registrant's investment adviser, Reich & Tang Asset Management L.P. is a
registered investment adviser. Reich & Tang Asset Management L.P.'s investment
advisory clients include 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, Georgia
Daily Municipal Income Fund, Inc., Institutional Daily Income Fund, Michigan
Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc.,
New York Daily Tax Free Income Fund, Inc., Pax World Money Market Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Short Term Income Fund, Inc., Tax
Exempt Proceeds Fund, Inc., and Virginia Daily Municipal Income Fund, Inc.,
registered investment companies whose addresses are 600 Fifth Avenue, New York,
New York 10020, which invest principally in money market instruments; Delafield
Fund, Inc. and Reich & Tang Equity Fund, Inc. are registered investment
companies whose address is 600 Fifth Avenue, New York, New York 10020, which
invests principally in equity securities. In addition, RTAMLP is the sole
general partner of Alpha Associates L.P., August Associates L.P., Reich & Tang
Minutus L.P., Reich & Tang Minutus II, L.P., Reich & Tang Equity Partnerships
L.P. and Tucek Partners L.P., private investment partnerships organized as
limited partnerships.
Peter S. Voss, President, Chief Executive Officer and a Director of Nvest
Corporation (Formerly New England Investment Companies, Inc.) since October
1992, Chairman of the Board of Nvest Corporation since December 1992, Group
Executive Vice President, Bank of America, responsible for the global asset
management private banking businesses, from April 1992 to October 1992,
Executive Vice President of Security Pacific Bank, and Chief Executive Officer
of Security Pacific Hoare Govett Companies a wholly-owned subsidiary of Security
Pacific Corporation, from April 1988 to April 1992, Director of The New England
since March 1993, Chairman of the Board of Directors of Nvest Corporation's
subsidiaries other than Loomis, Sayles & Company, L.P. ("Loomis") and Back Bay
Advisors, L.P. ("Back Bay"),
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where he serves as a Director, and Chairman of the Board of Trustees of all of
the mutual funds in the TNE Fund Group and the Zenith Funds. G. Neal Ryland,
Executive Vice President, Treasurer and Chief Financial Officer since July 1993,
Executive Vice President and Chief Financial Officer of The Boston Company, a
diversified financial services company, from March 1989 until July 1993, from
September 1985 to December 1988, Mr. Ryland was employed by Kenner Parker Toys,
Inc. as Senior Vice President and Chief Financial Officer. Edward N. Wadsworth,
Executive Vice President, General Counsel, Clerk and Secretary of Nvest
Corporation since December 1989, Senior Vice President and Associate General
Counsel of The New England from 1984 until December 1992, and Secretary of
Westpeak and Draycott and the Treasurer of Nvest Corporation. Lorraine C. Hysler
has been Secretary of RTAM since July 1994, Assistant Secretary since September
1993, Vice President of the Mutual Funds Group of NEICLP from September 1993
until July 1994, and Vice President of Reich & Tang Mutual Funds since July
1994. Ms. Hysler joined Reich & Tang, Inc. in May 1977 and served as Secretary
from April 1987 until September 1993. Richard E. Smith, III has been a Director
of RTAM since July 1994, President and Chief Operating Officer of the Capital
Management Group of NEICLP from May 1994 until July 1994, President and Chief
Operating Officer of the Reich & Tang Capital Management Group since July 1994,
Executive Vice President and Director of Rhode Island Hospital Trust from March
1993 to May 1994, President, Chief Executive Officer and Director of USF&G
Review Management Corp. from January 1988 until September 1992. Steven W. Duff
has been a Director of RTAM since October 1994, President and Chief Executive
Officer of Reich & Tang Mutual Funds since August 1994, Senior Vice President of
NationsBank from June 1981 until August 1994, Mr. Duff is President and a
Director of Back Bay Funds, Inc., California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income
Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Pax World Money Market Fund, Inc., Short Term
Income Fund, Inc. and Virginia Daily Municipal Income Fund, Inc. President and
Trustee of Institutional Daily Municipal Income Fund, Pennsylvania Daily
Municipal Income Fund, President and Chief Executive Officer of Tax Exempt
Proceeds Fund, Inc., and Executive Vice President of Reich & Tang Equity Fund,
Inc. Bernadette N. Finn has been Vice President/Compliance of RTAM since July
1994, Vice President of Mutual Funds Division of NEICLP from September 1993
until July 1994, Vice President of Reich & Tang Mutual Funds since July 1994.
Ms. Finn joined Reich & Tang, Inc. in September 1970 and served as Vice
President from September 1982 until May 1987 and as Vice President and Assistant
Secretary from May 1987 until September 1993. Ms. Finn is also Secretary of Back
Bay Funds, Inc., California Daily Tax Free Income Fund, Inc., Connecticut Daily
Tax Free Income Fund, Inc., Cortland Trust, Inc., Delafield Fund, Inc., Daily
Tax Free Income Fund, Inc., Institutional Daily Municipal Income Fund, Michigan
Daily Tax Free Income Funds, Inc., New Jersey Daily Municipal Income Fund, Inc.,
New York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pax World Money Market Fund, Inc., Pennsylvania Daily Municipal
Income Fund, Tax Exempt Proceeds Fund, Inc., and Virginia Daily Municipal Income
Fund, Inc. a Vice President and Secretary of Reich & Tang Equity Fund, Inc., and
Short Term Income Fund, Inc. Richard DeSanctis has been Treasurer of RTAM since
July 1994, Assistant Treasurer since September 1993 and Treasurer of the Mutual
Funds Group of NEICLP from September 1993 until July 1994, Treasurer of the
Reich & Tang Mutual Funds since July 1994. Mr. DeSanctis joined Reich & Tang,
Inc. in December 1990 and served as Controller of Reich & Tang, Inc., from
January 1991 to September 1993. Mr. DeSanctis was Vice President and Treasurer
of Cortland Financial Group, Inc. and Vice President of Cortland Distributors,
Inc. from 1989
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<PAGE>
to December 1990. Mr. DeSanctis is also Treasurer of Back Bay Funds, Inc.,
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc.,
Institutional Daily Municipal Income Fund, Michigan Daily Tax Free Income Fund,
Inc., New Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free
Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc., Pax World
Money Market Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang
Equity Fund, Inc., Short Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc.
and Virginia Daily Municipal Income Fund, Inc., and is Vice President and
Treasurer of Cortland Trust, Inc. Richard I. Weiner has been Vice President of
RTAM since July 1994, has been Vice President of Nvest Corporation since
September 1993, Vice President of the Capital Management Group of NEIC from
September 1993 until July 1994, Vice President of Reich & Tang Asset Management
L.P. Capital Management Group since July 1994. Mr. Weiner joined Reich & Tang,
Inc. in August 1970 and has served as a Vice President since September 1982.
Rosanne D. Holtzer has been Vice President of the Mutual Funds division of the
Manager since December 1997. Ms. Holtzer was formerly Manager of Fund Accounting
for the Manager with which she was associated with from June 1986. She is also
Assistant Treasurer of Back Bay Funds, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Florida
Daily Municipal Income Fund, Institutional Daily Income Fund, Michigan Daily Tax
Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York
Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income Fund,
Inc. Pax World Money Market Fund, Inc., Pennsylvania Daily Municipal Income
Fund, Short Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc. and Virginia
Daily Municipal Income Fund, Inc. and is Vice President and Assistant Treasurer
of Cortland Trust, Inc.
Item 29. Principal Underwriters.
(a) Reich & Tang Distributors, Inc. is also distributor for Back Bay
Funds, Inc., California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax
Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Florida Daily Municipal Income Fund, Georgia Daily
Municipal Income Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income Fund, Inc., Pax World Money Market
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., Short Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc. and Virginia
Daily Municipal Income Fund, Inc.
(b) The following are the directors and officers of Reich & Tang
Distributors, Inc.. The principal business address of Messrs. Voss, Ryland and
Wadsworth is 399 Boylston Street, Boston, Massachusetts 02116. For all other
persons, the principal business address is 600 Fifth Avenue, New York, New York
10020.
Positions and Offices Positions and Offices
Name With the Distributor With Registrant
Peter S. Voss President and Director None
G. Neal Ryland Director None
Edward N. Wadsworth Executive Officer None
Richard E. Smith III Director None
Steven W. Duff Director Executive Vice President
and Trustee
Bernadette N. Finn Vice President Vice President and
Secretary
Lorraine C. Hysler Secretary None
Richard De Sanctis Treasurer Treasurer
Richard I. Weiner Vice President None
Rosanne Holtzer Vice President Assistant Treasurer
(c) Not applicable.
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<PAGE>
Item 30. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained in the physical possession of Registrant at 600 Fifth
Avenue, New York, New York 10020, the Registrant's Manager; and at Investors
Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri, 64105, the
Registrant's custodian; and at Reich & Tang Services, Inc., 600 Fifth Avenue,
New York, New York 10020, the Registrant's Transfer Agent and Dividend
Disbursing Agent.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has met all the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, and State of New York, on the 29th day of July, 1998.
INSTITUTIONAL DAILY INCOME FUND
By: /s/Bernadette N. Finn
Bernadette N. Finn
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities indicated and on July 29, 1998.
SIGNATURE TITLE DATE
(1) Principal Executive Officer
Steven W. Duff Chairman and President 07/29/98
By:/s/Steven W. Duff
Steven W. Duff
(2) Principal Financial and
Accounting Officer
/s/Richard De Sanctis
Richard De Sanctis Treasurer 07/29/98
(3) Majority of the Board of Trustees
Dr. W. Giles Mellon Trustee
Dr. Yung Wong Trustee
Robert Straniere Trustee
By:/s/Bernadette N. Finn 07/29/98
Bernadette N. Finn
Attorney-in-Fact*
* An executed copy of the Powers of Attorney was filed with
Post-Effective Amendment No. 1 to the Registration Statement on
October 28, 1994 and incorporated herein by reference.
INVESTMENT MANAGEMENT CONTRACT
INSTITUTIONAL DAILY INCOME FUND
the "Fund"
U.S. Government Portfolio
Money Market Portfolio
Tax Exempt Portfolio
the "Portfolios"
New York, New York
___________, 1996
Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
Gentlemen:
We herewith confirm our agreement with you as follows:
1. We propose to engage in the business of investing and
reinvesting our assets in securities of the type, and in accordance with the
limitations, specified in our Declaration of Trust, By-Laws and Registration
Statement filed with the Securities and Exchange Commission under the Investment
Company Act of 1940 (the "1940 Act") and the Securities Act of 1933, including
the Prospectus forming a part thereof (the "Registration Statement"), all as
from time to time in effect, and in such manner and to such extent as may from
time to time be authorized by our Board of Trustees. We enclose copies of the
documents listed above and will furnish you such amendments thereto as may be
made from time to time.
2. (a) We hereby employ you to manage the investment and
reinvestment of our assets of our Portfolios as above specified, and, without
limiting the generality of the foregoing, to provide the investment management
services specified below.
(b) Subject to the general control of our Board of
Trustees, you will make decisions with respect to all purchases and sales of the
portfolio securities of the Portfolios. To carry out such decisions, you are
hereby authorized, as our agent and attorney-in-fact for our account and at our
risk and in our name, to place orders for the investment and reinvestment of our
assets. In all purchases, sales and other transactions in our portfolio
securities you are authorized to exercise full discretion and act for us in the
same manner and with the same force and effect as our corporation itself might
or could do with respect to such purchases, sales or other transactions, as well
as with respect to all other things necessary or incidental to the furtherance
or conduct of such purchases, sales or other transactions.
(c) You will report to our Board of Trustees at each
meeting thereof all changes in our portfolios since your prior report, and will
also keep us in touch with important developments affecting our portfolios and,
on your initiative, will furnish us from time to time with such information as
you may believe appropriate for this purpose, whether concerning the individual
entities whose securities are included in our portfolios, the activities in
<PAGE>
which such entities engage, Federal income tax policies applicable to our
investments, or the conditions prevailing in the money market or the economy
generally. You will also furnish us with such statistical and analytical
information with respect to our portfolio securities as you may believe
appropriate or as we may reasonably request. In making such purchases and sales
of our portfolio securities, you will comply with the policies set from time to
time by our Board of Trustees as well as the limitations imposed by our
Declaration of Trust and by the provisions of the Internal Revenue Code and the
1940 Act relating to regulated investment companies and the limitations
contained in the Registration Statement.
(d) It is understood that you will from time to time
employ, subcontract with or otherwise associate with yourself, entirely at your
expense, such persons as you believe to be particularly fitted to assist you in
the execution of your duties hereunder.
(e) You or your affiliates will also furnish us, at your
own expense, such investment advisory supervision and assistance as you may
believe appropriate or as we may reasonably request subject to the requirements
of any regulatory authority to which you may be subject. You and your affiliates
will also pay the expenses of promoting the sale of our shares (other than the
costs of preparing, printing and filing our registration statement, printing
copies of the prospectus contained therein and complying with other applicable
regulatory requirements), except to the extent that we are permitted to bear
such expenses under a plan adopted pursuant to Rule 12b-1 under the 1940 Act or
a similar rule.
3. We agree, subject to the limitations described below, to be
responsible for, and hereby assume the obligation for payment of, all our
expenses, including: (a) brokerage and commission expenses, (b) Federal, state
or local taxes, including issue and transfer taxes incurred by or levied on us,
(c) commitment fees and certain insurance premiums, (d) interest charges on
borrowings, (e) charges and expenses of our custodian, (f) charges, expenses and
payments relating to the issuance, redemption, transfer and dividend disbursing
functions for us, (g) recurring and nonrecurring legal and accounting expenses,
including those of the bookkeeping agent, (h) telecommunications expenses, (i)
the costs of organizing and maintaining our existence as a corporation, (j)
compensation, including directors' fees, of any of our directors, officers or
employees who are not your officers or officers of your affiliates, and costs of
other personnel providing clerical, accounting supervision and other office
services to us as we may request, (k) costs of stockholder services including,
charges and expenses of persons providing confirmations of transactions in our
shares, periodic statements to stockholders, and recordkeeping and stockholders'
services, (l) costs of stockholders' reports, proxy solicitations, and corporate
meetings, (m) fees and expenses of registering our shares under the appropriate
Federal securities laws and of qualifying such shares under applicable state
securities laws, including expenses attendant upon the initial registration and
qualification of such shares and attendant upon renewals of, or amendments to,
those registrations and qualifications, (n) expenses of preparing, printing and
delivering our prospectus to existing shareholders and of printing shareholder
application forms for shareholder accounts, and (o) payment of the fees and
expenses provided for herein, under the Administrative Services Agreement and
pursuant to the Distribution Agreement. Our obligation for the foregoing
expenses is limited by your agreement to be responsible, while this Agreement
2
<PAGE>
is in effect, for any amount by which the annual operating expenses for each
Portfolio (excluding taxes, brokerage, interest and extraordinary expenses)
exceed the limits on investment company expenses prescribed by any state in
which the shares for such Portfolio are qualified for sale.
4. We will expect of you, and you will give us the benefit of,
your best judgment and efforts in rendering these services to us, and we agree
as an inducement to your undertaking these services that you will not be liable
hereunder for any mistake of judgment or for any other cause, provided that
nothing herein shall protect you against any liability to us or to our security
holders by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties hereunder, or by reason of your reckless disregard of
your obligations and duties hereunder.
5. In consideration of the foregoing the Portfolios will pay
you a fee at the annual rate of .08% of each Portfolio's average daily net
assets. Your fee will be accrued by us daily, and will be payable on the last
day of each calendar month for services performed hereunder during that month or
on such other schedule as you shall request of us in writing. You may use any
portion of this fee for distribution of our shares, or for making servicing
payments to organizations whose customers or clients are our shareholders. You
may waive your right to any fee to which you are entitled hereunder, provided
such waiver is delivered to us in writing. Any reimbursement of our expenses, to
which we may become entitled pursuant to paragraph 3 hereof, will be paid to us
at the same time as we pay you.
6. This Agreement will become effective on the date hereof and
shall continue in effect until ____________, 199_ and thereafter for successive
twelve-month periods (computed from each ____________), provided that such
continuation is specifically approved at least annually by our Board of Trustees
or by a majority vote of the holders of the outstanding voting securities of
each respective Portfolio voting separately, as defined in the 1940 Act and the
rules thereunder, and, in either case, by a majority of those of our directors
who are neither party to this Agreement nor, other than by their service as
directors of the corporation, interested persons, as defined in the 1940 Act, of
any such person who is party to this Agreement. Upon the effectiveness of this
Agreement, it shall supersede all previous Agreements between us covering the
subject matter hereof. With respect to each Portfolio, this Agreement may be
terminated at any time, without the payment of any penalty, (i) by vote of a
majority of the outstanding voting securities of each respective Portfolio
voting separately, as defined in the 1940 Act and the rules thereunder, or (ii)
by a vote of a majority of our entire Board of Trustees, on sixty days' written
notice to you, or by you on sixty days' written notice to us.
7. This Agreement may not be transferred, assigned, sold or in
any manner hypothecated or pledged by you and this agreement shall terminate
automatically in the event of any such transfer, assignment, sale, hypothecation
or pledge by you. The terms "transfer", "assignment" and "sale" as used in this
paragraph shall have the meanings ascribed thereto by governing law and in
applicable rules or regulations of the Securities and Exchange Commission.
3
<PAGE>
8. Except to the extent necessary to perform your obligations
hereunder, nothing herein shall be deemed to limit or restrict your right, or
the right of any of your employees or the officers and directors of New England
Investment Companies, Inc., your general partner, who may also be a director,
officer or employee of ours, or of a person affiliated with us, as defined in
the 1940 Act, to engage in any other business or to devote time and attention to
the management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
If the foregoing is in accordance with your understanding,
will you kindly so indicate by signing and returning to us the enclosed copy
hereof.
Very truly yours,
INSTITUTIONAL DAILY INCOME FUND
U.S. Government Portfolio
Money Market Portfolio
Tax Exempt Portfolio
By:
ACCEPTED: ___________, 1998
REICH & TANG ASSET MANAGEMENT L.P.
By: REICH & TANG ASSET MANAGEMENT,
INC., General Partner
By: ___________________________
4
DISTRIBUTION AGREEMENT
INSTITUTIONAL DAILY INCOME FUND (the "Fund")
U.S. Government Portfolio
Money Market Portfolio
Tax Exempt Portfolio
(the "Portfolios")
600 Fifth Avenue
New York, New York 10020
_________________, 1998
Reich & Tang Distributors, Inc.
600 Fifth Avenue
New York, New York 10020
Ladies and Gentlemen:
We hereby confirm our agreement with you as follows:
1. In consideration of the agreements on your part herein
contained and of the payment by us to you of a fee of $1 per year and on the
terms and conditions set forth herein, on behalf of our Portfolios, we have
agreed that you shall be, for the period of this agreement, a distributor, as
our agent, for the unsold portion of such number of shares of our beneficial
interest Portfolios $.01 par value per share, as may be effectively registered
from time to time under the Securities Act of 1933, as amended (the "1933 Act").
This agreement is being entered into pursuant to the Distribution and Service
Plan (the "Plan") adopted by us in accordance with Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act").
2. We hereby agree that you will act as our agent, and hereby
appoint you our agent, to offer, and to solicit offers to subscribe to, the
unsold balance of shares of our beneficial interest as shall then be effectively
registered under the Act. All subscriptions for shares of the Portfolio's
beneficial interest obtained by you shall be directed to us for acceptance and
shall not be binding on us until accepted by us. You shall have no authority to
make binding subscriptions on our behalf. We reserve the right to sell shares of
our beneficial interest through other distributors or directly to investors
through subscriptions received by us at our principal office in New York, New
York. The right given to you under this agreement shall not apply to shares of
our beneficial interest issued in connection with (a) the merger or
consolidation of any other investment company with us, (b) our acquisition by
purchase or otherwise of all or substantially all of the assets or stock of any
other investment company, or (c) the reinvestment in shares of our beneficial
interest by our stockholders of dividends or other distributions or any other
offering by us of securities to our stockholders.
3. You will use your best efforts to obtain subscriptions to
shares of our beneficial interest upon the terms and conditions contained herein
and in our Prospectus, as in effect from time to time. You will send to us
promptly all subscriptions placed with you. We shall furnish you from time to
time, for use in connection with the offering of shares of our beneficial
interest, such other information with respect to us and shares of our beneficial
interest as you may reasonably request. We shall supply you with such copies of
our Registration Statement and Prospectus, as in effect
<PAGE>
from time to time, as you may request. Except as we may authorize in writing,
you are not authorized to give any information or to make any representation
that is not contained in the Registration Statement or Prospectus, as then in
effect. You may use employees, agents and other persons, at your cost and
expense, to assist you in carrying out your obligations hereunder, but no such
employee, agent or other person shall be deemed to be our agent or have any
rights under this agreement. You may sell our shares to or through qualified
brokers, dealers and financial institutions under selling and servicing
agreements provided that no dealer, financial institution or other person shall
be appointed or authorized to act as our agent without our written consent.
With respect to the Class A Shares of our Portfolios, you will
arrange for organizations whose customers or clients are shareholders of our
corporation ("Participating Organizations") to enter into agreements with you
for the performance of shareholder servicing and related administrative
functions not performed by you or the Transfer Agent. You may make payments to
Participating Organizations for performing shareholder servicing and related
administrative functions with respect to our Class A Shares pursuant to written
agreements approved in form and substance by our Board of Trustees to be entered
into by you and the Participating Organizations. It is recognized that we shall
have no obligation or liability to you or any Participating Organization for any
such payments under the agreements with Participating Organizations. Our
obligation is solely to make payments to you under the this agreement (with
respect to the Class A Shares) and to the Manager under the Investment
Management Contract and the Administrative Services Contract. All sales of our
shares effected through you will be made in compliance with all applicable
federal securities laws and regulations and the Constitution, rules and
regulations of the National Association of Securities Dealers, Inc. ("NASD").
4. We reserve the right to suspend the offering of shares of
our beneficial interest at any time, in the absolute discretion of our Board of
Trustees, and upon notice of such suspension you shall cease to offer our shares
hereunder.
5. Both of us will cooperate with each other in taking such
action as may be necessary to qualify our shares for sale under the securities
laws of such states as we may designate, provided, that you shall not be
required to register as a broker-dealer or file a consent to service of process
in any such state where you are not now so registered. Pursuant to the
Investment Management Contract in effect between us and the Manager, we will pay
all fees and expenses of registering shares of our beneficial interest under the
Act and of qualification of shares of our beneficial interest, and to the extent
necessary, our qualification under applicable state securities laws. You will
pay all expenses relating to your broker-dealer qualification.
6. We represent to you that our Registration Statement and
Prospectus have been carefully prepared to date in conformity with the
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the Securities and Exchange Commission (the "SEC") thereunder. We represent and
warrant to you, as of the date hereof, that our Registration Statement and
Prospectus contain all statements required to be stated therein in accordance
with the 1933 Act and the 1940 Act and the SEC's rules and regulations
thereunder; that all statements of fact contained therein are or will be true
and correct at the time indicated or the effective date as the case may be;
2
<PAGE>
and that neither our Registration Statement nor our Prospectus, when they shall
become effective or be authorized for use, will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of our
shares. We will from time to time file such amendment or amendments to our
Registration Statement and Prospectus as, in the light of future development,
shall, in the opinion of our counsel, be necessary in order to have our
Registration Statement and Prospectus at all times contain all material facts
required to be stated therein or necessary to make any statements therein not
misleading to a purchaser of our shares. If we shall not file such amendment or
amendments within fifteen days after our receipt of a written request from you
to do so, you may, at your option, terminate this agreement immediately. We will
not file any amendment to our Registration Statement or Prospectus without
giving you reasonable notice thereof in advance; provided, however, that nothing
in this agreement shall in any way limit our right to file such amendments to
our Registration Statement or Prospectus, of whatever character, as we may deem
advisable, such right being in all respects absolute and unconditional. We
represent and warrant to you that any amendment to our Registration Statement or
Prospectus hereafter filed by us will be carefully prepared in conformity within
the requirements of the 1933 Act and the 1940 Act and the SEC's rules and
regulations thereunder and will, when it becomes effective, contain all
statements required to be stated therein in accordance with the 1933 Act and the
1940 Act and the SEC's rules and regulations thereunder; that all statements of
fact contained therein will, when the same shall become effective, be true and
correct; and that no such amendment, when it becomes effective, will include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading to
a purchaser of our shares.
7. We agree to indemnify, defend and hold you, and any person
who controls you within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which you or
any such controlling person may incur, under the 1933 Act or the 1940 Act, or
under common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in our Registration Statement or
Prospectus in effect from time to time or arising out of or based upon any
alleged omission to state a material fact required to be stated in either of
them or necessary to make the statements in either of them not misleading;
provided, however, that in no event shall anything herein contained be so
construed as to protect you against any liability to us or our security holders
to which you would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of your duties, or by reason of
your reckless disregard of your obligations and duties under this agreement. Our
agreement to indemnify you and any such controlling person is expressly
conditioned upon our being notified of any action brought against you or any
such controlling person, such notification to be given by letter or by telegram
addressed to us at our principal office in New York, New York, and sent to us by
the person against whom such action is brought within ten days after the summons
or other first legal process shall have been served. The failure so to notify us
of any such action shall not relieve us from any liability which we may have to
the person against whom such action is brought other than on account of our
indemnity agreement contained in this paragraph 7. We will be entitled to assume
the defense of any suit brought to enforce any such claim, and to retain counsel
of good standing chosen by us
3
<PAGE>
and approved by you. In the event we do elect to assume the defense of any such
suit and retain counsel of good standing approved by you, the defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by any of them; but in case we do not elect to assume the
defense of any such suit, or in case you, in good faith, do not approve of
counsel chosen by us, we will reimburse you or the controlling person or persons
named as defendant or defendants in such suit, for the fees and expenses of any
counsel retained by you or them. Our indemnification agreement contained in this
paragraph 7 and our representations and warranties in this agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of you or any controlling person and shall survive the sale of any of our
shares made pursuant to subscriptions obtained by you. This agreement of
indemnity will inure exclusively to your benefit, to the benefit of your
successors and assigns, and to the benefit of any of your controlling persons
and their successors and assigns. We agree promptly to notify you of the
commencement of any litigation or proceeding against us in connection with the
issue and sale of any of our shares.
8. You agree to indemnify, defend and hold us, our several
officers and trustees, and any person who controls us within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities, and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any reasonable counsel fees
incurred in connection therewith) which we, our officers or trustees, or any
such controlling person may incur under the 1933 Act or under common law or
otherwise, but only to the extent that such liability or expense incurred by us,
our officers or trustees or such controlling person shall arise out of or be
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by you to us for use in our Registration
Statement or Prospectus as in effect from time to time, or shall arise out of or
be based upon any alleged omission to state a material fact in connection with
such information required to be stated in the Registration Statement or
Prospectus or necessary to make such information not misleading. Your agreement
to indemnify us, our officers and trustees, and any such controlling person is
expressly conditioned upon your being notified of any action brought against us,
our officers or trustees or any such controlling person, such notification to be
given by letter or telegram addressed to you at your principal office in New
York, New York, and sent to you by the person against whom such action is
brought, within ten days after the summons or other first legal process shall
have been served. You shall have a right to control the defense of such action,
with counsel of your own choosing, satisfactory to us, if such action is based
solely upon such alleged misstatement or omission on your part, and in any other
event you and we, our officers or trustees or such controlling person shall each
have the right to participate in the defense or preparation of the defense of
any such action. The failure so to notify you of any such action shall not
relieve you from any liability which you may have to us, to our officers or
trustees, or to such controlling person other than on account of your indemnity
agreement contained in this paragraph 8.
9. We agree to advise you immediately:
(a) of any request by the SEC for amendments to our
Registration Statement or Prospectus or for additional information,
(b) of the issuance by the SEC of any stop order
suspending the effectiveness of our Registration Statement or Prospectus or the
4
<PAGE>
initiation of any proceedings for that purpose,
(c) of the happening of any material event which
makes untrue any statement made in
our Registration Statement or Prospectus or which requires the making of a
change in either of them in order to make the statements therein not misleading,
and
(d) of all action of the SEC with respect to any
amendments to our Registration Statement or Prospectus.
10. This Agreement (which was re-executed on the date hereof)
became effective on _______ and will remain in effect thereafter for successive
twelve-month periods (computed from each ________), provided that such
continuation is specifically approved at least annually by vote of our Board of
Trustees and of a majority of those of our directors who are not interested
persons (as defined in the 1940 Act) and have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the Plan,,
cast in person at a meeting called for the purpose of voting on this agreement.
This agreement may be terminated at any time, without the payment of any
penalty, (a) on sixty days' written notice to you (i) by vote of a majority of
our entire Board of Trustees, and by a vote of a majority of our Trustees who
are not interested persons (as defined in the 1940 Act) and have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related to the Plan, or (ii) by vote of a majority of our outstanding voting
securities, as defined in the Act, or (b) by you on sixty days' written notice
to us.
11. This Agreement may not be transferred, assigned, sold or
in any manner hypothecated or pledged by you and this Agreement shall terminate
automatically in the event of any such transfer, assignment, sale, hypothecation
or pledge by you. The terms "transfer", "assignment" and "sale" as used in this
paragraph shall have the meanings ascribed thereto by governing law and in
applicable rules or regulations of the SEC thereunder.
12. Except to the extent necessary to perform your obligations
hereunder, nothing herein shall be deemed to limit or restrict your right, the
right of any of your employees, officers or directors, who may also be a
trustee, officer or employee of ours, or of a person affiliated with us, as
defined in the 1940 Act, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or nature, or to render services of any kind to another corporation,
firm, individual or association.
If the foregoing is in accordance with your understanding,
will you kindly so indicate by signing and returning to us the enclosed copy
hereof.
Very truly yours,
INSTITUTIONAL DAILY INCOME FUND
U.S. Government Portfolio
Money Market Portfolio
Tax Exempt Portfolio
By
Accepted: ________________, 1998
REICH & TANG DISTRIBUTORS, INC.
By: ___________________________
5
McGLADREY & PULLEN, L.L.P.
Certified Public Accountants & Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated April 27, 1998, on the
financial statements referred to therein in Post-Effective Amendment No. 6 to
the Registration Statement on Form N-1A, File No. 33-74470, of Institutional
Daily Income Fund as filed with the Securities and Exchange Commission.
We also consent to the reference to our Firm in the Prospectus under the
caption "Financial Highlights" and in the Statement of Additional Information
under the caption "Counsel and Auditors."
McGladrey & Pullen, LLP
New York, New York
July 27, 1998
INSTITUTIONAL DAILY INCOME FUND (the "Fund")
Money Market Portfolio
U.S. Government Portfolio
Municipal Portfolio
(the "Portfolios")
Distribution and Service Plan Pursuant to Rule
12b-1 Under the Investment Company Act of 1940
The Distribution and Service Plan (the "Plan") is adopted by
the Class A Shareholders of Institutional Daily Income Fund (the "Fund"), on
behalf of the Portfolios, in accordance with the provisions of Rule 12b-1 under
the Investment Company Act of 1940 (the "Act").
The Plan
1. The Fund, on behalf of the Portfolios, and Reich & Tang
Distributors, Inc. (the "Distributor"), have entered into a Distribution
Agreement, in a form satisfactory to the Fund's Board of Trustees, under which
the Distributor will act as distributor of the Fund's shares. Pursuant to the
Distribution Agreement, the Distributor, as agent of the Fund, will solicit
orders for the purchase of the Fund's shares, provided that any subscriptions
and orders for the purchase of the Fund's shares will not be binding on the Fund
until accepted by the Fund as principal.
2. The Fund, on behalf of the Portfolios, and the Distributor
have entered into a Shareholder Servicing Agreement with respect to the Class A
Shares of each Portfolio, in a form satisfactory to the Fund's Board of
Trustees, which provides that the Distributor will be paid a service fee for
providing or for arranging for others to provide all personal shareholder
servicing and related maintenance of shareholder account functions not performed
by us or our transfer agent.
3. The Manager may make payments from time to time from its
own resources, which may include the management fees and administrative services
fees received by the Manager from the Fund and from other companies, and past
profits for the following purposes:
(i) to pay the costs of, and to compensate others, including
organizations whose customers or clients are Class A Shareholders of
the Fund ("Participating Organizations"), for performing personal
shareholder servicing and related maintenance of shareholder account
functions on behalf of the Fund;
(ii) to compensate Participating Organizations for providing
assistance in distributing the Portfolios' Class A Shares; and
(iii) to pay the cost of the preparation and printing of
brochures and other promotional materials, mailings to prospective
shareholders, advertising, and other promotional activities, including
salaries and/or commissions of sales personnel of the Distributor and
other persons, 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 service fee and past profits for the purpose enumerated in
(i) above. Further, the Distributor may determine the amount of such payments
made pursuant to the Plan, provided that such payments will not increase the
amount which the Fund, on behalf of each Portfolio, is required
<PAGE>
to pay to (1) the Manager for any fiscal year under the Investment Management
Contract or the Administrative Services Contract in effect for that year or
otherwise or (2) to the Distributor under the Shareholder Servicing Agreement in
effect for that year or otherwise. The Investment Management Contract will also
require the Manager to reimburse the Fund, on behalf of each Portfolio, for any
amounts by which the Fund's annual operating expenses, including distribution
expenses, exceed in the aggregate in any fiscal year the limits prescribed by
any state in which the Portfolio's shares are qualified for sale.
4. The Fund, on behalf of each Portfolio, will pay for (i)
telecommunications expenses, including the cost of dedicated lines and CRT
terminals, incurred by the Distributor in carrying out its obligations under the
Shareholder Servicing Agreement with respect to the Class A Shares of the Fund
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.
5. Payments by the Distributor or Manager to Participating
Organizations as set forth herein are subject to compliance by them with the
terms of written agreements in a form satisfactory to the Fund's Board of
Trustees to be entered into between the Distributor and the Participating
Organizations.
6. The Fund and the Distributor will prepare and furnish to
the Fund's Board of Trustees, at least quarterly, written reports setting forth
all amounts expended for servicing and distribution purposes by the Fund, the
Distributor and the Manager, pursuant to the Plan and identifying the servicing
and distribution activities for which such expenditures were made.
7. The Plan became effective upon approval by (i) a majority
of the outstanding voting securities of each Portfolio subject to the Plan (as
defined in the Act), and (ii) a majority of the Board of Trustees of the Fund,
including a majority of the Trustees who are not interested persons (as defined
in the Act) of the Fund and who have no direct or indirect financial interest in
the operation of the Plan or in any agreement entered into in connection with
the Plan, pursuant to a vote cast in person at a meeting called for the purpose
of voting on the approval of the Plan.
8. The Plan will remain in effect until ______________ unless
earlier terminated in accordance with its terms, and thereafter may continue in
effect for successive annual periods if approved each year in the manner
described in clause (ii) of paragraph 7 hereof.
9. The Plan may be amended at any time with the approval of
the Board of Trustees of the Fund, provided that (i) any material amendments of
the terms of the Plan will be effective only upon approval as provided in clause
(ii) of paragraph 7 hereof, and (ii) any amendment which increases materially
the amount which may be spent by the Fund pursuant to the Plan will be effective
only upon the additional approval as provided in clause (i) of paragraph 7
hereof (with each Class of each Portfolio voting separately).
10. The Plan, with respect to each Portfolio, may be
terminated without penalty at any time (i) by a vote of the majority of the
entire Board of Trustees of the Fund and by a vote of a majority of the Trustees
of the Fund who are not interested persons (as defined in the Act) of the Fund
and
-2-
<PAGE>
who have no direct or indirect financial interest in the operation of the Plan
or in any agreement related to the Plan, or (ii) by a vote of a majority of the
outstanding voting securities of each Portfolio subject to the Plan (with each
Class of each Portfolio voting separately on matters that relate solely to each
Class under the Plan) (as defined in the Act).
-3-
SHAREHOLDER SERVICING AGREEMENT
INSTITUTIONAL DAILY INCOME FUND
Money Market Portfolio
U.S. Government Portfolio
Municipal Portfolio
Class A Shares of Beneficial Interest ("Class A Shares")
(the "Portfolios")
600 Fifth Avenue
New York, New York 10020
, 1998
Reich & Tang Distributors, Inc. ("Distributor")
600 Fifth Avenue
New York, New York 10020
Gentlemen:
We herewith confirm our agreement with you as follows:
1. We hereby employ you, pursuant to the Distribution and
Service Plan, as amended, adopted by us in accordance with Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940, as amended (the "Act"), to
provide the services listed below on behalf of the Class A Shares of each
Portfolio. You will perform, or arrange for others including organizations whose
customers or clients are shareholders of our corporation (the "Participating
Organizations") to perform, all personal shareholder servicing and related
maintenance of shareholder account functions ("Shareholder Services") not
performed by us or our transfer agent.
2. You will be responsible for the payment of all expenses
incurred by you in rendering the foregoing services, except that each Portfolio
will pay for (i) telecommunications expenses, including the cost of dedicated
lines and CRT terminals, incurred by the Distributor and Participating
Organizations in rendering such services to the Class A Shareholders, and (ii)
preparing, printing and delivering our prospectus to existing shareholders and
preparing and printing subscription application forms for shareholder accounts.
3. You may make payments from time to time from your own
resources, including the fees payable hereunder and past profits to compensate
Participating Organizations for providing Shareholder Services to the Class A
Shareholders of the Fund. Payments to Participating Organizations to compensate
them for providing Shareholder Services are subject to compliance by them with
the terms of written agreements satisfactory to our Board of Trustees to be
entered into between the Distributor and the Participating Organizations. The
Distributor will in its sole discretion determine the amount of any payments
made by the Distributor pursuant to this Agreement, provided, however, that no
such payment will increase the amount which each Portfolio is required to pay
either to the Distributor under this Agreement or
<PAGE>
to the Manager under the Investment Management Contract, the Administrative
Services Agreement, or otherwise.
4. We will expect of you, and you will give us the benefit of,
your best judgment and efforts in rendering these services to us, and we agree
as an inducement to your undertaking these services that you will not be liable
hereunder for any mistake of judgment or for any other cause, provided that
nothing herein shall protect you against any liability to us or to our
shareholders by reason of willful misfeasance, bad faith or gross negligence in
the performance of your duties hereunder, or by reason of your reckless
disregard of your obligations and duties hereunder.
5. In consideration of your performance, each Portfolio will
pay you a service fee, as defined by Article III, Section 26(b)(9) of the Rules
of Fair Practice, as amended, of the National Association of Securities Dealers,
Inc. at the annual rate of one quarter of one percent (0.25%) of each
Portfolio's Class A Shares' average daily net assets. Your fee will be accrued
by us daily, and will be payable on the last day of each calendar month for
services performed hereunder during that month or on such other schedule as you
shall request of us in writing. You may waive your right to any fee to which you
are entitled hereunder, provided such waiver is delivered to us in writing.
6. This Agreement (which was re-executed on the date hereof)
became effective on ___________ and will remain in effect thereafter for
successive twelve-month periods (computed from each ___________), provided that
such continuation is specifically approved at least annually by vote of our
Board of Trustees and of a majority of those of our Trustees who are not
interested persons (as defined in the Act) and have no direct or indirect
financial interest in the operation of the Plan or in any agreements related to
the Plan, cast in person at a meeting called for the purpose of voting on this
Agreement. With respect to each Portfolio, this Agreement may be terminated at
any time, without the payment of any penalty, (a) on sixty days' written notice
to you (i) by vote of a majority of our entire Board of Trustees, and by a vote
of a majority of our Trustees who are not interested persons (as defined in the
Act) and who have no direct or indirect financial interest in the operation of
the Plan or in any agreement related to the Plan, or (ii) by vote of a majority
of the outstanding voting securities of each Portfolio's Class A Shares, as
defined in the Act, or (b) by you on sixty days' written notice to us.
7. This Agreement may not be transferred, assigned, sold or in
any manner hypothecated or pledged by you and this Agreement shall terminate
automatically in the event of any such transfer, assignment, sale, hypothecation
or pledge by you. The terms "transfer", "assignment" and "sale" as used in this
paragraph shall have the meanings ascribed thereto by governing law and in
applicable rules or regulations of the Securities and Exchange Commission
thereunder.
8. Except to the extent necessary to perform your obligations
hereunder, nothing herein shall be deemed to limit or restrict your right, the
right of any of your employees, officers or directors, who may also be a
trustee, officer or employee of ours, or of a person affiliated with us, as
defined in the Act, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of
-2-
<PAGE>
a similar or dissimilar nature, or to render services of any kind to another
corporation, firm, individual or association.
If the foregoing is in accordance with your understanding,
will you kindly so indicate by signing and returning to us the enclosed copy
hereof.
Very truly yours,
INSTITUTIONAL DAILY INCOME FUND
Money Market Portfolio
U.S. Government Portfolio
Municipal Portfolio
Class A Shares
By:
ACCEPTED: , 1998
REICH & TANG DISTRIBUTORS, INC.
By:
-3-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> Institutional Daily Income Fund
<SERIES> U.S. Treasury Portfolio
<NUMBER> 1
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<S> <C>
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<PERIOD-TYPE> 12-MOS
<INVESTMENTS-AT-COST> 473009611
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<GROSS-EXPENSE> 1910553
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<PER-SHARE-NAV-BEGIN> 1.00
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</LEGEND>
<CIK> 0000918267
<NAME> Institutional Daily Income Fund
<SERIES> U.S. Treasury Portfolio
<NUMBER> 2
<NAME> Class B
<S> <C>
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<PERIOD-TYPE> 12-MOS
<INVESTMENTS-AT-COST> 473009611
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<OTHER-ITEMS-LIABILITIES> 1147899
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<APPREC-INCREASE-CURRENT> 0
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<DISTRIBUTIONS-OF-GAINS> 11744
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<NUMBER-OF-SHARES-REDEEMED> 855921734
<SHARES-REINVESTED> 19461355
<NET-CHANGE-IN-ASSETS> 156115689
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 1910553
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<PER-SHARE-NII> .05
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<EXPENSE-RATIO> .17
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<LEGEND> The schedule contains summary financial information
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</LEGEND>
<CIK> 0000918267
<NAME> Institutional Daily Income Fund
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<NAME> Class A
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
extracted from the financial statements and supporting
schedules as of the end of the most current period and is
qualified in its entirety by reference to such financial
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<CIK> 0000918267
<NAME> Institutional Daily Income Fund
<SERIES> Money Market Portfolio
<NUMBER> 4
<NAME> Class B
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