RULE 497(c)
Registration No. 33-74470
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INSTITUTIONAL DAILY INCOME FUND 600 FIFTH AVENUE
Class A Shares; Class B Shares NEW YORK, N.Y. 10020
(212) 830-5220
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PROSPECTUS
July 28, 2000
The investment objective of the U.S. Treasury Portfolio and the Money Market
Portfolio is to seek as high a level of current income to the extent consistent
with the preservation of capital and the maintenance of liquidity.
The investment objective of the Municipal Portfolio is to seek as high a level
of tax exempt current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
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TABLE OF CONTENTS
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2 Risk/Return Summary: Investments, Risks 11 Management, Organization and Capital Structure
and Performance 11 Shareholder Information
6 Fee Table
7 Investment Objectives, Principal Investment 18 Distribution Arrangements
Strategies and Related Risks 20 Financial Highlights
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I. RISK/RETURN SUMMARY: INVESTMENTS,
RISKS, AND PERFORMANCE
Investment Objectives
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The Fund is composed of three portfolios - the U.S. Treasury Portfolio, the
Money Market Portfolio, and the Municipal Portfolio (each a "Portfolio" and
collectively, the "Portfolios").
The investment objective of the U.S. Treasury Portfolio and the Money Market
Portfolio is to seek as high a level of current income to the extent consistent
with the preservation of capital and the maintenance of liquidity.
The investment objective of the Municipal Portfolio is to seek as high a
level of tax exempt current income to the extent consistent with the
preservation of capital and the maintenance of liquidity.
There is no assurance that the Portfolios will achieve their investment
objectives.
Principal Investment Strategies
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The Fund intends to achieve its investment objectives through three separate
Portfolios. Each Portfolio is a money market portfolio that invests in high
quality, short-term debt instruments. The Fund seeks to maintain investment
portfolios with a dollar-weighted average maturity of 90 days or less, to value
its investment portfolios at amortized cost and maintain a net asset value of
$1.00 per share.
Each Portfolio's strategy is as follows:
The U.S. Treasury Portfolio
The U.S. Treasury Portfolio seeks to achieve its objective principally by
investing in 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.
The Money Market Portfolio
The Money Market Portfolio seeks to achieve its objective by investing
principally 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, state agencies or instrumentalities, and
repurchase agreements calling for resale in 397 days or less backed by the
foregoing securities.
The Municipal Portfolio
This Portfolio seeks to achieve its objective principally by investing in
obligations issued by states, territories and possessions of the United States
and its political subdivisions, public authorities and other entities authorized
to issue debt, the interest on which is exempt from regular Federal income tax.
The Municipal Portfolio has not yet been activated and is not yet offered for
sale or distribution.
Principal Risks
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Risks Common to all Portfolios:
o Although the Fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Fund. The value
of the Fund's shares and the securities held by the Fund can each decline
in value.
o An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the FDIC or any other governmental agency.
Risks of Investing in the U.S. Treasury Portfolio:
o The U.S. Treasury Portfolio's investment policy of only investing in U.S.
Treasury obligations and other obligations that are issued or guaranteed by
the United States Government, while minimizing risk of loss, may produce a
lower yield than a policy of investing in other types of instruments. The
yield and total return of the U.S. Treasury Portfolio is likely to be lower
than that of the Money Market Portfolio.
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Risks of Investing in the Money Market Portfolio:
o 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. Foreign securities
may be subject to investment risks which may include adverse economic and
political developments as well as lack of uniform accounting and financial
reporting standards.
Risks of Investing in the Municipal Portfolio:
o The Municipal Portfolio may contain municipal debt obligations. The value
of these municipal obligations may be affected by uncertainties on the
municipal debt market related to taxation. In addition, the payment of
interest and preservation of capital are dependent upon the continuing
ability of issuers and/or obligors of state, municipal and public authority
debt obligations to meet these payment obligations.
Risk/Return Bar Chart And Table
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The following bar charts and tables may assist in your decision to invest in
a Portfolio of the Fund. The bar charts show the change in the annual total
returns of the Class A shares of the U.S. Treasury and the Money Market
Portfolios over the last four calendar years. The tables show the average annual
returns of these two Portfolios for the last one year period and since the
inception of each Class of each of the Portfolios. A bar chart and table for the
Municipal Portfolio will be provided once the Municipal Portfolio has been in
existence for a full calendar year. While analyzing this information, please
note that the Portfolios' past performance is not an indication of how the Fund
will perform in the future. The current 7-day yield for the U.S. Treasury and
the Money Market Portfolios may be obtained by calling the Fund toll-free at
1-800-221-3079.
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Institutional Daily Income Fund U.S.Treasury Portfolio - Class A
Shares (1)(2)(3)
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[GRAPHIC OMITTED]
Calendar Year End % Total Return
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1996 5.01%
1997 5.17%
1998 5.07%
1999 4.59%
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(1) As of June 30, 2000, the Fund's U.S. Treasury Portfolio had a year-to-date
return of 2.76%.
(2) The Fund's U.S. Treasury Portfolio's highest quarterly return was 1.31% for
the quarter ended December 31, 1997; the lowest quarterly return was 1.07%
for the quarter ended March 31, 1999.
(3) Investors purchasing or redeeming shares through a Participating
Organization may be charged a fee in connection with such service and,
therefore, the net return to such investors may be less than the net return
by investing in the Fund directly.
Average Annual Total Returns - U.S. Treasury Portfolio
Class A Class B
For the periods ended December 31, 1999
One Year 4.59% 4.85%
Average Annual Total Returns Since Inception * 4.97% 5.21%
* Inception date is November 29, 1995 for the Class A shares and November 18,
1996 for the Class B shares.
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Institutional Daily Income Fund Money Market Portfolio - Class A
Shares (1)(2)(3)
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[GRAPHIC OMITTED]
Calendar Year End % Total Return
----------------- ---------------
1996 5.16%
1997 5.33%
1998 5.28%
1999 4.93%
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(1) As of June 30, 2000, the Fund's Money Market Portfolio had a year-to-date
return of 2.93%.
(2) The Fund's Money Market Portfolio's highest quarterly return was 1.39% for
the quarter ended September 30, 1995; the lowest quarterly return was 1.14%
for the quarter ended June 30, 1999.
(3) Investors purchasing or redeeming shares through a Participating
Organization may be charged a fee in connection with such service and,
therefore, the net return to such investors may be less than the net return
by investing in the Fund directly.
Average Annual Total Returns - Money Market Portfolio
Class A Class B
For the periods ended December 31, 1999
One Year 4.93% 5.19%
Five Year N/A 5.55%
Average Annual Total Returns Since Inception* 5.26% 5.47%
* Inception date is April 6, 1995 for the Class A shares and April 14,1994 for
the Class B shares.
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FEE TABLE
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This table describes the fees and expenses that you may pay if you buy and hold
shares in any of the Fund's Portfolios.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
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Money U.S.
Market Treasury Municipal
Portfolio Portfolio Portfolio **
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
Management Fees *................... .12% .12% .12% .12% .12% .12%
Distribution and Service (12b-1) Fees .25% None .25% None .25% None
Other Expenses...................... .11% .11% .10% .10% .11% .11%
Administration Fees*.............. .05%____ .05% ____ .05% ____ .05% ____ .05%____ .05% ____
Total Annual Fund Operating Expenses .48% .23% .47% .22% .48% .23%
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* The Manager voluntarily waived a portion of the Investment Management Fees
(which was less than .01%) and Administration Fees with respect to both Class A
and B shares for the Money Market Portfolio and also waived a portion of
Administration fees with respect to both Class A and B shares for U.S. Treasury
Portfolio. After such waivers, the Administration Fees and Actual Total Fund
Operating Expenses for these Portfolios are as follows:
Class A Shares Class B Shares
Administration Fees -
Money Market Portfolio .02% .02%
U.S. Treasury Portfolio .03% .03%
Actual Total Fund Operating Expenses -
Money Market Portfolio .45% .20%
U.S. Treasury Portfolio .45% .20%
The Manager at its option, may terminate this fee waiver arrangement at any
time.
Example
This Example is intended to help you compare the cost of investing in any of the
Fund's Portfolios with the cost of investing in other money market funds.
The Example assumes that you invest $10,000 in any of the Portfolios of the Fund
for the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Portfolio's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
1 Year 3 Years 5 Years 10 Years
U.S. Treasury Portfolio Class A: $48 $151 $263 $591
Class B: $23 $ 71 $124 $280
Money Market Portfolio Class A: $49 $154 $269 $604
Class B: $24 $ 74 $130 $293
Municipal Portfolio** Class A: $49 $154 $269 $604
Class B: $24 $ 74 $130 $293
** 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.
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II. INVESTMENT OBJECTIVES, PRINCIPAL
INVESTMENT STRATEGIES AND RELATED
RISKS
Investment Objectives
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The Fund is a money market fund, which seeks to achieve the following
investment objectives through its three Portfolios.
The investment objective of the U.S. Treasury Portfolio and the Money Market
Portfolio is to seek as high a level of current income to the extent consistent
with the preservation of capital and the maintenance of liquidity.
The investment objective of the Municipal Portfolio is to seek as high a
level of tax exempt current income to the extent consistent with the
preservation of capital and the maintenance of liquidity.
There can be no assurance that the Fund will achieve its investment
objectives.
The investment objectives of the Fund described in this section may only be
changed upon the approval of the holders of a majority of the outstanding shares
of the Fund.
Principal Investment Strategies
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Generally
In order to maintain a share price of $1.00, the Fund must comply with
certain industry regulations. The Fund will only invest in securities which are
denominated in United States dollars. Other regulations pertain to the maturity
and credit quality of the securities in which the Fund may invest. The Fund will
only invest in securities which have, or are deemed to have, a remaining
maturity of 397 days or less. Also, the average maturity for all securities
contained in each individual Portfolio of the Fund, on a dollar-weighted basis,
will be 90 days or less.
The Fund will only invest in either securities which have been rated (or
whose issuers have been rated) in the highest short-term rating category by
nationally recognized statistical rating organizations, or are unrated
securities but which have been determined by the Fund's Board of Trustees to be
of comparable quality.
Subsequent to its purchase by the Fund, the quality of an investment may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. If this occurs, the Board of Trustees of the Fund shall
reassess the security's credit risks and shall take such action as the Board of
Trustees determines is in the best interest of the Fund and its shareholders.
Reassessment is not required, however, if the security is disposed of or matures
within five business days of the Manager becoming aware of the new rating and
provided further that the Board of Trustees is subsequently notified of the
Manager's actions.
Each Portfolio of the Fund shall invest not more than 5% of its total assets
in securities issued by a single issuer.
The Fund's investment manager considers the following factors when buying
and selling securities for each of the Portfolios: (i) availability of cash,
(ii) redemption requests, (iii) yield management, and (iv) credit management.
U.S. Treasury Portfolio
The U.S. Treasury Portfolio is intended to attain the Fund's investment
objective through investments limited to obligations issued or guaranteed by the
United States Government including repurchase agreements covering those types of
obligations. The Fund will enter into repurchase agreements for inclusion in the
U.S. Treasury Portfolio only if the instruments serving as collateral for the
agreements are eligible for inclusion in the U.S. Treasury Portfolio.
The Portfolio's investments may include the following securities:
(i) 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.
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(ii) 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.
(iii)Repurchase Agreements: The U.S. Treasury Portfolio may enter into
repurchase agreements which are collateralized by obligations issued or
guaranteed by the U.S. Government. A repurchase agreement arises when a
buyer purchases a security and simultaneously agrees with the vendor to
resell the security to the vendor at an agreed upon time and price.
The investment policies of the U.S. Treasury Portfolio may produce a lower
yield than a policy of investing in other types of instruments. The yield of the
U.S. Treasury Portfolio is likely to be lower than the yield of the Money Market
Portfolio.
Money Market Portfolio
The Money Market Portfolio intends to attain the Fund's investment objective
through investments in the following securities:
(i) United States Government Securities: The Money Market Portfolio may
purchase short-term obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities. These obligations 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.
(ii) Domestic and Foreign Bank Obligations: The Money Market Portfolio may
purchase securities issued by foreign governments, or any of their
political subdivisions or agencies or instrumentalities, certificates of
deposit, time deposits and bankers' acceptances issued by domestic banks,
foreign branches of domestic banks, foreign subsidiaries of domestic
banks, and domestic and foreign branches of foreign banks. 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 purchased by the Fund 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.
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 meet the
quality criteria discussed above under "Principal Investment Strategies -
Generally."
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.
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The Money Market Portfolio may purchase 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's investments in (a) Eurodollar
obligations, if the 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 (i) liquidity could be impaired because of
future political and economic developments, (ii) the obligations may be
less marketable than comparable domestic obligations of domestic issuers,
(iii) a foreign jurisdiction might impose withholding taxes on interest
income payable on those obligations, (iv) deposits may be seized or
nationalized, (v) foreign governmental restrictions such as exchange
controls may be adopted which might adversely affect the payment of
principal of and interest on those obligations, (vi) the selection of
foreign obligations may be more difficult because there may be less
information publicly available concerning foreign issuers, (vii) there may
be difficulties in enforcing a judgment against a foreign issuer or (viii)
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.
(iii) Variable Amount Master Demand Notes: The Money Market Portfolio may
purchase variable amount master demand notes. These instruments are
unsecured demand notes that permit investment of fluctuating amounts of
money at variable rates of interest pursuant to arrangements with issuers
who meet the quality criteria discussed above under "Principal Investment
Strategies - Generally." 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.
(iv) Commercial Paper and Certain Debt Obligations: The Money Market Portfolio
may purchase commercial paper or similar debt obligations. Commercial
paper is generally considered to be short term unsecured debt of
corporations.
(v) Repurchase Agreements: The Money Market Portfolio may enter into
repurchase agreements provided that the instruments serving as collateral
for the agreements are eligible for inclusion in the Money Market
Portfolio. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees with the vendor to resell the security
to the vendor at an agreed upon time and price.
Municipal Portfolio
The Municipal Portfolio intends to attain the Fund's investment objective
through investments in the following securities:
(i) Municipal Securities: The Municipal Portfolio may purchase municipal
securities, including debt obligations issued to obtain funds for various
public purposes (i.e., the construction
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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. The
Portfolio may also invest in certain types of private activity bonds or
industrial development bonds, 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. Interest on certain Municipal Securities may
give rise to federal alternative minimum tax liability and may have other
collateral federal income tax consequences.
(ii) Repurchase Agreements: The Municipal Portfolio may enter into repurchase
agreements provided that the instruments serving as collateral for the
agreements are eligible for inclusion in the Municipal Portfolio. A
repurchase agreement arises when a buyer purchases a security and
simultaneously agrees with the vendor to resell the security to the vendor
at an agreed upon time and price.
For a more detailed description of (i) the securities that the Fund will invest
in, (ii) fundamental investment restrictions, and (iii) industry regulations
governing credit quality and maturity, please refer to the Statement of
Additional Information.
Risks
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The Fund complies with industry-standard requirements on the quality,
maturity and diversification of its investments which are designed to help
maintain a $1.00 share price. A significant change in interest rates or a
default on the Fund's investments could cause its share price (and the value of
your investment) to change.
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 when compared with those incurred by a
fund which invests only in domestic issuers. 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 in most
foreign securities markets are less than in the United States. The issuers of
some of these securities 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 and requirements. Additional risks associated with foreign
investments might include adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental restrictions
which might adversely affect the payment of principal and interest on the
foreign securities. Furthermore, some of these foreign securities may be subject
to stamp, withholding 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.
Since the Municipal Portfolio may contain municipal debt obligations, the
value of these municipal obligations may be affected by uncertainties on the
municipal debt market related to taxation. In addition, the payment of interest
and preservation of capital are dependent upon the continuing ability of issuers
and/or obligors of state, municipal and public authority debt obligations to
meet these payment obligations.
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III. MANAGEMENT, ORGANIZATION AND
CAPITAL STRUCTURE
The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"). The Manager's principal business office is located at 600 Fifth
Avenue, New York, NY 10020. As of June 30, 2000, the Manager was the investment
manager, adviser or supervisor with respect to assets aggregating in excess of
$15.6 billion. The Manager has been an investment adviser since 1970 and
currently is manager of seventeen other registered investment companies. The
Manager also advises pension trusts, profit-sharing trusts and endowments.
Pursuant to the Investment Management Contract for each Portfolio, the
Manager manages each Portfolio's 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 pay an annual management fee of .12% of each Portfolio's average
daily net assets. For the fiscal year ended March 31, 2000, the Fund paid the
Manager a fee equal to .12% of each Portfolio's average daily net assets. The
Manager, at its discretion may voluntarily waive all or a portion of the
Management Fee.
Pursuant to the Administrative Services Contract for each Portfolio, the
Manager performs clerical, accounting supervision and office service functions
for the Fund. The Manager provides the Fund with personnel to perform all of the
clerical and accounting type functions not performed by the Manager. The
Manager, at its discretion, may voluntarily waive all or a portion of the
administrative services fee. For its services under the Administrative Services
Contract, the Manager receives 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. For the fiscal year ended March 31, 2000, the Fund paid the Manager
a fee equal to .02% and .03%, respectively, of the Money Market Portfolio and
the U.S. Treasury Portfolio's average daily net assets.
In addition, Reich & Tang Distributors, Inc. (the "Distributor"), receives a
fee equal to .25% per annum of the average daily net assets of the Class A
shares of each Portfolio under the Shareholder Servicing Agreement. The fees are
accrued daily and paid monthly.
Investment management fees and operating expenses, which are attributable to
more than one Class of each Portfolio, will be allocated daily to each Class
share based on the percentage of outstanding shares at the end of the day.
IV. SHAREHOLDER INFORMATION
The Fund sells and redeems its shares on a continuing basis at their net
asset value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent, who
accepts orders for purchases and redemptions from Participating Organizations
(see "Investments Through Participating Organizations - Purchase of Class A
Shares" for a definition of Participating Organizations) and from investors
directly.
Pricing of Fund Shares
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The net asset value of each Class of each Portfolio of the Fund's shares is
determined as of 12:00 noon, New York City time, on each Fund Business Day. Fund
Business Day means weekdays (Monday through Friday) except days on which the New
York Stock Exchange is closed for trading. The net asset value of a Class is
computed by dividing the value of the Fund's net assets for such Class (i.e.,
the value of its securities and other assets less its liabilities, including
expenses payable or accrued, but excluding capital stock and surplus) by the
total number of shares outstanding for such Class. The Fund intends to maintain
a stable net asset value at $1.00 per share although there can be no assurance
that this will be achieved.
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The Fund's portfolio securities are valued at their amortized cost in
compliance with the provisions of Rule 2a-7 under the Investment Company Act of
1940, as amended (the "1940 Act"). Amortized cost valuation involves valuing
an instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium. If fluctuating interest rates cause the
market value of the securities in a Portfolio to deviate more than 1/2 of 1%
from the value determined on the basis of amortized cost, the Board of Trustees
will consider whether any action should be initiated. Although the amortized
cost method provides certainty in valuation, it may result in periods during
which the value of an instrument is higher or lower than the price an investment
company would receive if the instrument were sold.
Shares will be issued as of the first determination of the Fund's net asset
value per share made upon receipt of the investor's purchase order at the net
asset value per share next determined after receipt of the purchase order.
Except as described below in the case of certain Participating Organizations
(see "Investment Through Participating Organizations" herein), 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 subscription to its shares.
Shares are issued as of 12:00 noon, 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 12:00 noon.
Orders accompanied by Federal Funds and received after 12:00 noon 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.
Subscribing to the Fund
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At the time of initial investment in the Fund, investors must elect on their
subscription order form the Class of shares of the Portfolio in which they wish
to invest. Subject to the Portfolios' initial investment minimums, investors may
divide their investment in the Fund between the Portfolios in any manner they
choose by submitting a separate subscription order form for each Portfolio.
Investors who purchase shares of the Portfolios from a Participating
Organization that is compensated for its services by the Manager and the
Distributor may purchase Class A shares of the Portfolios.
Subject to the suggested minimum balance of $250,000 for an existing
account, shareholders in the Fund may transfer all or a portion of their shares
from one open Portfolio account to another open Portfolio account at any time.
Any transfer into a Portfolio in which the shareholder does not have an open
account must satisfy the Portfolio's initial investment minimum of $1,000,000.
Shareholders will have a separate account with the Fund for each Portfolio in
which they invest. Certificates for Fund shares will not be issued to an
investor.
Purchase of Fund Shares
--------------------------------------------------------------------------------
Investors may, if they wish, invest in the Fund through a Participating
Organization with which they have an account. All other investors, and
investors who have accounts with Participating Organizations but do not wish to
invest in the Fund through them, may invest in the Fund directly as Class B
shareholders of the Fund. Class B shareholders do not receive the benefit of the
servicing functions performed by a Participating Organization. Class B shares
may also be offered to investors who purchase their shares through Participating
Organizations who, because they may not be legally permitted to receive such as
fiduciaries, do not receive compensation from the Fund's Distributor or the
Manager.
The minimum initial investment in the Fund for all classes of shares in each
Portfolio is $1,000,000. The minimum amount for subsequent investments is
$10,000.
The Fund will provide each shareholder with a personalized monthly statement
listing (i) the total number of Fund shares owned as of the statement closing
date, (ii) purchases and redemptions of
12
<PAGE>
Fund shares, and (iii) the dividends paid on Fund shares (including dividends
paid in cash or reinvested in additional Fund shares).
Investments Through Participating
Organizations--Purchase of Class A Shares
--------------------------------------------------------------------------------
Investors purchasing shares through a Participating Organization become
Class A shareholders and are referred to as Participant Investors.
"Participating Organizations" are securities brokers, banks and financial
institutions or other industry professionals or organizations which have entered
into shareholder servicing agreements with the Fund's distributor with respect
to investment of their customer accounts in the Fund. When instructed by a
Participant Investor to purchase or redeem Fund shares, the Participating
Organization, on behalf of the Participant Investor, 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 Participant Investors each
purchase and redemption of Fund shares for their accounts. Also, Participating
Organizations may send periodic account statements to their customers showing
(i) the total number of Fund shares owned by each customer as of the statement
closing date, (ii) purchases and redemptions of Fund shares by each customer
during the period covered by the statement, and (iii) the income earned by Fund
shares of each customer during the statement period (including dividends paid in
cash or reinvested in additional Fund shares). Participant Investors whose
Participating Organizations have not undertaken to provide such statements will
receive them from the Fund directly.
Participating Organizations may charge Participant Investors a fee in
connection with their use of specialized purchase and redemption procedures. In
addition, Participating Organizations offering purchase and redemption
procedures similar to those offered to shareholders who invest in the Fund
directly, may impose charges, limitations, minimums and restrictions in addition
to or different from those applicable to shareholders who invest in the Fund
directly. Accordingly, the net yield to investors who invest through
Participating Organizations may be less than by investing in the Fund directly.
A Participant Investor should read this Prospectus in conjunction with the
materials provided by the Participating Organization describing the procedures
under which Fund shares may be purchased and redeemed through the Participating
Organization.
In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 12:00 noon, New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day only if the Federal Funds required in connection with the orders are
received by the Fund's transfer agent before 12:00 noon, New York City time, on
that day. Orders for which Federal Funds are received after 12:00 noon, New York
City time, will result in share issuance the following Fund Business Day.
Participating Organizations are responsible for instituting procedures to insure
that purchase orders by their respective clients are processed expeditiously.
Initial Direct Purchases of Class B Shares
--------------------------------------------------------------------------------
Investors who wish to invest in the Fund directly may obtain a current
Prospectus and the subscription order form necessary to open an account by
telephoning the Fund at the following numbers:
Within New York 212-830-5220
Outside New York (TOLL FREE) 800-221-3079
Mail
Investors may send a check made payable to "Institutional Daily Income Fund"
along with a completed subscription order form to:
Institutional Daily Income Fund
Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member of the Federal
13
<PAGE>
Reserve System will normally be converted into Federal Funds within two business
days after receipt of the check. Checks drawn on a non-member bank may take
substantially longer to convert into Federal Funds. An investor's purchase order
will not be accepted until the Fund receives Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of
money among banks, investors should first obtain a new account number by
telephoning the Fund at 212-830-5220 (within New York) or at 800-221-3079
(outside New York) and then instruct a member commercial bank to wire money
immediately to:
For U.S. Treasury Portfolio:
State Street Kansas City
ABA # 101003621
Reich & Tang Funds
DDA # 890752-9546
For Institutional Daily Income Fund
U.S. Treasury Portfolio
Account of (Investor's Name)
-----------------
Account #
For Money Market Portfolio:
State Street Kansas City
ABA # 101003621
Reich & Tang Funds
DDA # 890752-9546
For Institutional Daily Income Fund
Money Market Portfolio
Account of (Investor's Name)
-----------------
Account #
For Municipal Portfolio:
State Street Kansas City
ABA # 101003621
Reich & Tang Funds
DDA # 890752-9546
For Institutional Daily Income Fund
Municipal Portfolio
Account of (Investor's Name)
-----------------
Account #
The investor should then promptly complete and mail the subscription order
form.
Investors planning to wire funds should instruct their bank so the wire
transfer can be accomplished on the same day. There may be a charge by the
investor's bank for transmitting the money by bank wire, and there also may be a
charge for use of Federal Funds. The Fund does not charge investors in the Fund
for its receipt of wire transfers. Payment in the form of a "bank wire" received
prior to 12:00 noon, New York City time, on a Fund Business Day will be treated
as a Federal Funds payment received on that day.
Personal Delivery
Deliver a check made payable to "Institutional Daily Income Fund" along with
a completed subscription order form to:
Reich & Tang Mutual Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
Subsequent Purchases of Shares
--------------------------------------------------------------------------------
Subsequent purchases can be made by bank wire, as indicated above, or by
mailing a check to:
Institutional Daily Income Fund
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232
There is a $10,000 minimum for subsequent purchases of shares. All payments
should clearly indicate the shareholder's account number.
A shareholder may reopen an account without filing a new subscription order
form at any time during the year the shareholder's account is closed or during
the following calendar year, provided that the information on the subscription
order form on file with the Fund is still applicable.
Redemption of Shares
--------------------------------------------------------------------------------
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net
14
<PAGE>
asset value per share of each Class of each Portfolio following receipt by the
Fund's transfer agent of the redemption order (and any supporting documentation
which it may require). Normally, payment for redeemed shares is made on the same
Fund Business Day after the redemption is effected, provided the redemption
request is received prior to 12:00 noon, New York City time. However, redemption
payments will not be effected unless the check (including a certified or
cashier's check) used for investment has been cleared for payment by the
investor's bank, which could take up to 15 days after investment. Shares
redeemed are not entitled to participate in dividends declared on the day a
redemption becomes effective.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee.
When a signature guarantee is called for, the shareholder should have
"Signature Guaranteed" stamped under his signature. It should be signed and
guaranteed by an eligible guarantor institution which includes a domestic bank,
a domestic savings and loan institution, a domestic credit union, a member bank
of the Federal Reserve system or a member firm of a national securities
exchange, pursuant to the Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written
request to the Fund addressed to:
Institutional Daily Income Fund
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
All previously issued certificates submitted for redemption must be endorsed
by the shareholder and all written requests for redemption must be signed by the
shareholder, in each case with signature guaranteed.
Normally the redemption proceeds are paid by check and mailed to the
shareholder of record.
Telephone
The Fund accepts telephone requests for redemption from shareholders who
elect this option on their subscription order form. The proceeds of a telephone
redemption will be sent to the shareholder at its address or to its bank
account, as set forth in the subscription order form or in a subsequent
signature guaranteed written authorization. The Fund may accept telephone
redemption instructions from any person with respect to accounts of shareholders
who elect this service and thus such shareholders risk possible loss of
principal and interest 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 the losses incurred by investors due to telephone redemptions
based upon unauthorized or fraudulent instructions.
A shareholder making a telephone withdrawal should call the Fund at
212-830-5220, outside New York at 800-221-3079, and state: (i) the name of the
shareholder appearing on the Fund's records, (ii) the shareholder's account
number with the Fund, (iii) the amount to be withdrawn, and (iv) the name of the
person requesting the redemption. Usually the proceeds are sent to the
designated bank account or address on the same Fund Business Day the redemption
is effected, provided the redemption request is received before 12:00 noon, New
York City time and on the next Fund Business Day if the redemption request is
received after 12:00 noon, New York City time.
15
<PAGE>
The Fund may modify or discontinue the telephone redemption option at any time
upon 60 days written notice to shareholders.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are given
in proper form to the Fund's transfer agent, a check for the proceeds of a
redemption will be sent to the shareholder's address of record. If a shareholder
elects to redeem all the shares of the Fund it owns, all dividends accrued to
the date of such redemption will be paid to the shareholder along with the
proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the SEC determines that trading thereon is restricted. Any period during which
an emergency (as determined by the SEC) exists as a result of which disposal by
the Fund of its portfolio securities is not reasonably practicable or as a
result of which it is not reasonably practicable for the Fund fairly to
determine the value of its net assets, or for such other period as the SEC may
by order permit for the protection of the shareholders of the Fund.
The Fund has reserved the right to redeem the shares of any shareholder if
the net asset value of all the remaining shares in the shareholder's or its
Participating Organization's account after a withdrawal is less than $250,000.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization. The Participating Organization
will be responsible for notifying the Participant Investor of the proposed
mandatory redemption. During the notice period a shareholder or Participating
Organization who receives such a notice may avoid mandatory redemption by
purchasing sufficient additional shares to increase his total net asset value to
the minimum amount. Shareholders who purchase shares under these circumstances
are not subject to the normal $10,000 minimum for subsequent purchases.
Dividends and Distributions
--------------------------------------------------------------------------------
The Fund declares dividends equal to all its net investment income
(excluding long-term capital gains and losses, if any, and amortization of
market discount) on each Fund Business Day and pays dividends monthly. There is
no fixed dividend rate. In computing these dividends, interest earned and
expenses are accrued daily.
Distributions of long-term capital gains, if any, are paid by the U.S.
Treasury and Money Market Portfolios at least once a year and, at the
shareholder's option, are paid in cash or reinvested in additional shares of the
Portfolio from which they were paid having an aggregate net asset value equal to
the cash amount.
All dividends and distributions of capital gains are automatically invested,
at no charge, in additional Fund shares of the same Class of shares immediately
upon payment thereof unless a shareholder has elected by written notice to the
Fund to receive either of such distributions in cash.
Election to receive dividends and distributions in cash or shares is made at
the time shares are subscribed for and may be changed by notifying the Fund in
writing at any time prior to the record date for a particular dividend or
distribution. If the shareholder makes no election, the Fund will make the
distribution in shares. There is no sales or other charge in connection with the
reinvestment of dividends and capital gains distributions.
While it is the intention of the Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any
16
<PAGE>
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.
Because Class A shares bear the service fee under the Fund's 12b-1 Plan, the
net income of and the dividends payable to the Class A shares will be lower than
the net income of and dividends payable to the Class B shares of the Fund.
Dividends paid to each Class of shares of each Portfolio of the Fund will,
however, be declared and paid on the same days at the same times and, except as
noted with respect to the service fees payable under the Plan, will be
determined in the same manner and paid in the same amounts.
Exchange Privilege
--------------------------------------------------------------------------------
An investor may, without cost, exchange shares from the same Class of one
Portfolio of the Fund into the same Class 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 therefore the Portfolio's purchase and
redemption procedures and requirements are applicable to exchanges.
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.
Tax Consequences
--------------------------------------------------------------------------------
The purchase of shares in the Fund will be the purchase of an asset and the
shareholder's basis for its shares in the Fund will be its cost of the shares,
including any fees or expenses. The sale of shares in the Fund will be the
taxable disposition of an asset, with gain or loss recognized in an amount equal
to the difference between the shareholder's tax basis for the shares and the
proceeds received on the sale. The exchange of shares of one Portfolio for
shares of another Portfolio, if available, will also be treated as a taxable
disposition of the shares exchanged, on which gain or loss will be recognized.
In either case, loss recognition may be affected by the loss disallowance rules
of the Code.
The Fund intends to continue to qualify for special treatment applicable to
a regulated investment company under the Internal Revenue Code for each
Portfolio. To qualify as a regulated investment company, each Portfolio must
meet certain 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
17
<PAGE>
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.
Dividends and distributions are treated in the same manner for federal
income tax purposes whether the shareholders receive cash or additional shares.
The Fund expects that distributions, as a result of its investment objectives,
will consist primarily of ordinary income. 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.
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 Internal Revenue Code requirements
regarding the supplying of their taxpayer identification number and the
reporting of income. 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 U.S. Treasury 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.
V. DISTRIBUTION ARRANGEMENTS
Rule 12b-1 Fees
--------------------------------------------------------------------------------
Investors do not pay a sales charge to purchase shares of the Fund. However,
the Fund pays shareholder servicing fees in connection with the distribution of
shares and for services provided to the Class A shareholders only. The Fund pays
these fees from its assets on an ongoing basis and therefore, over time, the
payment of these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
The Fund's Board of Trustees has adopted a Rule 12b-1 distribution and
service plan (the "Plan") and, pursuant to the Plan, the Fund and Reich & Tang
Distributors, Inc. (the "Distributor") have entered into a Distribution
Agreement and a Shareholder Servicing Agreement (with respect to the Class A
shares of the Fund only).
Under the Distribution Agreement, the Distributor serves as distributor of
the Fund's shares and, for nominal consideration (i.e., $1.00) and as agent for
the Fund, will solicit orders for the purchase of the Fund's shares, provided
that any orders will not be binding on the Fund until accepted by the Fund as
principal.
Under the Shareholder Servicing Agreement, the Distributor receives, with
respect only to the Class A shares, a service fee equal to .25% per annum of
each Portfolio's Class A shares' average daily net assets (the "Shareholder
Servicing Fee") for providing personal shareholder services and for the
maintenance of shareholder accounts. This 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 each Portfolio. The Class B shareholders will not receive the benefit
of such services from Participating Organizations and, therefore, will not be
assessed a Shareholder Servicing Fee.
The Plan and the Shareholder Servicing Agreements provide that the Fund will
pay for (i) telecommunications expenses, including the cost of dedicated lines
and CRT terminals, incurred by the Distributor and Participating Organizations
in carrying out their obligations under the Shareholder Servicing Agreement with
respect to Class A shares, and (ii) preparing, printing and delivering the
Fund's Prospectus to existing shareholders of the Fund and preparing and
printing subscription application forms for shareholder accounts.
18
<PAGE>
The Plan provides that the Manager may make payments from time to time from
its own resources, which may include the Management Fee and past profits for the
following purposes: (i) to defray costs, and to compensate others, including
Participating Organizations with whom the Distributor has entered into written
agreements, for performing shareholder servicing on behalf of the Class A shares
of the Fund; (ii) to compensate certain Participating Organizations for
providing assistance in distributing the Class A shares of the Fund; and (iii)
to pay the costs of printing and distributing the Fund's Prospectus to
prospective investors, and to defray the cost of the preparation and printing of
brochures and other promotional materials, mailings to prospective shareholders,
advertising, and other promotional activities, including the salaries and/or
commissions of sales personnel in connection with the distribution of the Fund's
Class A shares.
The Plan also provides that the Distributor may 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) in the preceding paragraph. 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.
19
<PAGE>
VI. FINANCIAL HIGHLIGHTS
These financial highlights tables are intended to help you understand the
financial performance of both Classes of the U.S. Treasury Portfolio and the
Money Market Portfolio for the past 5 years or shorter period depending on the
inception date of the Portfolio. Certain information reflects financial results
for a single Portfolio share. There are no financial highlights available for
the Municipal Portfolio since this Portfolio is not yet offered for sale. The
total returns in the table represent the rate that an investor would have earned
on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP
for the fiscal year ended March 31, 2000 and by other auditors for the fiscal
years prior to March 31, 2000. The report of PricewaterhouseCoopers LLP, along
with the Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Money Market Portfolio
--------------------------------------------------------------------------------
April 6, 1995
CLASS A For the Year Ended March 31, (Commencement of Sales) to
------- ------------------------------------------------
2000 1999 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 $ 1.00 $ 1.00
--------- -------- --------- -------- --------
Income from investment operations:
Net investment income............... 0.051 0.050 0.053 0.050 0.054
Less distributions:
Dividends from net investment income ( 0.051) ( 0.050) ( 0.053) ( 0.050) ( 0.054)
------- -------- --------- --------- ----------
Net asset value, end of period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========== ========== ========== ===========
Total Return.......................... 5.17% 5.12% 5.38% 5.16% 5.58%*
Ratios/Supplemental Data:
Net assets, end of period (000)....... $ 764,608 $ 282,258 $ 108,657 $ 38,220 $ 5
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+
0.45% 0.45% 0.45% 0.42% 0.41%*
Net investment income................. 5.21% 4.93% 5.25% 5.07% 5.46%*
Expenses paid indirectly.............. 0.00% 0.00% 0.00% 0.01% 0.04%*
Management and administration fees waived 0.03% 0.05% 0.07% 0.09% 0.13%*
Expenses reimbursed................... 0.00% 0.00% 0.00% 0.00% 0.03%*
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Money Market Portfolio
CLASS B For the Year Ended March 31,
------- --------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- -------
Income from investment operations:
Net investment income.............. 0.053 0.053 0.055 0.053 0.057
Less distributions:
Dividends from net investment income ( 0.053) ( 0.053) ( 0.055) ( 0.053) ( 0.057)
-------- --------- --------- ----------- ----------
Net asset value, end of period........ $ 1.00 $ 1.00 $1.00 $ 1.00 $ 1.00
=========== ========= ========= =========== =========
Total Return.......................... 5.43% 5.38% 5.64% 5.42% 5.85%
Ratios/Supplemental Data:
Net assets, end of period (000)....... $ 354,549 $ 221,119 $ 227,893 $ 158,525 $ 127,282
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+ 0.20% 0.20% 0.20% 0.17% 0.16%
Net investment income................. 5.36% 5.27% 5.50% 5.29% 5.64%
Expenses paid indirectly.............. 0.00% 0.00% 0.00% 0.01% 0.04%
Management and administration fees waived 0.03% 0.05% 0.07% 0.09% 0.13%
Expenses reimbursed................... 0.00% 0.00% 0.00% 0.00% 0.03%
</TABLE>
* Annualized
+ Includes expenses paid indirectly.
20
<PAGE>
VI. FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Portfolio
--------------------------------------------------------------------------------
November 29, 1995
CLASS A For the Year Ended March 31, (Commencement of Operations) to
------- ------------------------------------------------
2000 1999 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 $ 1.00 $ 1.00
--------- --------- --------- -------- --------
Income from investment operations:
Net investment income................. 0.048 0.048 0.051 0.049 0.017
Less distributions:
Dividends from net investment income.. ( 0.048) ( 0.048) ( 0.051) ( 0.049) ( 0.017)
------- ---------- ---------- --------- ----------
Net asset value, end of period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========== ========== ========
Total Return.......................... 4.82% 4.86% 5.24% 5.00% 5.18%*
Ratios/Supplemental Data:
Net assets, end of period (000)....... $ 658,396 $ 721,197 $ 467,372 $310,290 $ 291,747
Ratios to average net assets:
Expenses (net of fees waived)+........ 0.45% 0.45% 0.42% 0.42% 0.43%*
Net investment income................. 4.73% 4.71% 5.12% 4.89% 5.07%*
Expenses paid indirectly.............. 0.00% 0.00% 0.00% 0.01% 0.00%
Management and administration fees waived 0.02% 0.04% 0.07% 0.05% 0.08%*
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. Treasury Portfolio
-----------------------------------------------------------------------------
November 18, 1996
CLASS B For the Year Ended March 31, (Commencement of Sales) to
------- ----------------------------------------
2000 1999 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 $ 1.00 $ 1.00
--------- --------- --------- --------
Income from investment operations:
Net investment income................. 0.050 0.050 0.054 0.019
Less distributions:
Dividends from net investment income.. ( 0.050) ( 0.050) ( 0.054) ( 0.019)
---------- ---------- ----------- -----------
Net asset value, end of period........ $ 1.00 $ 1.00 $1.00 $ 1.00
=========== ========= ========== ===========
Total Return.......................... 5.08% 5.12% 5.50% 5.27%*
Ratios/Supplemental Data:
Net assets, end of period (000)....... $ 37,987 $ 79,793 $ 6,833 $ 7,799
Ratios to average net assets:
Expenses (net of fees waived)+........ 0.20% 0.20% 0.17% 0.17%*
Net investment income................. 4.97% 4.73% 5.37% 5.14%*
Expenses paid indirectly.............. 0.00% 0.00% 0.00% 0.01%*
Management and administration fees waived 0.02% 0.04% 0.07% 0.05%*
</TABLE>
* Annualized
+ Includes expenses paid indirectly.
21
<PAGE>
A Statement of Additional Information (SAI) dated July 28, 2000, and the Fund's
Annual and Semi-Annual Reports include additional information about the Fund and
its investments and are incorporated by reference into this Prospectus. You may
obtain the SAI, the Annual and Semi-Annual Reports and material incorporated by
reference without charge by calling the Fund at 1-800-221-3079. To request other
information, please call your financial intermediary or the Fund.
=====================================================
=====================================================
A current SAI has been filed with the Securities and Exchange Commission. You
may visit the EDGAR database on the Securities and Exchange Commission's
Internet website (http://www.sec.gov) to view the SAI, material incorporated by
reference and other information. Copies of the information may be obtained,
after paying a duplicating fee, by sending an electronic request to
[email protected]. These materials can also be reviewed and copied at the
Commission's Public Reference Room in Washington D.C. Information on the
operation of the Public Reference Room may be obtained by calling the Commission
at 1-202-942-8090. In addition, copies of these materials may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-0102.
811-8312
Reich & Tang Distributors, Inc.
600 Fifth Avenue
New York, NY 10020
(212) 830-5220
IDIF700P
INSTITUTIONAL DAILY INCOME FUND
PROSPECTUS
July 28, 2000
<PAGE>
================================================================================
INSTITUTIONAL DAILY INCOME FUND 600 FIFTH AVENUE
NEW YORK, N.Y. 10020
(212) 830-5220
Pinnacle Class of Shares - Distributed through Mutual Securities, Inc.
================================================================================
PROSPECTUS
July 28, 2000
The investment objective of the U.S. Treasury Portfolio and the Money Market
Portfolio is to seek as high a level of current income to the extent consistent
with the preservation of capital and the maintenance of liquidity.
The investment objective of the Municipal Portfolio is to seek as high a level
of tax exempt current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S><C> <C> <C>
TABLE OF CONTENTS
2 Risk/Return Summary: Investments, Risks 11 Management, Organization and Capital Structure
and Performance 11 Shareholder Information
6 Fee Table
7 Investment Objectives, Principal Investment 18 Distribution Arrangements
Strategies and Related Risks 20 Financial Highlights
</TABLE>
<PAGE>
I. RISK/RETURN SUMMARY: INVESTMENTS,
RISKS, AND PERFORMANCE
Investment Objectives
--------------------------------------------------------------------------------
The Fund is composed of three portfolios - the U.S. Treasury Portfolio, the
Money Market Portfolio, and the Municipal Portfolio (each a "Portfolio" and
collectively, the "Portfolios").
The investment objective of the U.S. Treasury Portfolio and the Money Market
Portfolio is to seek as high a level of current income to the extent consistent
with the preservation of capital and the maintenance of liquidity.
The investment objective of the Municipal Portfolio is to seek as high a
level of tax exempt current income to the extent consistent with the
preservation of capital and the maintenance of liquidity.
There is no assurance that the Portfolios will achieve their investment
objectives.
Principal Investment Strategies
--------------------------------------------------------------------------------
The Fund intends to achieve its investment objectives through three separate
Portfolios. Each Portfolio is a money market portfolio that invests in high
quality, short-term debt instruments. The Fund seeks to maintain investment
portfolios with a dollar-weighted average maturity of 90 days or less, to value
its investment portfolios at amortized cost and maintain a net asset value of
$1.00 per share.
Each Portfolio's strategy is as follows:
The U.S. Treasury Portfolio
The U.S. Treasury Portfolio seeks to achieve its objective principally by
investing in 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.
The Money Market Portfolio
The Money Market Portfolio seeks to achieve its objective by investing
principally 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, state agencies or instrumentalities, and
repurchase agreements calling for resale in 397 days or less backed by the
foregoing securities.
The Municipal Portfolio
This Portfolio seeks to achieve its objective principally by investing in
obligations issued by states, territories and possessions of the United States
and its political subdivisions, public authorities and other entities authorized
to issue debt, the interest on which is exempt from regular Federal income tax.
The Municipal Portfolio has not yet been activated and is not yet offered for
sale or distribution.
Principal Risks
--------------------------------------------------------------------------------
Risks Common to all Portfolios:
o Although the Fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Fund. The value
of the Fund's shares and the securities held by the Fund can each decline
in value.
o An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the FDIC or any other governmental agency.
Risks of Investing in the U.S. Treasury Portfolio:
o The U.S. Treasury Portfolio's investment policy of only investing in U.S.
Treasury obligations and other obligations that are issued or guaranteed by
the United States Government, while minimizing risk of loss, may produce a
lower yield than a policy of investing in other types of instruments. The
yield and total return of the U.S. Treasury Portfolio is likely to be lower
than that of the Money Market Portfolio.
2
<PAGE>
Risks of Investing in the Money Market Portfolio:
o 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. Foreign securities
may be subject to investment risks which may include adverse economic and
political developments as well as lack of uniform accounting and financial
reporting standards.
Risks of Investing in the Municipal Portfolio:
o The Municipal Portfolio may contain municipal debt obligations. The value
of these municipal obligations may be affected by uncertainties on the
municipal debt market related to taxation. In addition, the payment of
interest and preservation of capital are dependent upon the continuing
ability of issuers and/or obligors of state, municipal and public authority
debt obligations to meet these payment obligations.
Risk/Return Bar Chart And Table
--------------------------------------------------------------------------------
The following bar charts and tables may assist in your decision to invest in
a Portfolio of the Fund. The bar charts show the change in the annual total
returns of the Class B shares (which are not offered by this Prospectus) of the
U.S. Treasury and the Money Market Portfolios over the last three calendar years
for the U.S. Treasury Portfolio and over the last five calendar years for the
Money Market Portfolio. The tables show the average annual returns of the Fund's
Class B shares for the one year period ended December 31, 1999 (for both
Portfolios) and for the five year period ended December 31, 1999 (for the Money
Market Portfolio). The tables also show the average annual returns for both
Classes of the Portfolios since their inception date. A bar chart and table for
the Municipal Portfolio will be provided once the Municipal Portfolio has been
in existence for a full calendar year. While analyzing this information, please
note that the Portfolios' past performance is not an indication of how the Fund
will perform in the future. The current 7-day yield for the U.S. Treasury and
the Money Market Portfolios may be obtained by calling the Fund toll-free at
1-800-750-7862.
3
<PAGE>
Institutional Daily Income Fund U.S.Treasury Portfolio - Class B
Shares (1)(2)(3)(4)
================================================================================
[GRAPHIC OMITTED]
Calendar Year End % Total Return
----------------- ---------------
1997 5.43%
1998 5.33%
1999 4.85%
================================================================================
Calendar Year End
(1) The chart shows returns for the Class B shares of the Fund (which are not
offered by this Prospectus) because, as of December 31, 1999, the Pinnacle
shares had not been issued for a full calendar year. All Classes of the
Fund will have substantially similar annual returns because the shares are
invested in the same portfolio of securities and the annual returns differ
only to the extent that the Classes do not have the same expenses. If the
expenses of the Pinnacle shares are higher than the Class B shares, then
your returns may be even lower.
(2) As of June 30, 2000, the Fund's U.S. Treasury Portfolio had a year-to-date
return of 2.89%.
(3) The Fund's U.S. Treasury Portfolio's highest quarterly return was 1.38% for
the quarter ended September 30, 1998; the lowest quarterly return was 1.13%
for the quarter ended March 31, 1999.
(4) Investors purchasing or redeeming shares through a Participating
Organization may be charged a fee in connection with such service and,
therefore, the net return to such investors may be less than the net return
by investing in the Fund directly.
Average Annual Total Returns - U.S. Treasury Portfolio
Class B Shares Pinnacle Shares
For the periods ended December 31, 1999
One Year 4.85% N/A
Average Annual Total Returns Since Inception* 5.21% 5.10%
* Inception date is November 18, 1996 for the Class B shares and July 29, 1999
for the Pinnacle shares.
4
<PAGE>
Institutional Daily Income Fund Money Market Portfolio - Class B
Shares (1)(2)(3)(4)
================================================================================
[GRAPHIC OMITTED]
Calendar Year End % Total Return
----------------- ---------------
1995 5.97%
1996 5.43%
1997 5.59%
1998 5.54%
1999 5.19%
================================================================================
Calendar Year End
(1) The chart shows returns for the Class B shares of the Fund (which are not
offered by this Prospectus) because, as of December 31, 1999, the Pinnacle
shares had not been issued for a full calendar year. All Classes of the
Fund will have substantially similar annual returns because the shares are
invested in the same portfolio of securities. These returns will differ
only to the extent that the Classes do not have the same expenses. If the
expenses of the Pinnacle shares are higher than the Class B shares, then
your returns may be even lower.
(2) As of June 30, 2000, the Fund's Money Market Portfolio had a year-to-date
return of 3.06%.
(3) The Fund's Money Market Portfolio's highest quarterly return was 1.49% for
the quarter ended June 30, 1995; the lowest quarterly return was 1.16% for
the quarter ended September 30, 1994.
(4) Investors purchasing or redeeming shares through a Participating
Organization may be charged a fee in connection with such service and,
therefore, the net return to such investors may be less than the net return
by investing in the Fund directly.
Average Annual Total Returns - Money Market Portfolio
Class B Shares Pinnacle Shares
For the periods ended December 31, 1999
One Year 5.19% N/A
Five Year 5.55% N/A
Average Annual Total Returns Since Inception* 5.47% 5.49%
* Inception date is April 14, 1994 for the Class B shares and July 29, 1999 for
the Pinnacle shares.
5
<PAGE>
FEE TABLE
--------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares in any of the Fund's portfolios.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Pinnacle Shares
====================================================
Money U.S.
Market Treasury Municipal
Portfolio Portfolio Portfolio**
Management Fees..................... .12% .12% .12%
Distribution and Service (12b-1) Fees None None None
Other Expenses*..................... .11% .10% .11%
Administration Fees............... .05% ____ .05% ____ .05% ____
Total Fund Operating Expenses....... .23% .22% .23%
</TABLE>
_______________________
* The Manager voluntarily waived a portion of the Investment Management Fees
(which was less than .01%) and Administration Fees with respect to the Money
Market Portfolio and also waived a portion of Administration fees with
respect to the U.S. Treasury Portfolio. After such waivers, the
Administration Fees and Actual Total Fund Operating Expenses for the Pinnacle
shares are as follows:
Administration Fees -
Money Market Portfolio .02%
U.S. Treasury Portfolio .03%
Actual Total Fund Operating Expenses -
Money Market Portfolio .20%
U.S. Treasury Portfolio .20%
The Manager, at its option, may terminate this fee waiver arrangement at any
time.
Example
This Example is intended to help you compare the cost of investing in any of the
Fund's portfolios with the cost of investing in other money market funds.
The Example assumes that you invest $10,000 in any of the portfolios of the Fund
for the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Portfolio's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
Pinnacle Shares
=============================================
1 Year 3 Years 5 Years 10 Years
U.S. Treasury Portfolio: $23 $71 $124 $280
Money Market Portfolio: $24 $74 $130 $293
Municipal Portfolio **: $24 $74 $130 $293
** 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.
6
<PAGE>
II. INVESTMENT OBJECTIVES, PRINCIPAL
INVESTMENT STRATEGIES AND RELATED RISKS
Investment Objectives
--------------------------------------------------------------------------------
The Fund is a money market fund, which seeks to achieve the following
investment objectives through its three Portfolios.
The investment objective of the U.S. Treasury Portfolio and the Money Market
Portfolio is to seek as high a level of current income to the extent consistent
with the preservation of capital and the maintenance of liquidity.
The investment objective of the Municipal Portfolio is to seek as high a
level of tax exempt current income to the extent consistent with the
preservation of capital and the maintenance of liquidity.
There can be no assurance that the Fund will achieve its investment
objectives.
The investment objectives of the Fund described in this section may only be
changed upon the approval of the holders of a majority of the outstanding shares
of the Fund.
Principal Investment Strategies
--------------------------------------------------------------------------------
Generally
In order to maintain a share price of $1.00, the Fund must comply with
certain industry regulations. The Fund will only invest in securities which are
denominated in United States dollars. Other regulations pertain to the maturity
and credit quality of the securities in which the Fund may invest. The Fund will
only invest in securities which have, or are deemed to have, a remaining
maturity of 397 days or less. Also, the average maturity for all securities
contained in each individual Portfolio of the Fund, on a dollar-weighted basis,
will be 90 days or less.
The Fund will only invest in either securities which have been rated (or
whose issuers have been rated) in the highest short-term rating category by
nationally recognized statistical rating organizations, or are unrated
securities but which have been determined by the Fund's Board of Trustees to be
of comparable quality.
Subsequent to its purchase by the Fund, the quality of an investment may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. If this occurs, the Board of Trustees of the Fund shall
reassess the security's credit risks and shall take such action as the Board of
Trustees determines is in the best interest of the Fund and its shareholders.
Reassessment is not required, however, if the security is disposed of or matures
within five business days of the Manager becoming aware of the new rating and
provided further that the Board of Trustees is subsequently notified of the
Manager's actions.
Each Portfolio of the Fund shall invest not more than 5% of its total assets
in securities issued by a single issuer.
The Fund's investment manager considers the following factors when buying
and selling securities for each of the Portfolios: (i) availability of cash,
(ii) redemption requests, (iii) yield management, and (iv) credit management.
U.S. Treasury Portfolio
The U.S. Treasury Portfolio is intended to attain the Fund's investment
objective through investments limited to obligations issued or guaranteed by the
United States Government including repurchase agreements covering those types of
obligations. The Fund will enter into repurchase agreements for inclusion in the
U.S. Treasury Portfolio only if the instruments serving as collateral for the
agreements are eligible for inclusion in the U.S. Treasury Portfolio.
The Portfolio's investments may include the following securities:
(i) 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.
7
<PAGE>
(ii) 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.
(iii)Repurchase Agreements: The U.S. Treasury Portfolio may enter into
repurchase agreements which are collateralized by obligations issued or
guaranteed by the U.S. Government. A repurchase agreement arises when a
buyer purchases a security and simultaneously agrees with the vendor to
resell the security to the vendor at an agreed upon time and price.
The investment policies of the U.S. Treasury Portfolio may produce a lower
yield than a policy of investing in other types of instruments. The yield of the
U.S. Treasury Portfolio is likely to be lower than the yield of the Money Market
Portfolio.
Money Market Portfolio
The Money Market Portfolio intends to attain the Fund's investment objective
through investments in the following securities:
(i) United States Government Securities: The Money Market Portfolio may
purchase short-term obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities. These obligations 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.
(ii) Domestic and Foreign Bank Obligations: The Money Market Portfolio may
purchase securities issued by foreign governments, or any of their
political subdivisions or agencies or instrumentalities, certificates of
deposit, time deposits and bankers' acceptances issued by domestic banks,
foreign branches of domestic banks, foreign subsidiaries of domestic
banks, and domestic and foreign branches of foreign banks. 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 purchased by the Fund 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.
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 meet the
quality criteria discussed above under "Principal Investment Strategies -
Generally."
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
8
<PAGE>
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.
The Money Market Portfolio may purchase 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's investments in (a) Eurodollar
obligations, if the 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 (i) liquidity could be impaired because of
future political and economic developments, (ii) the obligations may be
less marketable than comparable domestic obligations of domestic issuers,
(iii) a foreign jurisdiction might impose withholding taxes on interest
income payable on those obligations, (iv) deposits may be seized or
nationalized, (v) foreign governmental restrictions such as exchange
controls may be adopted which might adversely affect the payment of
principal of and interest on those obligations, (vi) the selection of
foreign obligations may be more difficult because there may be less
information publicly available concerning foreign issuers, (vii) there may
be difficulties in enforcing a judgment against a foreign issuer or (viii)
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.
(iii)Variable Amount Master Demand Notes: The Money Market Portfolio may
purchase variable amount master demand notes. These instruments are
unsecured demand notes that permit investment of fluctuating amounts of
money at variable rates of interest pursuant to arrangements with issuers
who meet the quality criteria discussed above under "Principal Investment
Strategies - Generally." 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.
(iv) Commercial Paper and Certain Debt Obligations: The Money Market Portfolio
may purchase commercial paper or similar debt obligations. Commercial
paper is generally considered to be short term unsecured debt of
corporations.
(v) Repurchase Agreements: The Money Market Portfolio may enter into repurchase
agreements provided that the instruments serving as collateral for the
agreements are eligible for inclusion in the Money Market Portfolio. A
repurchase agreement arises when a buyer purchases a security and
9
<PAGE>
simultaneously agrees with the vendor to resell the security to the
vendor at an agreed upon time and price.
Municipal Portfolio
The Municipal Portfolio intends to attain the Fund's investment objective
through investments in the following securities:
(i) Municipal Securities: The Municipal Portfolio may purchase municipal
securities, including debt obligations issued to obtain funds for various
public purposes (i.e., 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. The Portfolio may also invest in certain types
of private activity bonds or industrial development bonds, 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. Interest on
certain Municipal Securities may give rise to federal alternative minimum
tax liability and may have other collateral federal income tax
consequences.
(ii) Repurchase Agreements: The Municipal Portfolio may enter into repurchase
agreements provided that the instruments serving as collateral for the
agreements are eligible for inclusion in the Municipal Portfolio. A
repurchase agreement arises when a buyer purchases a security and
simultaneously agrees with the vendor to resell the security to the vendor
at an agreed upon time and price.
For a more detailed description of (i) the securities that the Fund will invest
in, (ii) fundamental investment restrictions, and (iii) industry regulations
governing credit quality and maturity, please refer to the Statement of
Additional Information.
Risks
--------------------------------------------------------------------------------
The Fund complies with industry-standard requirements on the quality,
maturity and diversification of its investments which are designed to help
maintain a $1.00 share price. A significant change in interest rates or a
default on the Fund's investments could cause its share price (and the value of
your investment) to change.
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 when compared with those incurred by a
fund which invests only in domestic issuers. 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 in most
foreign securities markets are less than in the United States. The issuers of
some of these securities 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 and requirements. Additional risks associated with foreign
investments might include adverse political and economic developments, seizure
or nationalization of foreign deposits and adoption of governmental restrictions
which might adversely affect the payment of principal and interest on the
foreign securities. Furthermore, some of these foreign securities may be subject
to stamp, withholding or other excise taxes levied by foreign governments, which
have the effect of increasing
10
<PAGE>
the cost of such securities and reducing the realized gain or increasing the
realized loss on such securities at the time of sale.
Since the Municipal Portfolio may contain municipal debt obligations, the
value of these municipal obligations may be affected by uncertainties on the
municipal debt market related to taxation. In addition, the payment of interest
and preservation of capital are dependent upon the continuing ability of issuers
and/or obligors of state, municipal and public authority debt obligations to
meet these payment obligations.
III. MANAGEMENT, ORGANIZATION AND
CAPITAL STRUCTURE
The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"). The Manager's principal business office is located at 600 Fifth
Avenue, New York, NY 10020. As of June 30, 2000, the Manager was the investment
manager, adviser or supervisor with respect to assets aggregating in excess of
$15.6 billion. The Manager has been an investment adviser since 1970 and
currently is manager of seventeen other registered investment companies. The
Manager also advises pension trusts, profit-sharing trusts and endowments.
Pursuant to the Investment Management Contract for each Portfolio, the
Manager manages each Portfolio's 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 pay an annual management fee of .12% of each Portfolio's average
daily net assets. For the fiscal year ended March 31, 2000, the Fund paid the
Manager a fee equal to .12% of each Portfolio's average daily net assets. The
Manager, at its discretion may voluntarily waive all or a portion of the
Management Fee.
Pursuant to the Administrative Services Contract for each Portfolio, the
Manager performs clerical, accounting supervision and office service functions
for the Fund. The Manager provides the Fund with personnel to perform all of the
clerical and accounting type functions not performed by the Manager. The
Manager, at its discretion, may voluntarily waive all or a portion of the
administrative services fee. For its services under the Administrative Services
Contract, the Manager receives 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. For the fiscal year ended March 31, 2000, the Fund paid the Manager
a fee equal to .02% and .03%, respectively, of the Money Market Portfolio's and
the U.S. Treasury Portfolio's average daily net assets.
In addition, Reich & Tang Distributors, Inc. (the "Distributor"), receives a
fee equal to .25% per annum of the average daily net assets of the Class A
shares of each Portfolio under the Shareholder Servicing Agreement. The fees are
accrued daily and paid monthly.
Investment management fees and operating expenses, which are attributable to
more than one Class of each Portfolio, will be allocated daily to each Class
share based on the percentage of outstanding shares at the end of the day.
IV. SHAREHOLDER INFORMATION
The Fund sells and redeems its shares on a continuing basis at their net
asset value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent, who
accepts orders for purchases and redemptions from Participating Organizations,
Mutual Securities, Inc. ("MSI") and from dealers with whom MSI has entered into
agreements for these purposes.
Pricing of Fund Shares
--------------------------------------------------------------------------------
The net asset value of each Class of each Portfolio of the Fund's shares is
determined as of 12:00 noon, New York City time, on each Fund Business Day. Fund
Business Day means weekdays (Monday through Friday) except days on which the New
York Stock Exchange is closed
11
<PAGE>
for trading. The net asset value of a Class is computed by dividing the value of
the Fund's net assets for such Class (i.e., the value of its securities and
other assets less its liabilities, including expenses payable or accrued, but
excluding capital stock and surplus) by the total number of shares outstanding
for such Class. The Fund intends to maintain a stable net asset value at $1.00
per share although there can be no assurance that this will be achieved.
The Fund's portfolio securities are valued at their amortized cost in
compliance with the provisions of Rule 2a-7 under the Investment Company Act of
1940, as amended (the "1940 Act"). Amortized cost valuation involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium. If fluctuating interest rates cause the
market value of the securities in a Portfolio to deviate more than 1/2 of 1%
from the value determined on the basis of amortized cost, the Board of Trustees
will consider whether any action should be initiated. Although the amortized
cost method provides certainty in valuation, it may result in periods during
which the value of an instrument is higher or lower than the price an investment
company would receive if the instrument were sold.
Shares will be issued as of the first determination of the Fund's net asset
value per share made upon receipt of the investor's purchase order at the net
asset value per share next determined after receipt of the purchase order.
Except as described below in the case of certain Participating Organizations
(see "Investment Through Participating Organizations" herein), 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 subscription to its shares.
Shares are issued as of 12:00 noon, 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 12:00 noon Orders
accompanied by Federal Funds and received after 12:00 noon 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.
Subscribing to the Fund
--------------------------------------------------------------------------------
At the time of initial investment in the Fund, investors must elect on their
subscription order form the Class of shares of the Portfolio in which they wish
to invest. Subject to the Portfolios' initial investment minimums, investors may
divide their investment in the Fund between the Portfolios in any manner they
choose by submitting a separate subscription order form for each Portfolio.
Investors who purchase shares of the Portfolios from a Participating
Organization that is compensated for its services by the Manager and the
Distributor may purchase Class A shares of the Portfolios.
Subject to the suggested minimum balance of $250,000 for an existing
account, shareholders in the Fund may transfer all or a portion of their shares
from one open Portfolio account to another open Portfolio account at any time.
Any transfer into a Portfolio in which the shareholder does not have an open
account must satisfy the Portfolio's initial investment minimum of $1,000,000.
Shareholders will have a separate account with the Fund for each Portfolio in
which they invest. Certificates for Fund shares will not be issued to an
investor.
Purchase of Pinnacle Shares
--------------------------------------------------------------------------------
Only Pinnacle shares are offered through this Prospectus. Investors may
invest in Pinnacle shares through MSI and through dealers with whom MSI has
entered into agreements for the purposes described 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
12
<PAGE>
also be offered to investors who purchase their shares through other
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. With respect to all 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.
Investments Through Participating
Organizations
--------------------------------------------------------------------------------
Investors may, if they wish, invest in the Fund through the Participating
Organizations, such as MSI, 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 ("Participant Investors") each purchase and redemption
of Fund shares for the customers' accounts. Also, Participating Organizations
may send periodic account statements to their customers showing (i) the total
number of Fund shares owned by each customer as of the statement closing date,
(ii) purchases and redemptions of Fund shares by each customer during the period
covered by the statement, and (iii) the income earned by Fund shares of each
customer during the statement period (including dividends paid in cash or
reinvested in additional Fund shares). Participant Investors whose Participating
Organizations have not undertaken to provide such statements will receive them
from the Fund directly.
Participating Organizations may charge Participant Investors a fee in
connection with their use of specialized purchase and redemption procedures. In
addition, Participating Organizations offering purchase and redemption
procedures similar to those offered to shareholders who invest in the Fund
directly, may impose charges, limitations, minimums and restrictions in addition
to or different from those applicable to shareholders who invest in the Fund
directly. Accordingly, the net yield to investors who invest through
Participating Organizations may be less than by investing in the Fund directly.
A Participant Investor should read this Prospectus in conjunction with the
materials provided by the Participating Organization describing the procedures
under which Fund shares may be purchased and redeemed through the Participating
Organization.
In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 12:00 noon, New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day only if the Federal Funds required in connection with the orders are
received by the Fund's transfer agent before 12:00 noon, New York City time, on
that day. Orders for which Federal Funds are received after 12:00 noon, New York
City time, will result in share issuance the following Fund Business Day.
Participating Organizations are responsible for instituting procedures to insure
that purchase orders by their respective clients are processed expeditiously.
Initial Purchases of Pinnacle Shares
--------------------------------------------------------------------------------
Investors who wish to invest in the Fund directly may obtain a current
Prospectus and the subscription order form necessary to open an account by
telephoning the Fund at 818-990-0992 or toll-free at 800-750-7862.
13
<PAGE>
Mail
Investors may send a check made payable to "Institutional Daily Income Fund"
along with a completed subscription order form to:
Pinnacle Shares of Institutional
Daily Income Fund
c/o Mutual Securities, 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 of the Federal Reserve System
will normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a non-member bank may take substantially
longer to convert into Federal Funds. An investor's purchase order will not be
accepted until the Fund receives Federal Funds.
Bank Wire
To purchase Pinnacle shares of the Fund using the wire system for
transmittal of money among banks, investors should first obtain a new account
number by telephoning Mutual Securities, Inc. at (818) 906-0881 and then
instruct a member commercial bank to wire money immediately to:
Chase Manhattan Bank, New York, NY
ABA # 021000021
Account of National
Financial Acct. #066196-221
for further credit to: (Brokerage Account No.)
Customer name:
The investor should then promptly complete and mail the subscription order
form.
Investors planning to wire funds should instruct their bank so the wire
transfer can be accomplished on the same day. There may be a charge by the
investor's bank for transmitting the money by bank wire, and there also may be a
charge for use of Federal Funds. The Fund does not charge investors in the Fund
for its receipt of wire transfers. Payment in the form of a "bank wire" received
prior to 12:00 noon, New York City time, on a Fund Business Day will be treated
as a Federal Funds payment received on that day.
Subsequent Purchases of Shares
--------------------------------------------------------------------------------
Subsequent purchases can be made by bank wire, as indicated above, or by
mailing a check to:
Pinnacle Shares of Institutional
Daily Income Fund
c/o Mutual Securities, Inc.
P.O. Box 260208
Encino, CA 91426-0208
There is a $10,000 minimum for subsequent purchases of shares. All payments
should clearly indicate the shareholder's account number.
A shareholder may reopen an account without filing a new subscription order
form at any time during the year the shareholder's account is closed or during
the following calendar year, provided that the information on the subscription
order form on file with the Fund is still applicable.
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 (and any supporting documentation which it may require).
Normally, payment for redeemed shares is made on the same Fund Business Day
after the redemption is effected, provided the redemption request is received
prior to 12:00 noon, New York City time. However, redemption payments will not
be effected unless the check (including a certified or cashier's check) used for
investment has been cleared for payment by the investor's bank, which could take
up to 15 days after investment. Shares redeemed are not entitled to participate
in dividends declared on the day a redemption becomes effective.
14
<PAGE>
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee.
When a signature guarantee is called for, the shareholder should have
"Signature Guaranteed" stamped under his signature. It should be signed and
guaranteed by an eligible guarantor institution which includes a domestic bank,
a domestic savings and loan institution, a domestic credit union, a member bank
of the Federal Reserve system or a member firm of a national securities
exchange, pursuant to the Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written
request to the Fund addressed to:
Pinnacle Shares of Institutional
Daily Income Fund
c/o Mutual Securities, Inc.
P.O. Box 260208
Encino, CA 91426-0208
All previously issued certificates submitted for redemption must be endorsed
by the shareholder and all written requests for redemption must be signed by the
shareholder, in each case with signature guaranteed.
Normally the redemption proceeds are paid by check and mailed to the
shareholder of record.
Telephone
The Fund accepts telephone requests for redemption from shareholders who
elect this option on their subscription order form. The proceeds of a telephone
redemption will be sent to the shareholder at its address or to its bank
account, as set forth in the subscription order form or in a subsequent
signature guaranteed written authorization. The Fund may accept telephone
redemption instructions from any person with respect to accounts of shareholders
who elect this service and thus such shareholders risk possible loss of
principal and interest 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 the losses incurred by investors due to telephone redemptions
based upon unauthorized or fraudulent instructions.
A shareholder making a telephone withdrawal should call the Fund at
818-990-0992 or toll free at 800-750-7862, and state: (i) the name of the
shareholder appearing on the Fund's records, (ii) the shareholder's account
number with the Fund, (iii) the amount to be withdrawn, and (iv) the name of the
person requesting the redemption. Usually the proceeds are sent to the
designated bank account or address on the same Fund Business Day the redemption
is effected, provided the redemption request is received before 12:00 noon, New
York City time and on the next Fund Business Day if the redemption request is
received after 12:00 noon, New York City time. The Fund may modify or
discontinue the telephone redemption option at any time upon 60 days written
notice to shareholders.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are given
in proper form to the Fund's transfer agent, a
15
<PAGE>
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 accrued to the date of such redemption will be paid to the
shareholder along with the proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the SEC determines that trading thereon is restricted. Any period during which
an emergency (as determined by the SEC) exists as a result of which disposal by
the Fund of its portfolio securities is not reasonably practicable or as a
result of which it is not reasonably practicable for the Fund fairly to
determine the value of its net assets, or for such other period as the SEC may
by order permit for the protection of the shareholders of the Fund.
The Fund has reserved the right to redeem the shares of any shareholder if
the net asset value of all the remaining shares in the shareholder's or its
Participating Organization's account after a withdrawal is less than $250,000.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization. The Participating Organization
will be responsible for notifying the Participant Investor of the proposed
mandatory redemption. During the notice period a shareholder or Participating
Organization who receives such a notice may avoid mandatory redemption by
purchasing sufficient additional shares to increase his total net asset value to
the minimum amount. Shareholders who purchase shares under these circumstances
are not subject to the normal $10,000 minimum for subsequent purchases.
Dividends and Distributions
--------------------------------------------------------------------------------
The Fund declares dividends equal to all its net investment income
(excluding long-term capital gains and losses, if any, and amortization of
market discount) on each Fund Business Day and pays dividends monthly. There is
no fixed dividend rate. In computing these dividends, interest earned and
expenses are accrued daily.
Distributions of long-term capital gains, if any, are paid by the U.S.
Treasury and Money Market Portfolios at least once a year and, at the
shareholder's option, are paid in cash or reinvested in additional shares of the
Portfolio from which they were paid having an aggregate net asset value equal to
the cash amount.
All dividends and distributions of capital gains are automatically invested,
at no charge, in additional Fund shares of the same Class of shares immediately
upon payment thereof unless a shareholder has elected by written notice to the
Fund to receive either of such distributions in cash.
Election to receive dividends and distributions in cash or shares is made at
the time shares are subscribed for and may be changed by notifying the Fund in
writing at any time prior to the record date for a particular dividend or
distribution. If the shareholder makes no election, the Fund will make the
distribution in shares. There is no sales or other charge in connection with the
reinvestment of dividends and capital gains distributions.
While it is the intention of the Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by the Fund of income and capital gains
from investments. Except as described herein, each Portfolio's net
16
<PAGE>
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.
Because Class A shares bear the service fee under the Fund's 12b-1 Plan, the
net income of and the dividends payable to the Class A shares will be lower than
the net income of and dividends payable to the Class B and Pinnacle shares of
the Fund. Dividends paid to each Class of shares of each Portfolio of the Fund
will, however, be declared and paid on the same days at the same times and,
except as noted with respect to the service fees payable under the Plan, will be
determined in the same manner and paid in the same amounts.
Exchange Privilege
--------------------------------------------------------------------------------
An investor may, without cost, exchange shares from the same Class of one
Portfolio of the Fund into the same Class 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 therefore the Portfolio's purchase and
redemption procedures and requirements are applicable to exchanges.
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.
Tax Consequences
--------------------------------------------------------------------------------
The purchase of shares in the Fund will be the purchase of an asset and the
shareholder's basis for its shares in the Fund will be its cost of the shares,
including any fees or expenses. The sale of shares in the Fund will be the
taxable disposition of an asset, with gain or loss recognized in an amount equal
to the difference between the shareholder's tax basis for the shares and the
proceeds received on the sale. The exchange of shares of one Portfolio for
shares of another Portfolio, if available, will also be treated as a taxable
disposition of the shares exchanged, on which gain or loss will be recognized.
In either case, loss recognition may be affected by the loss disallowance rules
of the Code.
The Fund intends to continue to qualify for special treatment applicable to
a regulated investment company under the Internal Revenue Code for each
Portfolio. To qualify as a regulated investment company, each Portfolio must
meet certain 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
17
<PAGE>
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.
Dividends and distributions are treated in the same manner for federal
income tax purposes whether the shareholders receive cash or additional shares.
The Fund expects that distributions, as a result of its investment objectives,
will consist primarily of ordinary income. 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.
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 Internal Revenue Code requirements
regarding the supplying of their taxpayer identification number and the
reporting of income. 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 U.S. Treasury 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.
V. DISTRIBUTION ARRANGEMENTS
Rule 12b-1 Fees
--------------------------------------------------------------------------------
Investors do not pay a sales charge to purchase shares of the Fund. However,
the Fund pays shareholding servicing fees in connection with the distribution of
shares and for services provided to the Class A shareholders only. The Fund pays
these fees from its assets on an ongoing basis and therefore, over time, the
payment of these fees will increase the cost of your investment if you are a
Class A shareholder and may cost you more than paying other types of sales
charges.
The Fund's Board of Trustees has adopted a Rule 12b-1 distribution and
service plan (the "Plan") and, pursuant to the Plan, the Fund and Reich & Tang
Distributors, Inc. (the "Distributor") have entered into a Distribution
Agreement and a Shareholder Servicing Agreement (with respect to the Class A
shares of the Fund only).
Under the Distribution Agreement, the Distributor serves as distributor of
the Fund's shares and, for nominal consideration (i.e., $1.00) and as agent for
the Fund, will solicit orders for the purchase of the Fund's shares, provided
that any orders will not be binding on the Fund until accepted by the Fund as
principal.
Under the Shareholder Servicing Agreement, the Distributor receives, with
respect only to the Class A shares, a service fee equal to .25% per annum of
each Portfolio's Class A shares' average daily net assets (the "Shareholder
Servicing Fee") for providing personal shareholder services and for the
maintenance of shareholder accounts. This 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 each Portfolio. The Class B and Pinnacle class shareholders will not
receive the benefit of such services from Participating Organizations and,
therefore, will not be assessed a Shareholder Servicing Fee.
The Plan and the Shareholder Servicing Agreement provide that the Fund will
pay for (i) telecommunications expenses, including the
18
<PAGE>
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 costs, and to compensate others, including
Participating Organizations with whom the Distributor has entered into written
agreements, for performing shareholder servicing on behalf of the Class A shares
of the Fund; (ii) to compensate certain Participating Organizations for
providing assistance in distributing the Class A shares of the Fund; and (iii)
to pay the costs of printing and distributing the Fund's Prospectus to
prospective investors, and to defray the cost of the preparation and printing of
brochures and other promotional materials, mailings to prospective shareholders,
advertising, and other promotional activities, including the salaries and/or
commissions of sales personnel in connection with the distribution of the Fund's
Class A shares.
The Plan also provides that the Distributor may 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) in the preceding paragraph. 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.
19
<PAGE>
VI. FINANCIAL HIGHLIGHTS
These financial highlights tables are intended to help you understand the Fund's
financial performance for the past 5 years or shorter period depending on the
inception date of the Portfolio. Certain information reflects financial results
for a single Portfolio share. There are no financial highlights available for
the Municipal Portfolio since this Portfolio is not yet offered for sale. The
total returns in the table represent the rate that an investor would have earned
on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP
for the fiscal year ended March 31, 2000 and by other auditors for the fiscal
years prior to March 31, 2000. The report of PricewaterhouseCoopers LLP, along
with the Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Money Market Portfolio
CLASS B For the Year Ended March 31,
------- ------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- -------
Income from investment operations:
Net investment income............... 0.053 0.053 0.055 0.053 0.057
Less distributions:
Dividends from net investment income ( 0.053) ( 0.053) ( 0.055) ( 0.053) ( 0.057)
--------- ----------- ---------- ---------- ----------
Net asset value, end of period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== =========== ==========
Total Return.......................... 5.43% 5.38% 5.64% 5.42% 5.85%
Ratios/Supplemental Data:
Net assets, end of period (000)....... $ 354,549 $ 221,119 $ 227,893 $ 158,525 $ 127,282
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+ 0.20% 0.20% 0.20% 0.17% 0.16%
Net investment income................. 5.36% 5.27% 5.50% 5.29% 5.64%
Expenses paid indirectly.............. 0.00% 0.00% 0.00% 0.01% 0.04%
Management and administration fees waived 0.03% 0.05% 0.07% 0.09% 0.13%
Expenses reimbursed................... 0.00% 0.00% 0.00% 0.00% 0.03%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
U.S. Treasury Portfolio
-------------------------------------------------------------------------
November 18, 1996
CLASS B For the Year Ended March 31, (Commencement of Sales) to
------- ----------------------------------------
2000 1999 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 $ 1.00 $ 1.00
--------- --------- --------- --------
Income from investment operations:
Net investment income............... 0.050 0.050 0.054 0.019
Less distributions:
Dividends from net investment income ( 0.050) ( 0.050) ( 0.054) ( 0.019)
--------- --------- ----------- ---------
Net asset value, end of period........ $ 1.00 $ 1.00 $1.00 $ 1.00
=========== ========= =========== ==========
Total Return.......................... 5.08% 5.12% 5.50% 5.27%*
Ratios/Supplemental Data:
Net assets, end of period (000)....... $ 37,987 $ 79,793 $ 6,833 $ 7,799
Ratios to average net assets:
Expenses (net of fees waived)+........ 0.20% 0.20% 0.17% 0.17%*
Net investment income................. 4.97% 4.73% 5.37% 5.14%*
Expenses paid indirectly.............. 0.00% 0.00% 0.00% 0.01%*
Management and administration fees waived 0.02% 0.04% 0.07% 0.05%*
* Annualized
+ Includes expenses paid indirectly.
</TABLE>
20
<PAGE>
VI. FINANCIAL HIGHLIGHTS (continued)
Money Market Portfolio
July 29, 1999
(Commencement of Offering) to
PINNACLE SHARES March 31, 2000
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period................. $ 1.00
-------
Income from investment operations:
Net investment income............................ 0.038
Less distributions:
Dividends from net investment income............. ( 0.038)
-------
Net asset value, end of period....................... $ 1.00
========
Total Return......................................... 3.83%*
Ratios/Supplemental Data:
Net assets, end of period (000)...................... $ 144,632
Ratios to average net assets:
Expenses (net of fees waived and reimbursed)+.... 0.20%**
Net investment income............................ 5.36%**
Expenses paid indirectly......................... 0.00%**
Management and administration fees waived........ 0.03%**
U.S. Treasury Portfolio
July 29, 1999
(Commencement of Offering) to
PINNACLE SHARES March 31, 2000
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period................. $ 1.00
-------
Income from investment operations:
Net investment income............................ 0.035
Less distributions:
Dividends from net investment income............. ( 0.035)
-------
Net asset value, end of period....................... $ 1.00
========
Total Return......................................... 3.57%*
Ratios/Supplemental Data:
Net assets, end of period (000)...................... $ 18,450
Ratios to average net assets:
Expenses (net of fees waived)+................... 0.20%**
Net investment income............................ 4.97%**
Expenses paid indirectly......................... 0.00%**
Management and administration fees waived........ 0.02%**
* Not Annualized
** Annualized
+ Includes expenses paid indirectly.
21
<PAGE>
[LOGO GRAPHIC OMITTED]
A Statement of Additional Information (SAI) dated July 28, 2000, and the Fund's
Annual and Semi-Annual Reports include additional information about the Fund and
its investments and are incorporated by reference into this Prospectus. You may
obtain the SAI, the Annual and Semi-Annual Reports and material incorporated by
reference without charge by calling the Fund at 1-800-750-7862. To request other
information, please call your financial intermediary or the Fund.
=====================================================
A current SAI has been filed with the Securities and Exchange Commission. You
may visit the EDGAR database on the Securities and Exchange Commission's
Internet website (www.sec.gov) to view the SAI, material incorporated by
reference and other information. Copies of the information may be obtained,
after paying a duplicating fee, by sending an electronic request to
[email protected]. These materials can also be reviewed and copied at the
Commission's Public Reference Room in Washington D.C. Information on the
operation of the Public Reference Room may be obtained by calling the Commission
at 1-202-942-8090. In addition, copies of these materials may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-0102.
=====================================================
MUTUAL SECURITIES, INC.
Member NASD, SIPC o Established 1982
P.O. Box 260208, Encino, CA 91426-0208
811-8312
PIDIF700P
INSTITUTIONAL DAILY INCOME FUND
Pinnacle Class of Shares
PROSPECTUS
July 28, 2000
<PAGE>
================================================================================
INSTITUTIONAL DAILY INCOME FUND 600 Fifth Avenue, New York, NY 10020
(212) 830-5220
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
July 28, 2000
RELATING TO THE INSTITUTIONAL DAILY INCOME FUND
PROSPECTUS DATED JULY 28, 2000
AND THE PINNACLE CLASS OF SHARES OF INSTITUTIONAL DAILY INCOME FUND
PROSPECTUS DATED JULY 28, 2000
This Statement of Additional Information (SAI) is not a Prospectus. The SAI
expands upon and supplements the information contained in the current
Prospectuses of Institutional Daily Income Fund (the "Fund"), dated July 28,
2000, and should be read in conjunction with each Prospectus.
A Prospectus may be obtained from any Participating Organization or by writing
or calling the Fund toll-free at 1-(800) 221-3079. You may obtain a Prospectus
for the Pinnacle Class of shares of the Fund by writing or calling Mutual
Securities, Inc. toll-free at 1-800-750-7862. The Financial Statements of the
Fund have been incorporated by reference to the Fund's Annual Report. The Annual
Report is available, without charge, upon request by calling the toll-free
number provided. The material relating to Purchase, Redemption, and Pricing of
Shares has been incorporated by reference to the Prospectus of each Class of
shares.
This Statement of Additional Information is incorporated by reference into the
Fund's Prospectus in its entirety.
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C> <C>
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Fund History.........................................2 Capital Stock and Other Securities......................17
Description of the Fund and its Investments and Purchase, Redemption and Pricing of Shares..............17
Risks..............................................2 Taxation of the Fund....................................18
Management of the Fund..............................10 Underwriters............................................19
Control Persons and Principal Holders of Calculation of Performance Data.........................20
Securities........................................12 Financial Statements....................................20
Investment Advisory and Other Services..............13 Description of Ratings..................................21
Brokerage Allocation and Other Practices............16
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</TABLE>
<PAGE>
I. FUND HISTORY
The Fund was incorporated on January 20, 1994 in the state of Massachusetts.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
The Fund is a diversified, no-load, open-end management investment company
consisting of three managed portfolios of money market instruments (the
"Portfolios"). The investment objective of the Fund's Portfolios is to seek as
high a level of current income (or current tax exempt income for the Municipal
Portfolio) to the extent consistent with preserving capital and maintaining
liquidity. The Portfolios were designed to meet the short-term investment needs
of corporate and institutional investors. No assurance can be given that these
objectives will be achieved.
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).
The following discussion expands upon the description of the Fund's investment
objectives and policies in the Prospectus.
Credit Ratings and Risks
The Money Market and Municipal Portfolios may 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 Portfolios are able to employ the amortized cost
method of evaluation. The term First Tier Eligible Securities means: (i)
securities which have to 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); (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 Investment Company Act of 1940, as amended (the "1940 Act")
which has received a rating from the Requisite NRSROs in the highest short-term
rating category for debt obligations; (iv) a security issued by a registered
investment company that is a money market fund; or (v) 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 S&P and Moody's are "AAA" and "AA" by S&P in the case of long-term
bonds and notes or "Aaa" and "Aa" by Moody's in the case of bonds; "SP-1" and
"SP-2" by S&P or "MIG-1" and "MIG-2" by Moody's in the case of notes; "A-1" and
"A-2" by S&P or "Prime-1" and "Prime-2" by Moody's in the case of tax-exempt
commercial paper. The highest rating in the case of variable and floating demand
notes is "VMIG-1" by Moody's or "SP-1/AA" by S&P. Such instruments may produce a
lower yield than would be available from less highly rated instruments.
All investments purchased by the Fund will mature or will be deemed to mature
within 397 days or less from the date of acquisition and the average maturity of
the Fund portfolio (on a dollar-weighted basis) will be 90 days or less. The
maturities of variable rate demand instruments held in the Fund's portfolio will
be deemed to be the longer of the period required before the Fund is entitled to
receive payment of the principal amount of the instrument through demand, or the
period remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.
Subsequent to its purchase by the Fund, a rated security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Fund. If this occurs, the Board of Trustees of the Fund shall promptly reassess
whether the security presents minimal credit risks and shall cause the Fund to
take such action as the Board of Trustees determines is in the best interest of
the Fund 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 (i) is in default, (ii) ceases to be
an eligible investment under Rule 2a-7 of the 1940 Act or (iii) is determined to
no longer present minimal credit risks, or an event of insolvency occurs with
respect to the issues of a portfolio security or the provider of any Demand
Feature or Guarantee, the Fund will dispose of the
2
<PAGE>
security absent a determination by the Fund's Board of Trustees that disposal of
the security would not be in the best interests of the Fund. Disposal of the
security shall occur as soon as practicable consistent with achieving an orderly
disposition by sale, exercise of any demand feature or otherwise. In the event
of a default with respect to a security which immediately before default
accounted for 1/2 of 1% or more of the Fund's total assets, the Fund shall
promptly notify the SEC of such fact and of the actions that the Fund intends to
take in response to the situation.
Foreign Securities
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.
Repurchase Agreements
All Portfolios may invest in repurchase agreements. Investments by the Fund in
repurchase agreements are made in accordance with procedures established by the
Fund providing that the securities serving as collateral for each repurchase
agreement are delivered to the Fund's custodian either physically or in book
entry form and that the collateral is marked to the market with sufficient
frequency to ensure that each repurchase agreement is fully collateralized at
all times.
A buyer of a repurchase agreement runs the risk of loss with respect to its
investment in the event of a default by the issuer if, at the time of default,
the value of the collateral securing the agreement is less than the price paid
for the repurchase agreement. Were a default to occur, the Fund would look to
the collateral securing the repurchase agreement to recover its entire
investment. In the event that a vendor defaults on its repurchase obligation,
the Fund might suffer a loss to the extent that the proceeds from the sale of
the collateral are less than the repurchase price. If the vendor becomes
bankrupt, the Fund might be delayed, or may incur costs or possible losses in
selling the collateral.
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 only with member banks of the Federal Reserve System and "primary
dealers" (as designated by the Federal Reserve Bank of New York) in United
States government securities 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.
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.
3
<PAGE>
In the view of the management of the Fund, the restrictions and procedures
described above which govern the Fund's investments in repurchase agreements
substantially minimize the Fund's risk of losses in making those investments.
Repurchase agreements may be considered to be loans under the 1940 Act.
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 that 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.
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
4
<PAGE>
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.
While the value of the underlying variable rate demand instruments may change
with changes in interest rates generally, the variable rate nature of the
underlying variable rate demand instruments should minimize changes in value of
the instruments. Accordingly, as interest rates decrease or increase, the
potential for capital appreciation and the risk of potential capital
depreciation is less than would be the case with a portfolio of fixed income
securities. The 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
variable note demand participation certificates 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
--------
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.
5
<PAGE>
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.
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
Portfolios 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 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.
6
<PAGE>
Description of Municipal Obligations (Municipal Portfolio)
(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 "Taxation of the
Fund" herein.) IRBs are, in most cases, revenue bonds and do not generally
constitute the pledge of the credit of the issuer of such bonds. The
payment of the principal and interest on IRBs usually depends solely on the
ability of the user of the facilities financed by the bonds or other
guarantor to meet its financial obligations and, in certain instances, the
pledge of real and personal property as security for payment. If there is
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.
(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.
7
<PAGE>
(5) The Fund expects that, on behalf of the Municipal Portfolio, it will not
invest more than 25% of the Portfolio's total assets in municipal
obligations whose issuers are located in the same state or more than 25% of
the 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 Security 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 Security held in its
portfolio.
Stand-By Commitments
The amount payable to the Municipal 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 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 Municipal Portfolio 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 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 "Taxation of the Fund" herein). 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.
8
<PAGE>
Put Options
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 "Tax Consequences" 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.
General
The Fund intends to continue qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code (the "Code"). For the Fund to qualify,
at the close of each quarter of the taxable year, at least 50% of the value of
its total assets must consist of cash, government securities, regulated
investment company securities and other securities. The other securities must be
limited in respect of any one issuer to not more than 5% in value of the total
assets of the Fund and to not more than 10% of the outstanding voting securities
of such issuer. In addition, at the close of each quarter of its taxable year,
not more than 25% in value of the Fund's total assets may be invested in
securities other than Government securities or regulated investment company
securities of one issuer or of two or more issuers which the Fund controls and
which are determined to be engaged in the same or similar trades of businesses
or related trades businesses. The limitations described in this paragraph
regarding qualification as a "regulated investment company" are not fundamental
policies and may be revised if applicable Federal income tax requirements are
revised. (See "Taxation of the Fund" herein.)
Investment Restrictions
The Fund has adopted the following fundamental investment restrictions which
apply to all Portfolios. They may not be changed unless approved by a majority
of the outstanding shares "of each series of the Fund's shares that would be
affected by such a change." The term "majority of the outstanding shares" of the
Fund means the vote of the lesser of (i) 67% or more of the shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Fund. The Fund may not:
(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 officers and trustees of the
Fund or Reich & Tang Asset Management, Inc., the general partner of its
investment manager, individually own beneficially more than 1/2 of 1% of
the issuer's securities or in the aggregate own more than 5% of the
issuer's securities; and
(c) (1) make investments for the 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 or reorganization
involving the Fund; (4) invest in real estate (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), commodities,
commodity contracts, commodity options, interests in oil or gas or
interests in other mineral exploration or development programs; (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; (9) issue senior securities, except insofar as
the Fund may be deemed to have issued a senior security in connection with
any permitted borrowings; (10) 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; (11) 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; (12) with respect to the U.S. Treasury
Portfolio and the
9
<PAGE>
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); (13) 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); (14) make loans, except
that the Fund may purchase for a Portfolio the debt securities described
above under "Description of the Fund and Its Investments and Risks " and
may enter into repurchase agreements as therein described; (15) 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 value of a
Portfolio's net assets or (ii) with respect to the U.S. Treasury Portfolio,
otherwise provided herein and permissible under the 1940 Act; and (16)
pledge, mortgage, assign or encumber any of a Portfolio's assets except to
the extent necessary to secure a borrowing permitted by clause (13) made
with respect to the Portfolio.
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-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).
If a percentage restriction is adhered to at the time of an investment a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or in the amount of a Fund's portfolio's assets will not
constitute a violation of such restriction.
III. MANAGEMENT OF THE FUND
The Fund's Board of Trustees, which is responsible for the overall management
and supervision of the Fund, has employed the Manager to serve as investment
manager of the Fund. The Manager provides persons satisfactory to the Fund's
Board of Trustees to serve as officers of the Fund. Such officers, as well as
certain other employees and trustees of the Fund, may be trustees or officers of
Reich & Tang Asset Management, Inc., the sole general partner of the Manager or
employees of the Manager or its affiliates. Due to the services performed by the
Manager, the Fund currently has no employees and its officers are not required
to devote their full-time to the affairs of the Fund.
The Trustees and Officers of the Fund and their principal occupations during the
past five years are set forth below. Unless otherwise specified, the address of
each of the following persons is 600 Fifth Avenue, New York, New York 10020. Mr.
Duff may be deemed an "interested person" of the Fund, as defined in the 1940
Act, on the basis of his affiliation with Reich & Tang Asset Management L.P.
Steven W. Duff, 46 - President and Director of the Fund, has been President of
the Mutual Funds Division of the Manager since September 1994. Mr. Duff is
President and a Director/Trustee of 13 other funds in the Reich & Tang Fund
Complex, President of Back Bay Funds, Inc., Director of Pax World Money Market
Fund, Inc., and President and Chief Executive Officer of Tax Exempt Proceeds
Fund, Inc.
Dr. W. Giles Mellon, 69 - Director of the Fund, is Professor of Business
Administration in the Graduate School of Management, Rutgers University which he
has been associated with since 1966. His address is Rutgers University
Graduate School of Management, 92 New Street, Newark, New Jersey 07102. Dr.
Mellon is also a Director/Trustee of 14 other funds in the Reich & Tang Fund
Complex.
10
<PAGE>
Robert Straniere, 59 - Director of the Fund, has been a member of the New York
State Assembly and a partner with the Straniere Law Firm since 1981. His address
is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is also a
Director/Trustee of 14 other funds in the Reich & Tang Fund Complex.
Dr. Yung Wong, 61 - Director of the Fund, was Director of Shaw Investment
Management (UK) Limited from 1994 to October 1995 and formerly General Partner
of Abacus Partners Limited Partnership (a general partner of a venture capital
investment firm) from 1984 to 1994. His address is 29 Alden Road, Greenwich,
Connecticut 06831. Dr. Wong is also a Director/Trustee of 14 other funds in the
Reich & Tang Fund Complex, and is also a Trustee of Eclipse Financial Asset
Trust.
Molly Flewharty, 49 - Vice President of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Flewharty is also
Vice President of 17 other funds in the Reich & Tang Fund Complex.
Lesley M. Jones, 51 - Vice President of the Fund, has been Senior Vice President
of the Mutual Funds Division of the Manager since September 1993. Ms. Jones is
also a Vice President of 13 other funds in the Reich & Tang Fund Complex.
Dana E. Messina, 43 - Vice President of the Fund, has been Executive Vice
President of the Mutual Funds Division of the Manager since January 1995 and was
Vice President from September 1993 to January 1995. Ms. Messina is also Vice
President of 14 other funds in the Reich & Tang Fund Complex.
Dawn Fischer 53 - Vice President of the Fund, is a Managing Director of
Thornburg Management Co., Inc. with which she has been associated since August
1982. Her address is 119 East Marcy Street, Suite 202, Santa Fe, New Mexico
87501. Ms. Fischer is also Secretary and Assistant Treasurer of Thornburg
Investment Trust and Secretary of Limited Term Municipal Fund, Inc.
Bernadette N. Finn, 52 - Secretary of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Finn is also
Secretary of 13 other funds in the Reich & Tang Fund Complex, and a Vice
President and Secretary of 4 funds in the Reich & Tang Fund Complex.
Richard DeSanctis, 43 - Treasurer of the Fund, has been Treasurer of the Manager
of the Manager since 1993. Mr. DeSanctis is also Treasurer of 16 other funds in
the Reich & Tang Fund Complex, and is Vice President and Treasurer of Cortland
Trust, Inc.
Rosanne Holtzer, 35 - Assistant Treasurer of the Fund, has been Vice President
of the Mutual Funds division of the Manager since December 1997. Ms. Holtzer was
formerly Manager of Fund Accounting for the Manager with which she was
associated with from June 1986. Ms. Holtzer is also Assistant Treasurer of 17
other funds in the Reich & Tang Fund Complex.
The Fund paid an aggregate remuneration of $12,000 to its trustees with respect
to the period ended March 31, 2000, all of which consisted of trustees' fees
paid to the three disinterested trustees, pursuant to the terms of the
Investment Management Contract (see "Investment Advisory and Other Services"
herein).
<TABLE>
<CAPTION>
COMPENSATION TABLE
<S> <C> <C> <C> <C>
Name of Person, Aggregate Pension or Retirement Estimated Annual Total Compensation from
Position Compensation from Benefits Accrued as Benefits upon Fund and Fund Complex
the Fund Part of Fund Expenses Retirement Paid to Trustees*
W. Giles Mellon,
Director $4,000 0 0 $59,000 (16 Funds)
Robert Straniere,
Director $4,000 0 0 $59,000 (16 Funds)
Yung Wong,
Director $4,000 0 0 $59,000 (16 Funds)
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ending March 31, 2000. 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.
11
<PAGE>
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On June 30, 2000 there were 616,635,812 Class A shares outstanding in the Money
Market Portfolio, 121,278,061 Class B shares outstanding in the Money Market
Portfolio, 124,889,229 Pinnacle Class shares outstanding in the Money Market
Portfolio, 461,729,586 Class A shares outstanding in the U.S. Treasury
Portfolio, 16,420,541 Class B shares outstanding in the U.S. Treasury Portfolio
and 15,894,710 Pinnacle Class shares outstanding in the U.S. Treasury Portfolio.
As of June 30, 2000, the amount of shares owned by all officers and trustees of
the Fund, as a group, was less than 1% of the outstanding shares. Set forth
below is certain information as to persons who owned 5% or more of the Fund's
outstanding shares as of June 30, 2000:
Name and Address % of Class Ownership
Money Market Portfolio- Class A Shares
Hambrecht and Quist 86.35% Record
34 Exchange Place
Jersey City, NJ 07311-3988
Money Market Portfolio - Class B Shares
Copley Institutional Investors 17.00% Record
C/O AEW Capital Management
225 Franklin Street
Boston, MA 02110
Copley Institutional Investors 11.00% Record
C/O AEW Capital Management
225 Franklin Street
Boston, MA 02110
NVEST Companies, L.P. 6.00% Record
399 Boylston Street
Boston, MA 02116
New England Funds, L.P. 5.00% Record
399 Boylston Street
Boston, MA 02116
Copley Institutional Investors 5.00% Record
C/O AEW Capital Management
225 Franklin Street
Boston, MA 02110
New England Life Pension 5.00% Record
C/O AEW Capital Management
225 Franklin Street
Boston, MA 02110
Pinnacle Shares of Money Market Portfolio
NFSC 100.00% Record
200 Liberty Street
New York, NY 10281
U.S. Treasury Portfolio - Class A Shares
Neuberger & Berman 86.00% Record
55 Water Street
New York, NY 10041
12
<PAGE>
Hambrecht and Quist 7.00% Record
34 Exchange Place
Jersey City, NJ 07311-3988
U.S. Treasury Portfolio - Class B Shares
Neuberger & Berman 79.00% Record
55 Water Street
New York, NY 10041
Jane Wan 12.00% Record/Beneficial
1725 York Ave.
New York, NY 10128-7811
Pinnacle Shares of U.S. Treasury Portfolio
NFSC 100.00% Record
200 Liberty Street
New York, NY 10281
V. INVESTMENT ADVISORY AND OTHER SERVICES
The Investment Manager for the Fund is Reich & Tang Asset Management L.P., a
Delaware limited partnership with principal offices at 600 Fifth Avenue, New
York, New York 10020. The Manager was as of June 30, 2000, investment manager,
adviser, or supervisor with respect to assets aggregating in excess of $15.6
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.
Nvest Companies, L.P. (Nvest Companies) is the limited partner and owner of a
99.5% interest in the Manager. Reich & Tang Asset Management, Inc. (RTAM) is the
sole general partner and owner of the remaining 0.5% interest of the Manager, as
well as being an indirect wholly-owned subsidiary of Nvest Companies. Nvest
Companies is a publicly traded company of which approximately 13% of its
outstanding partnership interests is owned, directly and indirectly, by Reich &
Tang, Inc. The managing general partner of Nvest Companies is Nvest Corporation,
a Massachusetts corporation (formerly known as The New England Investment
Companies, Inc.).
Nvest, L.P., and its affiliated operating partnership, Nvest Companies,L.P.,
have entered into an agreement for CDC Asset Management to acquire all of their
outstanding partnership units. CDC Asset Management is the investment management
arm of France's Caisse des depots et Consignationes, which is a major
diversified financial institution. Nvest will be renamed CDC Asset
Management-North America and will continue to use the holding company structure.
Nvest affiliates, including Reich & Tang Asset Management, L.P. ("RTAM") will
retain their investment independence, brand names, management and operating
autonomy. The transaction will not affect daily operations of the Funds or the
investment management activities of RTAM.
Consummation of the transaction with CDC is subject to a number of
contingencies, including regulatory approvals and approval of the unitholders of
Nvest, L.P. and Nvest Companies, L.P. Under the rules for mutual funds, the
transaction may result in a change of control for RTAM and, therefore, an
assignment of the Funds' investment advisory agreements with RTAM, which
generally is not permitted under the Investment Company Act of 1940.
Consequently, it is anticipated that RTAM will seek approval of new agreements,
which will be substantially identical to the existing agreements, from the
Funds' Board of Directors/Trustees and shareholders prior to consummation of the
transaction. The transaction is expected to close in the fourth quarter of 2000.
Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through seventeen subsidiaries,
divisions and affiliates offering a wide array of investment styles and products
to institutional clients. Its business units, in addition to the manager,
include AEW Capital Management, L.P., Back Bay Advisors, L.P.; Capital Growth
Management Limited Partnerships; Greystone Partners, L.P.; Harris Associates,
L.P.; Jurika & Voyles, L.P.; Kobrick Funds, LLP, Loomis, Sayles & Company, L.P.;
New England Funds, L.P.; Nvest Associates, Inc.; Snyder Capital Management,
L.P.; Vaughan, Nelson, Scarborough & McCullough, L.P.; and Westpeak Investment
Advisors, L.P. These affiliates in the aggregate are investment advisors or
managers to more than 80 other registered investment companies.
RTAM is also an indirect subsidiary of Metropolitan Life Insurance Company
(MetLife). MetLife directly and indirectly owns approximately 47% of the
outstanding partnership interests of Nvest Companies and may be deemed a
controlling person of the Manager. MetLife is a stock life insurance company,
which is wholly owned by Metlife, Inc., a publicly traded corporation.
13
<PAGE>
On January 27, 2000, the Board of Trustees, including a majority of the trustees
who are not interested persons (as defined in the 1940 Act) of the Fund or the
Manager, approved the continuance of the Investment Management Contract
effective April 1, 2000, which has a term which extends to March 31, 2001. The
contract is continued in force thereafter for successive twelve-month periods
beginning each April 1, provided that such continuance is approved by a majority
vote of the Fund's outstanding voting securities or by a majority of the
trustees who are not parties to the Investment Management Contract or interested
persons of any such party, by votes cast in person at a meeting called for the
purpose of voting on such matter.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Trustees of
the Fund.
The Manager provides persons satisfactory to the Board of Trustees of the Fund
to serve as officers of the Fund. Such officers, as well as certain other
employees and trustees of the Fund, may be trustees or officers of RTAM, 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.
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
Manager, at its discretion, may voluntarily waive all or a portion of the
management fee. The fees are accrued daily and paid monthly. Any portion of the
total fees received by the Manager may be used by the Manager to provide
shareholder services and for distribution of Fund shares. For the Fund's fiscal
year ended March 31, 2000 the Manager received investment management fees
totaling $836,918 of which $22,036 was waived, from the Money Market Portfolio
and $901,607, of which $0 was waived, from the U.S. Treasury Portfolio. For the
Fund's fiscal year ended March 31, 1999 the Manager received investment
management fees totaling $472,729, of which $90,521 was waived, from the Money
Market Portfolio and $809,496, of which $126,559 was waived, from the U.S.
Treasury Portfolio. For the Fund's fiscal year ended March 31, 1998 the Manager
received investment management fees totaling $348,323, of which $115,985 was
waived, from the Money Market Portfolio and $468,085, of which $156,029 was
waived, from the U.S. Treasury Portfolio.
Pursuant to an Administrative Services Contract with the Fund, the manager also
performs clerical, accounting supervision, office service and related functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of bookkeeping related services by Investors Fiduciary Trust
Company, the Fund's bookkeeping agent, (ii) prepare reports to and filings with
regulatory authorities, and (iii) perform such other services as the Fund may
from time to time request of the Manager. The personnel rendering such services
may be employees of the Manager, of its affiliates or of other organizations.
The Manager, at its discretion, may voluntarily waive all or a portion of the
administrative services fee. For its services under the Administrative Services
Contract, the Manager receives an annual fee of .05% of each Portfolio's average
daily net assets. For the Fund's fiscal year ended March 31, 2000 the Manager
received administration fees in the aggregate of $348,716, of which $161,522 was
waived, from the Money Market Portfolio and $375,670, of which $181,253 was
waived, from the U.S. Treasury Portfolio. For the Fund's fiscal year ended March
31, 1999, the Manager received administration fees in the aggregate of $196,971,
of which $118,182 was waived, from the Money Market Portfolio and $337,290, of
which $170,996 was waived, from the U.S. Treasury Portfolio. For the Fund's
fiscal year ended March 31, 1998, the Manager received administration fees in
the aggregate of $145,134, of which $87,081 was waived, from the Money Market
Portfolio and $195,035, of which $117,021 was waived, from the U.S. Treasury
Portfolio.
The Manager at its discretion may waive its rights to any portion of the
management fee or the administrative services fee and may use any portion of the
management fee for purposes of shareholder and administrative services and
distribution of the Fund's shares. There can be no assurance that such fees will
be waived in the future.
Investment management fees and operating expenses which are attributable to all
Classes of a Portfolio 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, or by the Manager from its management fee. Expenses
incurred in the distribution of Class B shares and the servicing of Class B
shares shall be paid by the Manager.
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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) that in any year exceed the limits on investment company
expenses prescribed by any state in which the Fund's shares are qualified for
sale. For the purpose of this obligation to reimburse expenses, the Fund's
annual expenses are estimated and accrued daily, and any appropriate estimated
payments are made to it on a monthly basis. Subject to the obligations of the
Manager to reimburse the Fund for its excess expenses as described above, the
Fund has, under the Investment Management Contract, confirmed its obligation for
payment of all its other expenses. This includes all operating expenses, taxes,
brokerage fees and commissions, commitment fees, certain insurance premiums,
interest charges and expenses of the custodian, transfer agent and dividend
disbursing agent's fees, telecommunications expenses, auditing and legal
expenses, bookkeeping agent fees, costs of forming the corporation and
maintaining corporate existence, compensation of trustees, officers and
employees of the Fund and costs of other personnel performing services for the
Fund who are not officers of the Manager or its affiliates, costs of investor
services, shareholders' reports and corporate meetings, SEC registration fees
and expenses, state securities laws registration fees and expenses, expenses of
preparing and printing the Fund's Prospectus for delivery to existing
shareholders and of printing application forms for shareholder accounts, and the
fees and reimbursements payable to the Manager under the Investment Management
Contract and the Distributor under the Shareholder Servicing Agreement.
The Fund may from time to time hire its own employees or contract to have
management services performed by third parties (including Participating
Organizations) as discussed herein. The management of the Fund intends to do so
whenever it appears advantageous to the Fund. The Fund's expenses for employees
and for such services are among the expenses subject to the expense limitation
described above.
Distribution And Service Plan
The Fund's distributor is Reich & Tang Distributors, Inc. (the "Distributor"), a
Delaware corporation with principal officers at 600 Fifth Avenue, New York, New
York 10020. Pursuant to Rule 12b-1 under the 1940 Act, the SEC has required that
an investment company which bears any direct or indirect expense of distributing
its shares must do so only in accordance with a plan permitted by the Rule. The
Fund's Board of Trustees has adopted a distribution and service plan (the
"Plan") and, pursuant to the Plan, the Fund has entered into a Distribution
Agreement and a Shareholder Servicing Agreement (with respect to Class A shares
only) with the Distributor, as distributor of the Fund's shares.
Under the Plan, the Fund and the Distributor will enter into a Shareholder
Servicing Agreement with respect to the Class A shares. Under the Shareholder
Servicing Agreement, the Distributor receives from each Portfolio a Service Fee
equal to .25% per annum of the Fund's Class A shares average daily net assets
(the "Service Fee"). The service fee is in exchange for providing personal
shareholder services and for the maintenance of shareholder accounts. The
Service Fee is accrued daily and paid monthly and any portion of the Service 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 Fund. The Class B and Pinnacle shareholders will not receive
the benefit of such services from Participating Organizations and, therefore,
will not be assessed a Service Fee.
The following information applies only to the Class A shares of the Portfolios.
For the fiscal year ended March 31, 2000, the Fund paid a Service Fee for
expenditures pursuant to the Plan in amounts aggregating $1,023,406 with respect
to the Money Market Portfolio and $1,673,442 with respect to the U.S. Treasury
Portfolio. During such period, the Manager and Distributor made payments
pursuant to the Plan to or on behalf of Participating Organizations of
$1,000,025 with respect to the Money Market Portfolio and $1,690,476 with
respect to the U.S. Treasury Portfolio. Of the payments made pursuant to the
Plan by the Fund, the Money Market Portfolio spent $12,421 on printing and
mailing of prospectuses to other than current shareholders, $25,792 on
compensation to sales personnel, and $128 on miscellaneous expenses. Of the
payments made pursuant to the Plan by the Fund, the U.S. Treasury Portfolio
spent $5,130 on printing and mailing of prospectuses to other than current
shareholders, $16,183 on compensation to sales personnel, and $158 on
miscellaneous expenses. The excess of such payments over the total payments the
Distributor received from the Fund represents distribution and servicing
expenses funded by the Distributor from its own resources, or the Manager from
its own resources (which may be deemed to be an indirect payment by the Fund).
For the fiscal year ended March 31, 2000, the total amount spent pursuant to the
Plan for the Class A shares for the U.S. Treasury Portfolio and the Money Market
Portfolio were .26% and .25%, respectively, of the average daily net assets of
the Class A shares of the particular Portfolio, of which 0.25% of the average
daily net assets for both Portfolios was paid by the Fund to the Distributor,
pursuant to the Shareholder Servicing Agreement.
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Under the Distribution Agreement, the Distributor, for nominal consideration
(i.e., $1.00) and as agent for the Fund, will solicit orders for the purchase of
the Fund's shares, provided that any subscriptions and orders will not be
binding on the Fund until accepted by the Fund as principal.
The Plan and the Shareholder Servicing Agreement provide that the Distributor
will pay for (i) telecommunications expenses, including the cost of dedicated
lines and CRT terminals, incurred by the Participating Organizations and
Distributor in carrying out their obligations under the Shareholder Servicing
Agreement with respect to the Class A shares and (ii) preparing, printing and
delivering the Fund's prospectus to existing shareholders of the Fund and
preparing and printing subscription application forms for shareholder accounts.
The Plan provides that the Manager may make payments from time to time from
their own resources, which may include the management fee, and past profits for
the following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements for performing shareholder servicing and related
administrative functions on behalf of the Class A shares of the Fund; (ii) to
compensate certain Participating Organizations for providing assistance in
distributing the Fund's shares; and (iii) to pay the costs of printing and
distributing the Fund's prospectus to prospective investors, and to defray the
cost of the preparation and printing of brochures and other promotional
materials, mailings to prospective shareholders, advertising, and other
promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's shares. The
Distributor may also make payments from time to time from its own resources,
which may include the Service Fee with respect to Class A shares and past
profits for the purpose enumerated in (i) above. The Distributor will determine
the amount of such payments made pursuant to the Plan, provided that such
payments will not increase the amount which the Fund is required to pay to the
Manager or the Distributor for any fiscal year under the Investment Management
Contract or the Shareholder Servicing Agreement in effect for that year.
In accordance with the Rule, the Plan provides that all written agreements
relating to the Plan entered into between either the Fund or the Distributor and
Participating Organizations or other organizations must be in a form
satisfactory to the Fund's Board of Trustees. In addition, the Plan requires the
Fund and the Distributor to prepare, at least quarterly, written reports setting
forth all amounts expended for distribution purposes by the Fund and the
Distributor pursuant to the Plan and identifying the distribution activities for
which those expenditures were made.
The Plan provides that it will remain in effect until December 31, 2000.
Thereafter it may continue in effect for successive annual periods commencing
January 1, provided it is approved by the Class A shareholders or by the Board
of Trustees. This includes 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.
Custodian And Transfer Agent
State Street Kansas City, 801 Pennsylvania, Kansas City, Missouri 64105, is
custodian for the Fund's cash and securities. Reich & Tang Services, Inc., an
affiliate of the Fund's Manager, located at 600 Fifth Avenue, New York, NY
10020, is transfer agent and dividend agent for the shares of the Fund. The
custodian and transfer agent do not assist in, and are not responsible for,
investment decisions involving assets of the Fund.
Counsel and Independent Accountants
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York,
New York 10022.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, independent certified public accountants, have been selected as auditors
for the Fund.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
The Fund's purchases and sales of portfolio securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Thus, the Fund will select a broker
for such a transaction based upon which broker can effect the trade at the best
price and execution available. Purchases from underwriters of
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portfolio securities include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price. The Fund purchases participation
certificates in variable rate Municipal Obligations with a demand feature from
banks or other financial institutions at a negotiated yield to the Fund based on
the applicable interest rate adjustment index for the security. The interest
received by the Fund is net of a fee charged by the issuing institution for
servicing the underlying obligation and issuing the participation certificate,
letter of credit, guarantee or insurance and providing the demand repurchase
feature.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. No preference in purchasing portfolio securities will
be given to banks or dealers that are Participating Organizations.
Investment decisions for the Fund will be made independently from those for any
other investment companies or accounts that may be or become managed by the
Manager or its affiliates. If, however, the Fund and other investment companies
or accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In some cases, this policy might adversely
affect the price paid or received by the Fund or the size of the position
obtainable for the Fund. In addition, when purchases or sales of the same
security for the Fund and for other investment companies managed by the Manager
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantage available to large denomination purchasers or
sellers.
No portfolio transactions are executed with the Manager or its affiliates acting
as principal. In addition, the Fund will not buy bankers' acceptances,
certificates of deposit or commercial paper from the Manager or its affiliates.
VII. CAPITAL STOCK AND OTHER SECURITIES
The Fund has an unlimited authorized number of shares of beneficial interest,
having a par value of one tenth of one cent ($.01) per share. These shares are
entitled to one vote per share with proportional voting for fractional shares.
The Fund's Board of Trustees is authorized to divide the shares into separate
series of stock, one for each of the Portfolios that may be created. There are
no conversion or preemptive rights in connection with any shares of the Fund.
All shares, when issued in accordance with the terms of the offering, will be
fully paid and nonassessable. Shares are redeemable at net asset value, at the
option of the shareholder.
Each Portfolio of the Fund is subdivided into three Classes of shares of
beneficial interest, Class A, Class B and Pinnacle Class. 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, Class B and Pinnacle Class shares will
have different Class designations; (ii) only the Class A shares will be assessed
a service fee pursuant to the Rule 12b-1 Distribution and Service Plan of the
Fund of .25% of the Class A shares' average daily net assets; (iii) only the
holders of the Class A shares will be entitled to vote on matters pertaining to
the Plan and any related agreements in accordance with provisions of Rule 12b-1;
and (iv) the exchange privilege will permit stockholders to exchange their
shares only for shares of the same Class of any other Portfolio of the Fund.
Payments that are made under the Plan will be calculated and charged daily to
the appropriate Class prior to determining daily net asset value per share and
dividends/distributions.
Under its Declaration of Trust, the Fund has the right to redeem for cash shares
of stock owned by any shareholder to the extent and at such times as the Fund's
Board of Trustees determines to be necessary or appropriate to prevent an undue
concentration of stock ownership which would cause the Fund to become a
"personal holding company" for Federal income tax purposes. In this regard, the
Fund may also exercise its right to reject purchase orders.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
trustees can elect 100% of the Trustees if the holders choose to do so. In that
event, the holders of the remaining shares will not be able to elect any person
or persons to the Board of Trustees. Unless specifically requested by an
investor, the Fund will not issue certificates evidencing Fund shares.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
or special meetings only (i) for the election (or re-election) of Trustees, (ii)
for approval of the revised investment advisory contracts with respect to a
particular class or series of beneficial interest, (iii) for approval of the
Fund's distribution agreement with respect to a particular class or series of
beneficial interest, and (iv) upon the written request of shareholders entitled
to cast not less than 10% of all the votes entitled to be cast at
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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 Trustees may
consider necessary or desirable. Each Trustee serves until his successor is
elected or qualified, or until such Trustee sooner dies, resigns, retires or is
removed by the vote of the shareholders.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
The material relating to the purchase, redemption and pricing of shares for each
Class of shares is located in the Shareholder Information section of each
prospectus and is hereby incorporated by reference.
Net Asset Value
The Fund does not determine net asset value per share of each Class on any day
in which the New York Stock Exchange is closed for trading. Those days include:
New Year's Day, Martin Luther King Jr. Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
The net asset value of each Portfolio of the Fund's shares is determined as of
12:00 noon, New York City time, on each Fund Business Day. The net asset value
of a Class is computed by dividing the value of the Fund's net assets for such
Class (i.e., the value of its securities and other assets less its liabilities,
including expenses payable or accrued but excluding capital stock and surplus)
by the total number of shares outstanding for such Class.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium. If fluctuating interest
rates cause the market value of the Fund's portfolio to deviate more than 1/2 of
1% from the value determined on the basis of amortized cost, the Board of
Trustees will consider whether any action should be initiated, as described in
the following paragraph. Although the amortized cost method provides certainty
in valuation, it may result in periods during which the value of an instrument
is higher or lower than the price an investment company would receive if the
instrument were sold.
The Fund's Board of Trustees has established procedures to stabilize the Fund's
net asset value at $1.00 per share of each Class. These procedures include a
review of the extent of any deviation of net asset value per share, based on
available market rates, from the Fund's $1.00 amortized cost per share of each
Class. Should that deviation exceed 1/2 of 1%, the Board will consider whether
any action should be initiated to eliminate or reduce material dilution or other
unfair results to shareholders. Such action may include redemption of shares in
kind, selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
remaining maturity greater than 397 days, will limit portfolio investments,
including repurchase agreements, to those United States dollar-denominated
instruments that the Fund's Board of Trustees determines present minimal credit
risks, and will comply with certain reporting and record keeping procedures. The
Fund has also established procedures to ensure compliance with the requirement
that portfolio securities are Eligible Securities.
IX. TAXATION OF THE FUND
Taxes
The Fund intends, for each Portfolio, to qualify and elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify as a regulated investment company, the Fund must
distribute to shareholders at least 90% of its investment company taxable income
(which includes, among other items, dividends, taxable interest and the excess
of net short-term capital gains over net long-term capital losses), and meet
certain diversification of assets, source of income, and other requirements of
the Code. By meeting these requirements, the Fund generally will not be subject
to Federal income tax on its investment company taxable income distributed to
shareholders or on its net capital gains (the excess of net long-term capital
gains over net short-term capital losses) designated by the Fund as capital gain
dividends and distributed to shareholders. If the Fund does not meet all of
these Code requirements, it will be taxed as an ordinary corporation and its
distributions will generally be taxed to shareholders as ordinary income. In
determining the amount of net capital gains to be distributed, any capital loss
carryover from prior years will be applied against capital gains to reduce the
amount of distributions paid.
Amounts, other than tax-exempt interest, not distributed on a timely basis in
accordance with a calendar year distribution requirement may be subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, the Fund
must distribute for the calendar year an amount equal to the sum of (1) at least
98% of its ordinary income (excluding any capital gains or losses) for the
calendar year, (2) at least 98% of the excess of its capital gains over capital
losses (adjusted for certain losses) for the one-year period ending October 31
of such year, and (3) all ordinary
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income and capital gain net income (adjusted for certain ordinary losses) for
previous years that were not distributed during such years.
Generally, on the sale or exchange of obligations held for more than one year,
gain realized by the Fund that is not attributable to accrued market discount
will be long-term capital gain. However, gain on the disposition of a bond
purchased at a market discount generally will be treated as ordinary income
rather than capital gain, to the extent of the accrued market discount.
Distributions of investment company taxable income generally are taxable to
shareholders as ordinary income. Distributions from the Fund are not eligible
for the dividends-received deduction available to corporations. Distributions of
net capital gains, if any, designated by the Fund as capital gain dividends are
taxable to shareholders as long-term capital gains, regardless of the length of
time the Fund's shares have been held by the shareholder. All distributions are
taxable to the shareholder whether reinvested in additional shares or received
in cash. Shareholders will be notified annually as to the Federal tax status of
distributions.
Upon the taxable disposition (including a sale or redemption) of shares of the
Fund, a shareholder may realize a gain or loss, depending upon its basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands, and will be long-term or
short-term, generally depending upon the shareholder's holding period for the
shares. Non-corporate shareholders are subject to tax at a maximum rate of 20%
on capital gains resulting from the disposition of shares held for more than 12
months. A loss realized by a shareholder on the disposition of Fund shares with
respect to which capital gains dividends have been paid will, to the extent of
such capital gain dividends, also be treated as long-term capital loss if such
shares have been held by the shareholder for six months or less.
Income received by the Fund from sources within foreign countries may be subject
to withholding and other similar income taxes imposed by the foreign country,
which may decrease the net return on foreign investments as compared to
dividends and interest paid by domestic issuers. The Fund does not expect to be
eligible to elect to allow shareholders to claim such foreign taxes as a credit
against their U.S. tax liability.
The Fund is required to report to the Internal Revenue Service ("IRS") all
distributions to shareholders except in the case of certain exempt shareholders.
Distributions by the Fund (other than distributions to exempt shareholders) are
generally subject to back up withholding of Federal income tax at a rate of 31%
if (1) the shareholder fails to furnish the Fund with and to certify the
shareholder's correct taxpayer identification number or social security number,
(2) the IRS notifies the Fund or a shareholder that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, distributions
(whether requested to be reinvested in additional shares or taken in cash) will
be reduced by the amounts required to be withheld.
The foregoing discussion relates only to Federal income tax law as applicable to
U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations,
partnerships, trusts and estates). Distributions by the Fund also may be subject
to state and local taxes, and the treatment of distributions under state and
local income tax laws may differ from the Federal income tax treatment.
Shareholders should consult their tax advisors with respect to particular
questions of Federal, state and local taxation. Shareholders who are not U.S.
persons should consult their tax advisors regarding U.S. foreign tax
consequences of ownership of shares of the Fund, including the likelihood that
distributions to them would be subject to withholding of U.S. tax at a rate of
30% (or at a lower rate under a tax treaty).
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.
X. UNDERWRITERS
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a sales charge. The Distributor does not receive an
underwriting commission. In effecting sales of Fund shares under the
Distribution Agreement, the Distributor, for nominal consideration (i.e., $1.00)
and as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
The Glass-Steagall Act and other applicable laws and regulations prohibit banks
and other depository institutions from engaging in the business of underwriting,
selling or distributing most types of securities. On November 16, 1999,
President Clinton signed the Gramm-Leach-Bliley Act, repealing certain
provisions of the Glass-Steagall Act which have restricted affiliation between
banks and securities firms and amending the Bank Holding Company Act
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thereby removing restrictions on banks and insurance companies. The new
legislation grants banks new authority to conduct certain authorized activity
through financial subsidiaries. In the opinion of the Manager, however, based on
the advice of counsel, these laws and regulations do not prohibit such
depository institutions from providing other services for investment companies
such as the shareholder servicing and related administrative functions referred
to above. The Fund's Board of Trustees will consider appropriate modifications
to the Fund's operations, including discontinuance of any payments then being
made under the Plan to banks and other depository institutions, in the event of
any future change in such laws or regulations which may affect the ability of
such institutions to provide the above-mentioned services. It is not anticipated
that the discontinuance of payments to such an institution would result in loss
to shareholders or change in the Fund's net asset value. In addition, state
securities laws on this issue may differ from the interpretations of Federal law
expressed herein and banks and financial institutions may be required to
register ad dealers pursuant to state law.
XI. CALCULATION OF PERFORMANCE DATA
The Fund calculates a seven-day yield quotation using a standard method
prescribed by the rules of the SEC. Under that method, the Fund's portfolios'
yield figures, which are based on a chosen seven-day period, are computed as
follows: the portfolio's return for the seven-day period is obtained by dividing
the net change in the value of a hypothetical account having a balance of one
share at the beginning of the period by the value of such account at the
beginning of the period (expected to always be $1.00). This is multiplied by
(365/7) with the resulting annualized figure carried to the nearest hundredth of
one percent. For purposes of the foregoing computation, the determination of the
net change in account value during the seven-day period reflects (i) dividends
declared on the original share and on any additional shares, including the value
of any additional shares purchased with dividends paid on the original share,
and (ii) fees charged to all shareholder accounts. Realized capital gains or
losses and unrealized appreciation or depreciation of the Fund's portfolio
securities are not included in the computation. Therefore annualized yields may
be different from effective yields quoted for the same period.
A Portfolio's "effective yield" for each Class is obtained by adjusting its
"current yield" to give effect to the compounding nature of the Portfolio, as
follows: the unannualized base period return is compounded and brought out to
the nearest one hundredth of one percent by adding one to the base period
return, raising the sum to a power equal to 365 divided by 7, and subtracting
one from the result, i.e., effective yield = [(base period return + 1)365/7]-1.
Although published yield information is useful to investors in reviewing the
Portfolios' performance, investors should be aware that the Portfolios' yields
fluctuate from day to day. The yields for any given period are not an
indication, or representation by the Fund, of future yields or rates of return
on the Fund's shares, and may not provide a basis for comparison with bank
deposits or other investments that pay a fixed yield for a stated period of
time. Investors who purchase the Fund's shares directly may realize a higher
yield than Participant Investors because they will not be subject to any fees or
charges that may be imposed by Participating Organizations.
The Fund may from time to time advertise its portfolios' tax equivalent current
yield. The tax equivalent yield for each Class is computed based upon a 30-day
(or one month) period ended on the date of the most recent balance sheet
included in this Statement of Additional Information. It is computed by dividing
that portion of the yield of the Fund (as computed pursuant to the formulae
previously discussed) which is tax exempt by one minus a stated income tax rate
and adding the quotient to that portion, if any, of the yield of the Fund that
is not tax exempt. The tax equivalent yield for the Fund may also fluctuate
daily and does not provide a basis for determining future yields.
The Fund may from time to time advertise a tax equivalent effective yield table
which shows the yield that an investor would need to receive from a taxable
investment in order to equal a tax-free yield from the Fund. This is calculated
by dividing that portion of the Fund's effective yield that is tax-exempt by 1
minus a stated income tax rate and adding the quotient to that portion, if any,
of the Fund's effective yield that is not tax-exempt.
The Fund's Money Market Portfolio's Class A shares' yield for the seven day
period ended March 31, 2000 was 5.70% which is equivalent to an effective yield
of 5.86%. The Fund's U.S. Treasury Portfolio's Class A shares' yield for the
seven day period ended March 31, 2000 was 5.53% which is equivalent to an
effective yield of 5.68%.
The Fund's Money Market Portfolio's Class B shares' yield for the seven day
period ended March 31, 2000 was 5.94% which is equivalent to an effective yield
of 6.12%. The Fund's U.S. Treasury Portfolio's Class B shares' yield for the
seven day period ended March 31, 2000 was 5.78% which is equivalent to an
effective yield of 5.95%.
The Fund's Money Market Portfolio's Pinnacle Class shares' yield for the seven
day period ended March 31, 2000 was 5.94% which is equivalent to an effective
yield of 6.12%. The Fund's U.S. Treasury Portfolio's Pinnacle Class shares'
yield for the seven day period ended March 31, 2000 was 5.78% which is
equivalent to an effective yield of 5.95%.
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XII. FINANCIAL STATEMENTS
The audited financial statements for the Fund for the fiscal year ended March
31, 2000 and the report therein of PricewaterhouseCoopers LLP, are herein
incorporated by reference to the Fund's Annual Report. The Annual Report is
available upon request and without charge.
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DESCRIPTION OF RATINGS*
Description of Moody's Investors Service, Inc.'s Two Highest Municipal Bond
Ratings:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Con. ( c ): Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These are bonds
secured by (i) earnings of projects under construction, (ii) earnings of
projects unseasoned in operating experience, (iii) rentals which begin when
facilities are completed, or (iv) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Description of Moody's Investors Service, Inc.'s Two Highest Ratings
of State and Municipal Notes and Other Short-Term Loans:
Moody's ratings for state and municipal notes and other short-term loans will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used will be as follows:
MIG-1: Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2: Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
Description of Standard & Poor's Rating Services Two Highest Debt Ratings:
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only to a small degree.
Plus (+) or Minus (-): The AA rating may be modified by the addition of a plus
or minus sign to show relative standing within the AA rating category.
Provisional Ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
Standard & Poor's does not provide ratings for state and municipal notes.
Description of Standard & Poor's Rating Services Two Highest Commercial Paper
Ratings:
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Description of Moody's Investors Service, Inc.'s Two Highest
Commercial Paper Ratings:
Moody's employs the following designations, both judged to be investment grade,
to indicate the relative repayment capacity of rated issues: Prime-1, highest
quality; Prime-2, higher quality.
______________________________________
* As described by the rating agencies.
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