As filed with the Securities and Exchange Commission on December 22, 1995
Registration No. 33-81920
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20449
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 2 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 3 [X]
(Check appropriate box or boxes)
FLORIDA DAILY MUNICIPAL INCOME FUND
(Exact Name of Registrant as Specified in Charter)
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 830-5200
Bernadette N. Finn
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Name and Address of Agent for Service)
Copy to: MICHAEL ROSELLA, ESQ.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
(212) 856-6858
It is proposed that this filing will become effective: (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on January 2, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] 75 days pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
The Registrant declares that an indefinite number of its shares of beneficial
interest is being registered by this Registration Statement pursuant to Section
24(f) under the Investment Company Act of 1940, as amended, and Rule 24f-2
thereunder, and the Registrant filed a Rule 24f-2 Notice for its fiscal year
ended August 31, 1995 on October 20, 1995.
<PAGE>
FLORIDA DAILY MUNICIPAL INCOME FUND
Registration Statement on Form N-1A
CROSS REFERENCE SHEET -
Pursuant to Rule 404(c)
PART A
Item No. Prospectus Heading
1. Cover Page . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . Introduction; Table of Fees and Expenses
3. Condensed Financial Information. . . Select Financial Information
4. General Description of Registrant. . Investment Objectives, Policies and
Risks; General Information
5. Management of the Fund . . . . . . . Management of the Fund; Custodian and
Transfer Agent; Distribution and Service
Plan
5A. Management's Discussion
of Fund Performance . . . . . . . . Management of the Fund
6. Capital Stock and Other Description of Shares;
Securities . . . . . . . . . . . . . How to Purchase and Redeem Shares;
General Information; Dividends and
Distributions; Federal Income Taxes
7. Purchase of Securities How to Purchase and Redeem
Being Offered. . . . . . . . . . . . Shares; Net Asset Value; Distribution
and Service Plan
8. Redemption or Repurchase . . . . . . How to Purchase and Redeem Shares
9. Legal Proceedings. . . . . . . . . . Not Applicable
<PAGE>
PART B Caption in Statement of
Item No. Additional Information
10. Cover Page . . . . . . . . . . . . Cover Page
11. Table of Contents. . . . . . . . . Contents
12. General Information
and History. . . . . . . . . . . . Management of the Fund
13. Investment Objectives Investment Objectives,
and Policies . . . . . . . . . . . Policies and Risks
14. Management of the Fund . . . . . . Management of the Fund
15. Control Persons and Principal
Holders of Securities. . . . . . . Management of the Fund
16. Investment Advisory and Management of the Fund;
Other Services . . . . . . . . . . Distribution and Service Plan; Custodian
and Transfer Agent; Expense Limitation
17. Brokerage Allocation . . . . . . . Investment Objectives, Policies and
Risks
18. Capital Stock and
Other Securities . . . . . . . . . Description of Shares
19. Purchase, Redemption and How to Purchase and Redeem
Pricing of Securities Being Offered Shares; Net Asset Value
20. Tax Status . . . . . . . . . . . . Federal Income Taxes; Florida Income
Taxes
21. Underwriters . . . . . . . . . . . Distribution and Service Plan
22. Calculations of Yield Quotations
of Money Market Funds. . . . . . . Yield Quotations
23. Financial Statement. . . . . . . . Independent Auditor's Report;
Statement of Net Assets; Statement of
Operations; Statement of Changes in Net
Assets; Notes to Financial Statements
<PAGE>
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California Daily Tax Free Income Fund, Inc.
Connecticut Daily Tax Free Income Fund, Inc.
Daily Tax Free Income Fund, Inc.
Florida Daily Municipal Income Fund
Institutional Daily Income Fund
Michigan Daily Tax Fee Income Fund, Inc.
New Jersey Daily Municipal Income Fund, Inc.
New York Daily Tax Free Income Fund, Inc.
North Carolina Daily Municipal Income Fund, Inc.
Pennsylvania Daily Municipal Income Fund
Short Term Income Fund, Inc.
(collectively the "Funds" and individually the "Fund")
600 Fifth Avenue, New York, NY 10020
(212) 830-5200
================================================================================
SUPPLEMENT DATED OCTOBER 12, 1995
Reich & Tang Asset Management L.P., the Fund's investment advisor, is a
wholly-owned subsidiary of New England Investment Companies, L.P. ("NEIC"). New
England Mutual Life Insurance Company ("The New England") owns NEIC's sole
general partner and a majority of the limited partnership interest in NEIC. The
New England and Metropolitan Life Insurance Company ("MetLife") have entered
into an agreement to merge, with MetLife to be the survivor of the merger. The
merger is conditioned upon, among other things, approval by the policyholders of
The New England and MetLife and receipt of certain regulatory approvals. The
merger is not expected to occur until after December 31, 1995.
The merger of The New England into MetLife will constitute an "assignment" of
the existing investment advisory agreement relating to the Fund. Under the
Investment Company Act of 1940, such an "assignment" will result in the
automatic termination of the investment advisory agreement, effective at the
time of the merger. Prior to the merger, shareholders of the Fund will be asked
to approve a new investment advisory agreement, intended to take effect at the
time of the merger. The new agreement will be substantially similar to the
existing agreement. A proxy statement describing the new agreement will be sent
to shareholders of the Fund prior to their being asked to vote on the new
agreement.
<PAGE>
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FLORIDA 600 FIFTH AVENUE, NEW YORK, NY 10020
DAILY MUNICIPAL (212) 830-5220
INCOME FUND
================================================================================
PROSPECTUS
January 2, 1996
Florida Daily Municipal Income Fund (the "Fund") is a non-diversified, open-end
management investment company that is a short-term, tax-exempt money market fund
whose investment objectives are to provide Florida residents an investment that
is, to the extent possible, exempt from the Florida intangible personal property
tax and to seek as high a level of current income exempt from regular Federal
income taxes, as is believed to be consistent with preservation of capital,
maintenance of liquidity and stability of principal. No assurance can be given
that the Fund's objectives will be achieved. The Fund offers two classes of
shares to the general public. The Class A shares of the Fund are subject to a
service fee pursuant to the Fund's Rule 12b-1 Distribution and Service Plan and
are sold through financial intermediaries who provide servicing to Class A
shareholders for which they receive compensation from the Manager and the
Distributor. The Class B shares of the Fund are not subject to a service fee and
either are sold directly to the public or are sold through financial
intermediaries that do not receive compensation from the Manager or the
Distributor. In all other respects, the Class A and Class B shares represent the
same interest in the income and assets of the Fund.
This Prospectus sets forth concisely the information about the Fund that
prospective investors will find helpful in making their investment decisions. A
Statement of Additional Information about the Fund has been filed with the
Securities and Exchange Commission and is available upon request and without
charge by calling or writing the Fund at the above address. The "Statement of
Additional Information" bears the same date as this Prospectus and is
incorporated by reference into this Prospectus in its entirety.
Reich & Tang Asset Management L.P. acts as investment manager of the Fund and
Reich & Tang Distributors L.P. acts as distributor of the Fund's shares. Reich &
Tang Asset Management L.P. is a registered investment adviser. Reich & Tang
Distributors L.P. is a registered broker-dealer and member of the National
Association of Securities Dealers, Inc.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND INTENDS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE ALTHOUGH THERE CAN BE NO ASSURANCE THAT THIS VALUE WILL BE MAINTAINED.
SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
This Prospectus should be read and retained by investors for future reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF FEES AND EXPENSES
Annual Fund Operating Expenses
(as a percentage of average net assets)
Class A Class B
<S> <C> <C> <C> <C>
Management Fees - After fee waiver 0.00% 0.00%
12b-1 Fees 0.25% 0.00%
Other Expenses - After fee waiver 0.15% 0.15%
Administration Fees - After fee waiver 0.00% 0.00%
----- -----
Total Fund Operating Expenses 0.40% 0.15%
<S> <C> <C> <C> <C>
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the following on a $1,000
investment, assuming 5% annual return (cumulative
through the end of each year):
Class A $4 $13 $22 $51
Class B $2 $ 5 $ 8 $19
The purpose of the above fee table is to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a further discussion of these fees see "Management of the Fund"
and "Distribution and Service Plan" herein. The Manager has voluntarily waived
the entire Management Fee and Administration Fee and reimbursed a portion of the
Fund's operating expenses for Class A and Class B shares; absent such waivers
and reimbursement, the Management Fee and Administration Fee would have been
.40% and .21%, respectively. In addition, absent fee waivers and reimbursement,
Other Expenses would have been .51% and Total Fund Operating Expenses would have
been for Class A, 1.37% and Class B, 1.12%. The figures reflected in this
example should not be considered as a representation of past or future expenses.
Actual expenses may be greater or lesser than those shown above.
</TABLE>
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<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION
The following selected financial information of Florida Daily Municipal Income
Fund has been audited by McGladrey & Pullen LLP, Independent Certified Public
Accountants, whose report thereon appears in the Statement of Additional
Information.
Period ended
August 31, 1995 **
Class A Class B
<S> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period.... $ 1.000 $ 1.000
------------ ------------
Income from investment operations
Net investment income................. 0.032 0.036
Less distributions:
Dividends from net investment income.... ( 0.032) ( 0.036)
------------ ------------
Net asset value, end of period.......... $ 1.000 $ 1.000
============ ============
Total Return............................ 3.60%* 3.84%*
Ratios/Supplemental Data................
Net assets, end of period(000).......... $ 20,974 $ 10,174
Ratios to average net assets:
Expenses............................. 0.40%+* 0.14%+*
Net investment income................ 3.54%* 3.78%*
* Annualized.
** Class A commenced operations on October 6, 1994 and Class B commenced
operations on September 19, 1994.
+ Net of management and administration fees waived and expenses reimbursed
equivalent to .95% of average net assets.
</TABLE>
2
<PAGE>
INTRODUCTION
Florida Daily Municipal Income Fund (the "Fund") is a non-diversified, open-end
management investment company that is a short-term, tax-exempt money market fund
whose investment objectives are, to the extent believed to be consistent with
preservation of capital, maintenance of liquidity and stability of principal (i)
to seek to provide Florida residents with an investment that is, under current
law, exempt from the Florida intangible personal property tax and (ii) to seek
as high a level of current income exempt under current law, in the opinion of
bond counsel to the issuers at the date of issuance, from regular Federal income
tax, by investing principally in short-term, high quality debt obligations of
the State of Florida, Puerto Rico and other United States territories, and their
political subdivisions as described under "Investment Objectives, Policies and
Risks" herein. The Fund also may invest in municipal securities of issuers
located in states other than Florida, the interest income on which will be, in
the opinion of bond counsel to the issuer at the date of issuance, exempt from
Federal income tax; however, investment in municipal securities of issuers
located in states other than Florida may, under certain circumstances, subject
Florida residents to the Florida intangible personal property tax. (See "Florida
Taxes" herein.)
Interest on certain municipal securities purchased by the Fund may be a
preference item for purposes of the Federal alternative minimum tax and the Fund
reserves the right to purchase such securities without limitation. The Fund
seeks to maintain an investment portfolio with a dollar-weighted average
maturity of 90 days or less, and to value its investment portfolio at amortized
cost and maintain a net asset value of $1.00 per share, although there can be no
assurance that this value will be maintained. The Fund intends to invest all of
its assets in tax-exempt obligations; however, it reserves the right to invest
up to 20% of the value of its total assets in taxable obligations. This is a
summary of the Fund's fundamental investment policies which are set forth in
full under "Investment Objectives, Policies and Risks" herein and in the
Statement of Additional Information and may not be changed without approval of a
majority of the Fund's outstanding shares. Of course, no assurance can be given
that these objectives will be achieved.
The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"), which is a registered investment adviser and which currently acts as
investment manager to fifteen other open-end management investment companies.
The Fund's shares are distributed through Reich & Tang Distributors L.P. (the
"Distributor"), with whom the Fund has entered into a Distribution Agreement and
a Shareholder Servicing Agreement (with respect to the Class A Shares of the
Fund only) pursuant to the Fund's distribution and service plan adopted under
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940
Act"). (See "Distribution and Service Plan" herein.)
On any day on which the New York Stock Exchange, Inc. is open for trading ("Fund
Business Day"), investors may, without charge by the Fund, purchase and redeem
shares of the Fund at their net asset value next determined after receipt of the
order. An investor's purchase order will be accepted after the payment is
converted into Federal funds, and shares will be issued as of the Fund's next
net asset value determination which is made as of 12 noon, New York City time,
on each Fund Business Day. (See "How to Purchase and Redeem Shares" and "Net
Asset Value" herein.) Dividends from accumulated net income are declared by the
Fund on each Fund Business Day.
The Fund generally pays interest dividends monthly. Net capital gains, if any,
will be distributed at least annually, and in no event later than 60 days after
the end of the Fund's fiscal year. All dividends and distributions of capital
gains are automatically invested in additional shares of the Fund unless a
shareholder has elected by written notice to the Fund to receive either of such
distributions in cash. (See "Dividends and Distributions" herein.)
The Fund intends that its investment portfolio will be concentrated in Florida
Municipal Obligations and participation certificates therein. A brief summary
3
<PAGE>
of risk factors affecting the State of Florida is set forth under "Investment
Objectives, Policies and Risks" herein and "Florida Risk Factors" in the
Statement of Additional Information. Investment in the Fund should be made with
an understanding of the risks that an investment in Florida Municipal
Obligations may entail. Payment of interest and preservation of capital are
dependent upon the continuing ability of Florida issuers and/or obligors of
state, municipal and public authority debt obligations to meet their obligations
thereunder. Investors should also consider the greater risk of the Fund's
concentration versus the safety that comes with a less concentrated investment
portfolio.
INVESTMENT OBJECTIVES,
POLICIES AND RISKS
The Fund is a non-diversified, open-end management investment company that is a
short-term, tax-exempt money market fund whose investment objectives are to seek
to provide Florida residents an investment that is, to the extent possible,
exempt from the Florida intangible personal property tax and to seek as high a
level of current income exempt from regular Federal income taxes, as is believed
to be consistent with preservation of capital, maintenance of liquidity and
stability of principal. There can be no assurance that the Fund will achieve its
investment objectives.
The Fund's assets will be invested primarily (i.e., at least 80%) in high
quality debt obligations issued by or on behalf of the State of Florida, other
states, territories and possessions of the United States, and their authorities,
agencies, instrumentalities and political subdivisions, the interest on which
is, in the opinion of bond counsel to the issuer at the date of issuance,
currently exempt from regular Federal income taxation ("Municipal Obligations")
and in participation certificates (which, in the opinion of Battle Fowler LLP,
counsel to the Fund, cause the Fund to be treated as the owner of the underlying
Municipal Obligations for Federal income tax purposes) in Municipal Obligations
purchased from banks, insurance companies or other financial institutions.
Dividends paid by the Fund which are "exempt-interest dividends" by virtue of
being properly designated by the Fund as derived from Municipal Obligations and
participation certificates in Municipal Obligations will be exempt from regular
Federal income tax provided the Fund complies with Section 852(b)(5) of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Although the Supreme Court has determined that Congress has the authority to
subject the interest on bonds such as the Municipal Obligations to regular
Federal income taxation, existing law excludes such interest from regular
Federal income tax. However, "exempt-interest dividends" may be subject to the
Federal alternative minimum tax. Securities, the interest income on which may be
subject to the Federal alternative minimum tax (including participation
certificates in such securities), may be purchased by the Fund without limit.
Securities, the interest income on which is subject to regular Federal, state
and local income tax, will not exceed 20% of the value of the Fund's total
assets. (See "Federal Income Taxes" herein.) To the extent the Fund's assets
consist exclusively of obligations (including participation certificates) issued
by or on behalf of the State of Florida or any Florida local governments, or
their instrumentalities, authorities or districts ("Florida Municipal
Obligations") or obligations issued by or on behalf of territories and
possessions of the United States and their authorities, agencies,
instrumentalities and political subdivisions on December 31st of each taxable
year, shares of the Fund will be exempt from the Florida intangible personal
property tax. To the extent suitable Florida Municipal Obligations are not
available for investment by the Fund, the Fund may purchase Municipal
Obligations issued by other states, their agencies and instrumentalities, the
dividends on which will be designated by the Fund as derived from interest
income which will be, in the opinion of bond counsel to the issuer at the date
of issuance, exempt from regular Federal income tax. However, except as a
temporary defensive measure during periods of adverse market conditions as
determined
4
<PAGE>
by the Manager, the Fund will invest at least 65% of its total assets in Florida
Municipal Obligations, although the exact amount of the Fund's assets invested
in such securities will vary from time to time. The Fund's investments may
include "when-issued" Municipal Obligations, stand-by commitments and taxable
repurchase agreements.
Although the Fund will attempt to invest 100% of its assets in Municipal
Obligations and in participation certificates in Municipal Obligations, the Fund
reserves the right to invest up to 20% of the value of its total assets in
securities, the interest income on which is subject to Federal, state and local
income tax. The Fund will invest more than 25% of its assets in participation
certificates purchased from banks in industrial revenue bonds and other Florida
Municipal Obligations.
In view of this "concentration" in bank participation certificates in Florida
Municipal Obligations, an investment in the Fund should be made with an
understanding of the characteristics of the banking industry and the risks which
such an investment may entail which include extensive governmental regulations,
changes in the availability and cost of capital funds, and general economic
conditions (see "Variable Rate Demand Instruments and Participation
Certificates" in the Statement of Additional Information) which may limit both
the amounts and types of loans and other financial commitments which may be made
and interest rates and fees which may be charged. The profitability of this
industry is largely dependent upon the availability and cost of capital funds
for the purpose of financing lending operations under prevailing money market
conditions. Also, general economic conditions play an important part in the
operations of this industry and exposure to credit losses arising from possible
financial difficulties of borrowers might affect a bank's ability to meet its
obligations under a letter of credit. The Fund may invest 25% or more of the net
assets of the Fund in securities that are related in such a way that an
economic, business or political development or change affecting one of the
securities would also affect the other securities including, for example,
securities the interest upon which is paid from revenues of similar type
projects, or securities the issuers of which are located in the same state. The
investment objectives of the Fund described in the preceding paragraphs of this
section may not be changed unless approved by the holders of a majority of the
outstanding shares of the Fund that would be affected by such a change. As used
in this Prospectus, the term "majority of the outstanding shares" of the Fund
means, respectively, the vote of the lesser of (i) 67% or more of the shares of
the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy or (ii) more
than 50% of the outstanding shares of the Fund.
Municipal Obligations includes Municipal Leases. 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
the investment restriction set forth under "Investment Restrictions" contained
herein. The Board of Trustees may
5
<PAGE>
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, 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.
The Fund may only purchase United States dollar-denominated Municipal
Obligations that have been determined by the Fund's Board of Trustees to present
minimal credit risks and that are Eligible Securities at the time of
acquisition. The term Eligible Securities means (i) Municipal Obligations with
remaining maturities of 397 days or less and rated in the two highest short-term
rating categories by any two nationally recognized statistical rating
organizations ("NRSROs") or in such categories by the only NRSRO that has rated
the Municipal Obligations (collectively, the "Requisite NRSROs") (acquisition in
the latter situation must also be ratified by the Board of Trustees); (ii)
Municipal Obligations with remaining maturities of 397 days or less but that at
the time of issuance were long-term securities (i.e., with maturities greater
than 366 days) and whose issuer has received from the Requisite NRSROs a rating
with respect to comparable short-term debt in the two highest short-term rating
categories and (iii) unrated Municipal Obligations determined by the Fund's
Board of Trustees to be of comparable quality. Where the issuer of a long-term
security with a remaining maturity which would otherwise qualify it as an
Eligible Security does not have rated short-term debt outstanding, the long-term
security is treated as unrated but may not be purchased if it has a long-term
rating from any NRSRO that is below the two highest long-term categories. A
determination of comparability by the Board of Trustees is made on the basis of
its credit evaluation of the issuer, which may include an evaluation of a letter
of credit, guarantee, insurance or other credit facility issued in support of
the Municipal Obligations or participation certificates. (See "Variable Rate
Demand Instruments and Participation Certificates" in the Statement of
Additional Information.) While there are several organizations that currently
qualify as NRSROs, two examples of NRSROs are Standard & Poor's Corporation
("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 and "SP-1/AA" by S&P. Such instruments may produce a lower
yield than would be available from less highly rated instruments. The Fund's
Board of Trustees has determined that obligations which are backed by the credit
of the Federal Government will be considered to have a rating equivalent to
Moody's "Aaa."
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
promptly 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 (1) is in default, (2) ceases to be an
eligible investment
6
<PAGE>
under Rule 2a-7 or (3) is determined to no longer present minimal credit risks,
the Fund will dispose of the security absent a determination by the Fund's Board
of Trustees that disposal of the security would not be in the best interests of
the Fund. In the event that the security is disposed of it shall be disposed of
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
Securities and Exchange Commission of such fact and of the actions that the Fund
intends to take in response to the situation.
All investments by the Fund will mature or will be deemed to mature 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.
The Fund has adopted the following fundamental investment restrictions which
apply to all portfolios and which 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 Fund is subject to further investment
restrictions that are set forth in the Statement of Additional Information. The
Fund may not:
1. Borrow Money. This restriction shall not apply to borrowings from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition
of securities, in an amount up to 15% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing was made.
While borrowings exceed 5% of the value of the Fund's total assets, the
Fund will not make any investments. Interest paid on borrowings will reduce
net income.
2. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in
an amount up to 15% of the value of its total assets and only to secure
borrowings for temporary or emergency purposes.
3. Purchase securities subject to restrictions on disposition under the
Securities Act of 1933 ("restricted securities"), except the Fund may
purchase variable rate demand instruments which contain a demand feature.
The Fund will not invest in a repurchase agreement maturing in more than
seven days if any such investment together with securities that are not
readily marketable held by the Fund exceed 10% of the Fund's net assets.
4. Invest more than 25% of its assets in the securities of "issuers" in any
single industry, provided that the Fund may invest more than 25% of its
assets in bank participation certificates and there shall be no limitation
on the purchase of those Municipal Obligations and other obligations issued
or guaranteed by the United States Government, its agencies or
instrumentalities. With respect to 75% of the total amortized cost value of
the Fund's assets, not more than 5% of the Fund's assets may be invested 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 5% of the
total assets of the Fund. However, if the puts are exercisable by the Fund
in the event of default on payment of principal and interest on the
underlying security, then the Fund may invest up to 10% of its assets in
securities underlying puts issued or guaranteed by the same institution;
additionally, a single bank can issue its letter of credit or a single
financial institution can issue a credit enhancement covering up to 10% of
the Fund's assets, where the puts offer the Fund such default protection.
5. Invest in securities of other investment companies, except the Fund may
purchase unit investment trust securities where such unit trusts meet the
investment objectives of the Fund and then only up to 5% of the Fund's net
assets, except as they may be acquired as part of a merger, consolidation
or acquisition of assets.
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As a non-diversified investment company, the Fund is not subject to any
statutory restriction under the 1940 Act with respect to investing its assets in
one or relatively few issuers. This non-diversification may present greater
risks than in the case of a diversified company. However, the Fund intends to
qualify as a "regulated investment company" under Subchapter M of the Code. The
Fund will be restricted in that at the close of each quarter of the taxable
year, at least 50% of the value of its total assets must be represented by cash,
Government securities, investment company securities and other securities
limited in respect of any one issuer to not more than 5% in value of the total
assets of the Fund and to not more than 10% of the outstanding voting securities
of such issuer. In addition, at the close of each quarter of its taxable year,
not more than 25% in value of the Fund's total assets may be invested in
securities of one issuer other than Government securities. The limitations
described in this paragraph regarding qualification as a "regulated investment
company" are not fundamental policies and may be revised to the extent
applicable Federal income tax requirements are revised. (See "Federal Income
Taxes" herein.)
The primary purpose of investing in a portfolio of Florida Municipal Obligations
is the special tax treatment accorded Florida resident individual investors.
However, payment of interest and preservation of principal are dependent upon
the continuing ability of the Florida issuers and/or obligors of state,
municipal and public authority debt obligations to meet their obligations
thereunder. Investors should consider the greater risk of the Fund's
concentration versus the safety that comes with a less concentrated investment
portfolio and should compare yields available on portfolios of Florida issues
with those of more diversified portfolios including out-of-state issues before
making an investment decision. The Fund's management believes that by
maintaining the Fund's investment portfolio in liquid, short-term, high quality
investments, including the participation certificates and other variable rate
demand instruments that have high quality credit support from banks, insurance
companies or other financial institutions, the Fund is largely insulated from
the credit risks that may exist on long-term Florida Municipal Obligations. For
additional information, please refer to the Statement of Additional Information.
Because the Fund invests in Florida issues, it is susceptible to political,
economic, regulatory or other factors affecting issuers of Florida Municipal
Obligations and participation certificates therein. The following is only a
brief summary of the special risk factors affecting the State of Florida and
does not purport to be a complete or exhaustive description of all adverse
conditions to which issuers of Florida obligations may be subject. See "Florida
Risk Factors" in the Statement of Additional Information for a further
discussion of the special risk factors.
The ability of the State and its local units of government to satisfy the Debt
Obligations may be affected by numerous factors which impact on the economic
vitality of the State in general and the particular region of the State in which
the issuer of the Debt Obligations is located. South Florida is particularly
susceptible to international trade and currency imbalances and to economic
dislocations in Central and South America, due to its geographical location and
its involvement with foreign trade, tourism and investment capital. South and
central Florida are impacted by problems in the agricultural sector,
particularly with regard to the citrus and sugar industries. Short-term adverse
economic conditions may be created in these areas, and in the State as a whole,
due to crop failures, severe weather conditions or other agriculture-related
problems. The State economy also has historically been somewhat dependent on the
tourism and construction industries and is sensitive to trends in those sectors.
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MANAGEMENT OF THE FUND
Management and Investment
Management Contract
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees.
The Fund has retained as its manager Reich & Tang Asset Management L.P., a
Delaware limited partnership and a registered investment adviser with its
principal office at 600 Fifth Avenue, New York, New York 10020 (hereinafter
called the "Manager"), under an Investment Management Contract. The Manager
provides persons satisfactory to the Fund's Board of Trustees to serve as
officers of the Fund. Such officers, as well as certain other employees and
Trustees of the Fund, may be officers of 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 full-time to the
affairs of the Fund. The Statement of Additional Information contains general
background information regarding each trustee and principal officer of the Fund.
The Manager was at November 30, 1995 investment manager, adviser or supervisor
with respect to assets aggregating in excess of $8.4 billion. The Manager acts
as manager or administrator of fifteen other registered investment companies and
also advises pension trusts, profit-sharing trusts and endowments. New England
Investment Companies, L.P. ("NEICLP") is the limited partner and owner of a
99.5% interest in Reich & Tang Asset Management L.P., the Manager. Reich & Tang
Asset Management, Inc. (a wholly-owned subsidiary of NEICLP) is the general
partner and owner of the remaining .5% interest of the Manager.
New England Investment Companies, Inc. ("NEIC"), a Massachusetts corporation,
serves as the sole general partner of NEICLP. The New England Mutual Life
Insurance Company ("The New England") owns approximately 67.3% of the total
partnership units outstanding of NEICLP, and Reich & Tang, Inc. owns
approximately 22.6% of the outstanding partnership units of NEICLP. In addition,
NEIC is a wholly-owned subsidiary of The New England, which may be deemed a
"controlling person" of the Manager. NEIC is a holding company offering a broad
array of investment styles across a wide range of asset categories through ten
investment advisory/management affiliates and two distribution subsidiaries
which include, in addition to the Manager, Loomis, Sayles & Company, L.P.,
Copley Real Estate Advisors, Inc., Back Bay Advisors, L.P., Marlborough Capital
Advisors, L.P., Westpeak Investment Advisors, L.P., Draycott Partners, Ltd., TNE
Investment Services, L.P., New England Investment Associates, Inc., Harris
Associates and an affiliate, Capital Growth Management Limited Partnership.
These affiliates in the aggregate are investment advisors or managers to 42
other registered investment companies.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Trustees of
the Fund. Pursuant to the Investment Management Contract, the Manager receives
from the Fund a fee of .40% per annum of the Fund's average daily net assets for
managing the Fund's investment portfolio and performing related services. The
Manager, at its discretion, may voluntarily waive all or a portion of the
management fee.
Pursuant to the Administrative Services Contract for the Fund, the Manager
performs clerical, accounting, supervision and office service functions for the
Fund and provides the Fund with the personnel to (i) supervise the performance
of bookkeeping and related services by Investors Fiduciary Trust Company, the
Fund's bookkeeping agent, (ii) prepare reports to and filings with regulatory
authorities and (iii) perform such other services as the Fund may from time to
time request of the Manager. The personnel rendering such services may be
employees of the Manager or its affiliates. The Manager, at its discretion, may
9
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voluntarily waive all or a portion of the administrative services fee. For its
services under the Administrative Services Contract, the Manager receives a fee
of .21% per annum of the Fund's average daily net assets. Any portion of the
total fees received by the Manager and past profits may be used to provide
shareholder services and for distribution of Fund shares. (See "Distribution and
Service Plan" herein.)
In addition, Reich & Tang Distributors L.P., the Distributor, receives a
servicing fee of .25% per annum of the average daily net assets of the Class A
shares of the Fund under the Shareholder Servicing Agreement. The fees are
accrued daily and paid monthly. Investment management fees and operating
expenses, which are attributable to both Classes of the Fund, will be allocated
daily to each Class share based on the percentage of outstanding shares at the
end of the day.
DESCRIPTION OF SHARES
The Fund was established as a Massachusetts Business Trust under the laws of
Massachusetts by an Agreement and Declaration of Trust dated August 31, 1994.
The Fund has an unlimited authorized number of shares of beneficial interest.
These shares are entitled to one vote per share with proportional voting for
fractional shares. There are no conversion or preemptive rights in connection
with any shares of the Fund. All shares when issued in accordance with the terms
of the offering will be fully paid and non-assessable. Shares of the Fund are
redeemable at net asset value, at the option of the shareholders.
The Fund is subdivided into two classes of beneficial interest, Class A and
Class B. Each share, regardless of class, represents an interest in the same
portfolio of investments and has identical voting, dividend, liquidation and
other rights, preferences, powers, restrictions, limitations, qualifications,
designations and terms and conditions, except that: (i) the Class A and Class B
shares have different class designations; (ii) only the Class A shares are
assessed a service fee pursuant to the Rule 12b-1 Distribution and Service Plan
of the Fund of .25% of the average daily net assets of the Class A shares of the
Fund; (iii) only the holders of the Class A shares are entitled to vote on
matters pertaining to the Plan and any related agreements in accordance with
provisions of Rule 12b-1; and (iv) the exchange privilege will permit
shareholders to exchange their shares only for shares of the same class of an
Exchange Fund. Payments that are made under the Plans will be calculated and
charged daily to the appropriate class prior to determining daily net asset
value per share and dividends/distributions.
Generally, all shares will be voted in the aggregate, except if voting by Class
is required by law or the matter involved affects only one Class, in which case
shares will be voted separately by Class. The shares of the Fund have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares outstanding voting for the election of trustees can elect 100% of the
trustees if the holders choose to do so, and, in that event, the holders of the
remaining shares will not be able to elect any person or persons to the Board of
Trustees. The Fund's By-laws provide that the holders of a majority of the
outstanding shares of the Fund present at a meeting in person or by proxy will
constitute a quorum for the transaction of business at all meetings.
The Fund currently has only one portfolio. The Fund's Board of Trustees is
authorized to divide the unissued shares into separate series of beneficial
interest, one for each of the Fund's separate investment portfolios that may be
created in the future.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends equal to all its net investment income (excluding
capital gains and losses, if any, and amortization of market discount) on each
Fund Business Day and generally pays dividends monthly. There is no fixed
dividend rate. In computing these dividends, interest earned and expenses are
accrued daily.
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Net realized capital gains, if any, are distributed at least annually and in no
event later than 60 days after the end of the Fund's fiscal year.
All dividends and distributions of capital gains are automatically invested 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.
The Class A shares will bear the service fee under the Plan. As a result, the
net income of and the dividends payable to the Class A shares will be lower than
the net income of and dividends payable to the Class B shares of the Fund.
Dividends paid to each Class of shares of the Fund will, however, be declared
and paid on the same days at the same times and, except as noted with respect to
the service fees payable under the Plan, will be determined in the same manner
and paid in the same amounts.
HOW TO PURCHASE AND REDEEM SHARES
Investors who have accounts with Participating Organizations may invest in the
Fund through their Participating Organizations in accordance with the procedures
established by the Participating Organizations. Certain Participating
Organizations are compensated by the Distributor from its shareholder servicing
fee and by the Manager from its management fee for the performance of these
services. An investor who purchases shares through a Participating Organization
that receives payment from the Manager or the Distributor will become a Class A
shareholder. (See "Investment Through Participating Organizations" herein.) All
other investors, and investors who have accounts with Participating
Organizations but who do not wish to invest in the Fund through their
Participating Organizations, may invest in the Fund directly as Class B
shareholders of the Fund and not receive the benefit of the servicing functions
performed by a Participating Organization. Class B shares may also be offered to
investors who purchase their shares through Participating Organizations who do
not receive compensation from the Distributor or the Manager because they may
not be legally permitted to receive such as fiduciaries. The Manager pays the
expenses incurred in the distribution of Class B shares. Participating
Organizations whose clients become Class B shareholders will not receive
compensation from the Manager or Distributor for the servicing they may provide
to their clients. (See "Direct Purchase and Redemption Procedures" herein.) With
respect to both Classes of shares, the minimum initial investment in the Fund by
Participating Organizations is $1,000, which may be satisfied by initial
investments aggregating $1,000 by a Participating Organization on behalf of
customers whose initial investments are less than $1,000. The minimum initial
investment for securities brokers, financial institutions and other industry
professionals that are not Participating Organizations is $1,000. The minimum
initial investment for all other investors is $5,000. Initial investments may be
made in any amount in excess of the applicable minimums. The minimum amount for
subsequent investments is $100 unless the investor is a client of a
Participating Organization whose clients have made aggregate subsequent
investments of $100.
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,
which accepts orders for purchases and redemptions from Participating
Organizations and from investors directly.
In order to maximize earnings on its portfolio, the Fund normally has its assets
as fully invested as is practicable. Many securities in which the Fund invests
require immediate settlement in funds of Federal Reserve member banks on deposit
at a Federal Reserve Bank (commonly known as "Federal Funds"). Accordingly, the
Fund does not accept a subscription or invest an investor's payment in portfolio
securities until the payment has been converted into Federal Funds.
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<PAGE>
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 next determined after receipt of the purchase order. Shares begin
accruing income dividends on the day they are purchased. The Fund reserves the
right to reject any subscription for its shares. Certificates for Fund shares
will not be issued to an investor.
Shares are issued as of 12 noon, New York City time, on any Fund Business Day on
which an order for the shares and accompanying Federal Funds are received by the
Fund's transfer agent before 12 noon. Orders accompanied by Federal Funds and
received after 12 noon, New York City time, on a Fund Business Day will not
result in share issuance until the following Fund Business Day. Fund shares
begin accruing income on the day the shares are issued to an investor.
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. If a shareholder elects to redeem all
the shares of the Fund he owns, all dividends accrued to the date of such
redemption will be paid to the shareholder along with the proceeds of the
redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the Securities and Exchange Commission determines that trading thereon is
restricted, or for any period during which an emergency (as determined by the
Securities and Exchange Commission) 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 Securities and Exchange
Commission may by order permit for the protection of the shareholders of the
Fund.
Redemption requests received by the Fund's transfer agent before 12 noon, New
York City time, on any Fund Business Day become effective at 12 noon that day.
Shares redeemed are not entitled to participate in dividends declared on the day
a redemption becomes effective. A redemption request received after 12 noon, New
York City time, on any Fund Business Day becomes effective on the next Fund
Business Day.
The Fund has reserved the right to redeem the shares of any shareholder if the
net asset value of all the remaining shares in the shareholder's or his
Participating Organization's account after a withdrawal is less than $500.
Written notice of a proposed mandatory redemption will be given at least 30 days
in advance to any shareholder whose account is to be redeemed or the Fund may
impose a monthly service charge of $10 on such accounts. For Participant
Investor accounts, notice of a proposed mandatory redemption will be given only
to the appropriate Participating Organization, and 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 the total net
asset value to the minimum amount and thereby avoid such mandatory redemption.
The redemption of shares may result in the investor's receipt of more or less
than he paid for his shares and, thus, in a taxable gain or loss to the
investor.
Investments Through
Participating Organizations
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks and financial institutions or other
industry professionals
12
<PAGE>
or organizations which have entered into shareholder servicing agreements with
the Manager with respect to investment of their customer accounts in the Fund.
When instructed by its customer to purchase or redeem Fund shares, the
Participating Organization, on behalf of the customer, transmits to the Fund's
transfer agent a purchase or redemption order, and in the case of a purchase
order, payment for the shares being purchased.
Participating Organizations may confirm to their customers who are shareholders
in the Fund each purchase and redemption of Fund shares for the customers'
accounts. Also, Participating Organizations may send their customers periodic
account statements showing the total number of Fund shares owned by each
customer as of the statement closing date, purchases and redemptions of Fund
shares by each customer during the period covered by the statement and the
income earned by Fund shares of each customer during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Participant Investors whose Participating Organizations have not undertaken to
provide such confirmations and statements will receive them from the Fund
directly.
Participating Organizations may charge Participant Investors a fee in connection
with their use of specialized purchase and redemption procedures offered to
Participant Investors by the Participating Organizations. In addition,
Participating Organizations offering purchase and redemption procedures similar
to those offered to shareholders who invest in the Fund directly may impose
charges, limitations, minimums and restrictions in addition to or different from
those applicable to shareholders who invest in the Fund directly. Accordingly,
the net yield to investors who invest through Participating Organizations may be
less than by investing in the Fund directly. A Participant Investor should read
this Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Fund shares may be purchased
and redeemed through the Participating Organization.
The Glass-Steagall Act limits the ability of a depository institution to become
an underwriter or distributor of securities. However, it is the Fund
management's position that banks are not prohibited from acting in other
capacities for investment companies, such as providing administrative and
shareholder account maintenance services and receiving compensation from the
Manager for providing such services. However, this is an unsettled area of the
law and if a determination contrary to the Fund management's position is made by
a bank regulatory agency or court concerning shareholder servicing and
administration payments to banks from the Manager, any such payments will be
terminated and any shares registered in the banks' names, for their underlying
customers, will be reregistered in the name of the customers at no cost to the
Fund or its shareholders. In addition, state securities laws on this issue may
differ from the interpretations of Federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to state
law.
In the case of qualified Participating Organizations, orders received by the
Fund's transfer agent before 12 noon, New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day provided that the Federal Funds required in connection with the orders
are received by the Fund's transfer agent before 4:00 p.m., New York City time,
on that day. Orders for which Federal Funds are received after 4:00 p.m., New
York City time, will not result in share issuance until the following Fund
Business Day. Participating Organizations are responsible for instituting
procedures to insure that purchase orders by their respective clients are
processed expeditiously.
Direct Purchase and Redemption Procedures
The following purchase and redemption procedures apply to investors who wish to
invest in the Fund directly and not through Participating Organizations.
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<PAGE>
These investors 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 State: 212-830-5220
Outside New York State: (toll free) 800-221-3079
All shareholders, other than certain Participant Investors, will receive from
the Fund a monthly statement listing the total number of Fund shares owned as of
the statement closing date, purchase and redemptions of Fund shares during the
month covered by the statement and the dividends paid on Fund shares of each
shareholder during the statement period (including dividends paid in cash or
reinvested in additional Fund shares).
Initial Purchases of Shares
Mail
Investors may send a check made payable to "Florida Daily Municipal Income Fund"
along with a completed subscription order form to:
Florida Daily Municipal Income Fund
c/o Reich & Tang Mutual Funds
600 Fifth Avenue
New York, New York 10020
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member of the Federal Reserve System
can normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a non-member bank may take substantially
longer to convert into Federal Funds. An investor's subscription will not be
accepted until the Fund receives Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, investors should first obtain a new account number by telephoning
the Fund at 212-830-5220 (within New York State) or at 800-221-3079 (outside New
York State) and then instruct a member commercial bank to wire money immediately
to:
Investors Fiduciary Trust Company
ABA # 101003621
Account # 890752-953-8
For Florida Daily Municipal Income Fund
Account of (Investor's Name)___________
Fund Account #_________________________
SS#/Tax ID#____________________________
The investor should then promptly complete and mail the subscription order form.
Investors planning to wire funds should instruct their bank early in the day so
the wire transfer can be accomplished before 12 noon, New York City time on the
same day. There may be a charge by the investor's bank for transmitting the
money by bank wire, and there also may be a charge for use of Federal Funds. The
Fund does not charge investors in the Fund for its receipt of wire transfers.
Payment in the form of a "bank wire" received prior to 12 noon, Eastern time, on
a Fund Business Day will be treated as a Federal Funds payment received on that
day.
Electronic Funds Transfers (EFT), Pre-authorized Credit
and Direct Deposit Privilege
You may purchase shares of the Fund (minimum of $100) by having salary, dividend
payments, interest payments or any other payments designated by you, or by
having federal salary, social security, or certain veteran's, military or other
payments from the federal government, automatically deposited into your Fund
account. You can also have money debited from your checking account. To enroll
in any one of these programs, you must file with the Fund a completed EFT
Application, Pre-authorized Credit Application, or a Direct Deposit Sign-Up Form
for each type of payment that you desire to include in the Privilege. The
appropriate form may be obtained from your broker or the Fund. You may elect at
any time to terminate your participation by notifying in writing the appropriate
depositing entity and/or federal agency. Death or legal incapacity will
automatically terminate your participation in the Privilege. Further, the Fund
may terminate your participation upon 30 days' notice to you.
Subsequent Purchases of Shares
Subsequent purchases can be made by bank wire, as indicated above, or by mailing
a check to:
Florida Daily Municipal Income Fund
Mutual Funds Group
P.O. Box 16815
Newark, New Jersey 07101-6815
There is a $100 minimum for subsequent purchases of shares. All payments should
clearly indicate the shareholder's account number.
Provided that the information on the subscription form on file with the Fund is
still applicable, a shareholder may reopen an account without filing a new
subscription order form at any time during the year the shareholder's account is
closed or during the following calendar year.
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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 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 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.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee.
When a signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his signature and 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:
Florida Daily Municipal Income Fund
c/o Reich & Tang Mutual Funds
600 Fifth Avenue
New York, New York 10020
Normally the redemption proceeds are paid by check mailed to the shareholder of
record.
Checks
By making the appropriate election on their subscription form, shareholders may
request a supply of checks which may be used to effect redemptions. The checks,
which will be issued in the shareholder's name, are drawn on a special account
maintained by the Fund with the Fund's agent bank. Checks may be drawn in any
amount of $250 or more. When a check is presented to the Fund's agent bank, it
instructs the Fund's transfer agent to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the check.
The use of a check to make a withdrawal enables a shareholder in the Fund to
receive dividends on the shares to be redeemed up to the Fund Business Day on
which the check clears. Checks provided by the Fund may not be certified. Fund
shares purchased by check may not be redeemed by check for up to 15 days
following the date of purchase.
There is no charge to the shareholder for checks provided by the Fund. The Fund
reserves the right to impose a charge or impose a different minimum check amount
in the future, if the Board of Trustees determines that doing so is in the best
interests of the Fund and its shareholders.
Shareholders electing the checking option are subject to the procedures, rules
and regulations of the Fund's agent bank governing checking accounts. Checks
drawn on a jointly owned account may, at the shareholder's election, require
only one signature. Checks in amounts exceeding the value of the shareholder's
account at the time the check is presented for payment will not be honored.
Since the dollar value of the account changes daily, the total value of the
account may not be determined in advance and the account may not be entirely
redeemed by check. In addition, the Fund reserves the right to charge the
shareholder's
15
<PAGE>
account a fee up to $20 for checks not honored as a result of an insufficient
account value, a check deemed not negotiable because it has been held longer
than six months, an unsigned check and a post-dated check. The Fund reserves the
right to terminate or modify the check redemption procedure at any time or to
impose additional fees following notification to the Fund's shareholders.
Investors wishing to avail themselves of this method of redemption should elect
it on their subscription order form. Individuals and joint tenants are not
required to furnish any supporting documentation. Corporations and other
entities making this election, however, are required to furnish a certified
resolution or other evidence of authorization in accordance with the Fund's
normal practices. Appropriate authorization forms will be sent by the Fund or
its agents to corporations and other shareholders who select this option. As
soon as the authorization forms are filed in good order with the Fund's agent
bank, it will provide the shareholder with a supply of checks. This checking
service may be terminated or modified at any time.
Telephone
The Fund accepts telephone requests for redemption from shareholders who elect
this option. The proceeds of a telephone redemption may be sent to the
shareholders at their addresses or, if in excess of $1,000, to their bank
accounts, both as set forth in the subscription order form or in a subsequent
written authorization. The Fund may accept telephone redemption instructions
from any person with respect to accounts of shareholders who elect this service
and thus such shareholders risk possible loss of principal and interest in the
event of a telephone redemption not authorized by them. The Fund will employ
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 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 State at 800-241-3263, and state (i) the name of
the shareholder appearing on the Fund's records, (ii) the shareholder's account
number with the Fund, (iii) the amount to be withdrawn, (iv) whether such amount
is to be forwarded to the shareholder's designated bank account or address and
(v) the name of the person requesting the redemption. Usually the proceeds are
sent to the designated bank account or address on the same Fund Business Day the
redemption is effected, provided the redemption request is received before 12
noon, New York City time and on the next Fund Business Day if the redemption
request is received after 12 noon, New York City time. The Fund reserves the
right to terminate or modify the telephone redemption service in whole or in
part at any time and will notify shareholders accordingly.
Exchange Privilege
Shareholders of the Fund are entitled to exchange some or all of their shares in
the Fund for shares of certain other investment companies which retain Reich &
Tang Asset Management L.P. as investment adviser and which participate in the
exchange privilege program with the Fund. Currently the exchange privilege
program has been established between the Fund and California Daily Tax Free
Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust,
Inc., Daily Tax Free Income Fund, Inc., Michigan Daily Tax Free Income Fund,
Inc., New Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free
Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Government Securities
Trust, Reich & Tang Equity Fund, Inc. and Short Term Income Fund, Inc. In the
future, the exchange privilege program may be extended to other investment
companies which retain Reich & Tang Asset Management L.P. as investment adviser
or manager.
There is no charge for the exchange privilege or limitation as to frequency of
exchange. The
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<PAGE>
minimum amount for an exchange is $1,000, except that shareholders who are
establishing a new account with an investment company through the exchange
privilege must ensure that a sufficient number of shares are exchanged to meet
the minimum initial investment required for the investment company into which
the exchange is being made. Shares are exchanged at their respective net asset
values.
The exchange privilege provides shareholders of the Fund with a convenient
method to shift their investment among different investment companies when they
feel such a shift is desirable. The exchange privilege is available to
shareholders resident in any state in which shares of the investment company
being acquired may legally be sold. Shares may be exchanged only between
investment company accounts registered in identical names. Before making an
exchange, the investor should review the current prospectus of the investment
company into which the exchange is to be made.
An exchange pursuant to the exchange privilege is treated for Federal income tax
purposes as a sale on which a shareholder may realize a taxable gain or loss.
Instructions for exchanges may be made by sending a signature guaranteed written
request to:
Florida Daily Municipal Income Fund
c/o Reich & Tang Mutual Funds
600 Fifth Avenue
New York, New York 10020
or, for shareholders who have elected that option, by telephoning the Fund at
212-830-5220 (within New York State) or 800-221-3079 (outside New York State).
The Fund reserves the right to reject any exchange request and may modify or
terminate the exchange privilege at any time and will notify shareholders
accordingly.
Specified Amount Automatic Withdrawal Plan
Shareholders may elect to withdraw shares and receive payment from the Fund of a
specified amount of $50 or more automatically on a monthly, quarterly,
semi-annual, or annual basis in an amount approved and confirmed by the Manager.
The monthly withdrawal payments of the specified amount are made by the Fund on
the 23rd day of each month. Whenever such 23rd day of a month is not a Fund
Business Day, the payment date is the Fund Business Day preceding the 23rd day
of the month. In order to make a payment, a number of shares equal in aggregate
net asset value to the payment amount are redeemed at their net asset value on
the Fund Business Day immediately preceding the date of payment. To the extent
that the redemptions to make plan payments exceed the number of shares purchased
through reinvestment of dividends and distributions, the redemptions reduce the
number of shares purchased on original investment, and may ultimately liquidate
a shareholder's investment.
The election to receive automatic withdrawal payments may be made at the time of
the original subscription by so indicating on the subscription order form. The
election may also be made, changed or terminated at any later time by the
participant. Because the withdrawal plan involves the redemption of Fund shares,
such withdrawals may constitute taxable events to the shareholder, but the Fund
does not expect that there will be any realizable capital gains.
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Securities and Exchange
Commission has required that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan permitted by the Rule. The Fund's Board of Trustees has adopted a
distribution and service plan (the "Plan") and, pursuant to the Plan, the Fund
and Reich & Tang Distributors L.P. (the "Distributor") have entered into a
Distribution Agreement and a Shareholder Servicing Agreement (with respect to
Class A shares of the Fund only).
Reich & Tang Asset Management, Inc. serves as the sole general partner for both
Reich & Tang Asset Management L.P. and Reich & Tang
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<PAGE>
Distributors L.P., and Reich & Tang Asset Management L.P. serves as the sole
limited partner of the Distributor.
Under the Distribution Agreement, the Distributor serves as distributor of the
Fund's shares and, for nominal consideration and as agent for the Fund, will
solicit orders for the purchase of the Fund's shares, provided that any orders
will not be binding on the Fund until accepted by the Fund as principal.
Under the Shareholder Servicing Agreement, the Distributor receives with respect
only to the Class A shares a service fee equal to .25% per annum of the Fund's
average daily net assets of the Class A shares of the Fund (the "Shareholder
Servicing Fee") for providing personal shareholder services and for the
maintenance of shareholder accounts. The fee is accrued daily and paid monthly
and any portion of the fee may be deemed to be used by the Distributor for
payments to Participating Organizations with respect to their provision of such
services to their clients or customers who are shareholders of the Class A
shares of the Fund.
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Distributor and Participating Organizations in carrying out their
obligations under the Shareholder Servicing Agreement and (ii) preparing,
printing and delivering the Fund's prospectus to existing shareholders of the
Fund and preparing and printing subscription application forms for shareholder
accounts.
The Plan provides that the Manager may make payments from time to time from its
own resources, which may include the management fee and past profits for the
following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements, for performing shareholder servicing on behalf of the Class
A shares of the Fund; (ii) to compensate certain Participating Organizations for
providing assistance in distributing the Class A shares 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
shares. The Distributor may also make payments from time to time from its own
resources, which may include the Shareholder Servicing Fee (with respect to
Class A shares) and past profits, for the purposes enumerated in (i) above. The
Manager and Distributor may make payments to Participating Organizations for
providing certain of such services up to a maximum of (on an annualized basis)
.40% of the average daily net asset value of the Class A shares of the Fund
serviced through the Participating Organizations. 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.
The Glass-Steagall Act and other applicable laws and regulations prohibit banks
and other depository institutions from engaging in the business of underwriting,
selling or distributing most types of securities. However, in the opinion of the
Manager based on the advice of counsel, these laws and regulations do not
prohibit such depository institutions from providing other services for
investment companies such as the shareholder servicing and related
administrative functions referred to above. The Fund's Board of Trustees will
consider appropriate modifications to the Fund's operations, including
discontinuance of any payments then being made under the Plan to banks and other
depository institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to provide
18
<PAGE>
the above-mentioned services. It is not anticipated that the discontinuance of
payments to such an institution would result in loss to shareholders or change
in the Fund's net asset value. In addition, state securities laws on this issue
may differ from the interpretations of Federal law expressed herein and banks
and financial institutions may be required to register as dealers pursuant to
state law.
FEDERAL INCOME TAXES
The Fund expects to elect to qualify under the Code as a regulated investment
company that distributes "exempt-interest dividends" as defined in the Code. The
Fund's policy is to distribute as dividends each year 100% (and in no event less
than 90%) of its interest income, net of certain deductions, and its investment
company taxable income (if any). If distributions are made in this manner, the
Fund will not be subject to either Federal income tax or any excise taxes
imposed under the Code. The dividends derived from the interest earned on
Municipal Obligations will be "exempt-interest dividends" and will not be
subject to regular Federal income tax, although as described below, such
"exempt-interest dividends" may be subject to Federal alternative minimum tax.
Dividends paid from taxable income, if any, and distributions of any realized
short-term capital gains (whether from tax-exempt or taxable obligations) will
be taxable to shareholders as ordinary income for Federal income tax purposes,
whether received in cash or reinvested in additional shares of the Fund. The
Fund does not expect to realize long-term capital gains, and thus does not
contemplate distributing "capital gain dividends" or have undistributed capital
gain income within the meaning of the Code. The Fund will inform shareholders of
the amount and nature of its income and gains in a written notice mailed to
shareholders not later than 60 days after the close of the Fund's taxable year.
For Social Security recipients, interest on tax-exempt bonds, including
tax-exempt interest dividends paid by the Fund, must be added to adjusted gross
income for purposes of computing the amount of Social Security benefits
includible in gross income. The Revenue Reconciliation Act of 1993 (P.L. 103-66)
and other recent tax legislation affect many of the Federal tax aspects of
Municipal Obligations and implement many important changes to the Federal income
tax system, including an increase in marginal tax rates. In addition to these
changes, the Tax Reform Act of 1986 (P.L. 99-514) limited the annual amount of
various types of tax-exempt bonds that a state may issue and revised current
arbitrage restrictions. P.L. 99-514 also provided that interest on certain
"private activity bonds" (generally, a bond issue in which more than 10% of the
proceeds are used for a non-governmental trade or business and which meets the
private security or payment test, or bond issue which meets the private loan
financing test) issued after August 7, 1986 will constitute an item of tax
preference subject to the individual alternative minimum tax and P.L. 103-66
increased the maximum marginal alternative minimum tax rate for taxpayers other
than corporations to 28%. Further, corporations are required to include in
alternative minimum taxable income 75% of the amount by which their adjusted
current earnings (including generally, tax-exempt interest) exceeds their
alternative minimum taxable income (determined without this tax item). Certain
tax-exempt interest is also included in the tax base for the additional
corporate minimum tax imposed by the Superfund Amendments and Reauthorization
Act of 1986. In addition, in certain cases Subchapter S corporations with
accumulated earnings and profits from Subchapter C years will be subject to a
tax on "passive investment income", including tax-exempt interest. Investors are
urged to consult their own tax advisors regarding an investment in the Fund.
With respect to variable rate demand instruments, including participation
certificates therein, the Fund is relying on the opinion of Battle Fowler,
counsel to the Fund, that it will be treated for Federal income tax purposes as
the owner thereof and that the interest on the underlying Municipal Obligations
will be exempt from regular Federal income taxes to the Fund. Counsel has
pointed out that the Internal Revenue Service has announced that it will not
19
<PAGE>
ordinarily issue advance rulings on the question of the ownership of securities
or participation interests therein subject to a put and could reach a conclusion
different from that reached by counsel.
In South Carolina v. Baker, the United States Supreme Court held that the
Federal government may constitutionally require states to register bonds they
issue and may subject the interest on such bonds to Federal tax if not
registered, and the Court further held that there is no constitutional
prohibition against the Federal government's taxing the interest earned on state
or other municipal bonds. The Supreme Court decision affirms the authority of
the Federal government to regulate and control bonds such as the Municipal
Obligations and to tax such bonds in the future. The decision does not, however,
affect the current exemption from taxation of the interest earned on the
Municipal Obligations in accordance with Section 103 of the Code.
FLORIDA TAXES
The following is based upon the advice of Gunster, Yoakley, Valdes-Fauli &
Stewart, PA., special Florida counsel to the Fund.
The Fund will not be subject to income, franchise or other taxes of a similar
nature imposed by the State of Florida or its subdivisions, agencies or
instrumentalities. Florida does not currently impose an income tax on
individuals. Thus, individual shareholders of the Fund will not be subject to
any Florida state income tax on distributions received from the Fund. However,
certain distributions will be taxable to corporate shareholders which are
subject to Florida corporate income tax. Florida currently imposes an
"intangibles tax" at the annual rate of 0.2% on certain securities and other
intangible assets owned by Florida residents. Bonds (including participation
certificates) issued by the State of Florida or its subdivisions ("Florida
Securities"), as well as bonds issued by the government of the United States or
the governments of certain U.S. territories and possessions, including Guam and
Puerto Rico (collectively, "Federal Securities"), are exempt from the Florida
intangibles tax. If, on December 31 of any year, the Fund's portfolio consists
solely of Florida and Federal Securities, the Fund's shares will be exempt from
the Florida intangibles tax. If, however, the Fund's December 31 portfolio
includes any nonexempt securities, then the Fund shares owned by Florida
residents may be subject to the Florida intangible tax to the extent the Fund's
portfolio includes securities other than Federal Securities. The Fund itself
will not be subject to the Florida intangibles tax.
GENERAL INFORMATION
The Fund was established as a Massachusetts Business Trust under the laws of the
State of Massachusetts on August 31, 1994 and it is registered with the
Securities and Exchange Commission as a non-diversified, open-end management
investment company.
The Fund prepares semi-annual unaudited and annual audited reports which include
a list of investment securities held by the Fund and which are sent to
shareholders.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. Meetings of shareholders may be called at any time by the
President, and at the request in writing, or by resolution, of a majority of
Trustees, or upon the written request of holders of shares entitled to cast not
less then 10% of all the votes entitled to be cast at such meeting. Annual and
other meetings may be required with respect to such additional matters relating
to the Fund as may be required by the 1940 Act such as the removal of Fund
trustee(s) and communication among shareholders, for the election of trustees,
for approval of revised investment advisory contracts with respect to a
particular class or series of shares, for approval of revisions to the Fund's
distribution agreement with respect to a particular class or series of shares,
any registration of the Fund with the Securities and Exchange Commission or any
state, or as the Trustees may consider necessary or desirable. Each Trustee
serves until the next meeting of the shareholders called for the purpose of
considering
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<PAGE>
the election or re-election of such Trustee or of a successor to such Trustee,
and until the election and qualification of his or her successor, elected at
such a meeting, or until such Trustee sooner dies, resigns, retires or is
removed by the vote of the shareholders.
For further information with respect to the Fund and the shares offered hereby,
reference is made to the Fund's registration statement filed with the Securities
and Exchange Commission, including the exhibits thereto. The registration
statement and the exhibits thereto may be examined at the Commission and copies
thereof may be obtained upon payment of certain duplicating fees.
NET ASSET VALUE
The net asset value of the Fund's shares is determined as of 12 noon, New York
City time, on each Fund Business Day. Fund Business Day means weekdays (Monday
through Friday) except customary business holidays and Good Friday. It is
computed by dividing the value of the Fund's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued but excluding capital stock and surplus) by the total number of shares
outstanding.
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, except that if fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Trustees will consider whether any action should be initiated. 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
intends to maintain a stable net asset value at $1.00 per share although there
can be no assurance that this will be achieved.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105 is custodian for the Fund's cash and securities and is the transfer agent
and dividend agent for the shares of the Fund. The Fund's transfer agent and
custodian does not assist in, and is not responsible for, investment decisions
involving assets of the Fund.
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TABLE OF CONTENTS
Table of Fees and Expenses............................2 FLORIDA
Selected Financial Information........................2 DAILY
Introduction..........................................3 MUNICIPAL
Investment Objectives, FUND
Policies and Risks..................................4
Management of the Fund................................8
Description of Shares................................10
Dividends and Distributions..........................10
How to Purchase and Redeem Shares....................11 PROSPECTUS
Investments Through
Participating Organizations....................12 January 2, 1996
Direct Purchase and
Redemption Procedures..........................13
Initial Purchases of Shares........................14
Subsequent Purchases of Shares.....................14
Redemption of Shares...............................15
Exchange Privilege.................................16
Specified Amount Automatic Withdrawal Plan.........17
Distribution and Service Plan........................17
Federal Income Taxes.................................18
Florida Taxes........................................20
General Information..................................20
Net Asset Value......................................21
Custodian and Transfer Agent.........................21
No dealer, salesman or other person has been authorized to give any information
or to make any representation other than those contained in this Prospectus, and
if given or made, such information and representation may not be relied upon as
authorized by the Fund, its Manager, Distributor or any affiliate thereof. This
Prospectus does not constitute an offer to sell or a solicitation of any offer
to buy any of the securities offered hereby in any state to any person to whom
it is unlawful to make such offer in such state.
<PAGE>
- --------------------------------------------------------------------------------
FLORIDA 600 Fifth Avenue,
DAILY MUNICIPAL New York, N.Y. 10020
INCOME FUND (212) 830-5220
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 2, 1996
This Statement of Additional Information, although not in itself a Prospectus,
expands upon and supplements the information contained in the current Prospectus
of Florida Daily Municipal Income Fund (the "Fund"), dated January 2, 1996 and
should be read in conjunction with the Prospectus. The Fund's Prospectus may be
obtained from any Participating Organization or by writing or calling the Fund.
This Statement of Additional Information is incorporated by reference into the
Prospectus in its entirety.
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C> <C>
Investment Objectives,................................ Net Asset Value
Policies and Risks............................... Yield Quotations.........................................
Description of Municipal Obligations.................. Manager..................................................
Variable Rate Demand Instruments................ Expense Limitation.................................
and Participation Certificates............... Management of the Fund...................................
When-Issued Securities........................... Distribution and Service Plan............................
Stand-by Commitments............................. Description of Shares....................................
Taxable Securities.................................... Federal Income Taxes.....................................
Repurchase Agreements............................ Florida Taxes............................................
Florida Risk Factors.................................. Custodian and Transfer Agent.............................
Investment Restrictions............................... Description of Ratings...................................
Portfolio Transactions................................ Independent Auditor's Report
How to Purchase....................................... Financial Statements.....................................
and Redeem Shares................................
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
As stated in the Prospectus, the Fund is a non-diversified, open-end, management
investment company that is a short-term, tax-exempt money market fund. The
Fund's investment objectives are to seek to provide Florida residents with an
investment, that is, to the extent possible, exempt from the Florida intangible
personal property tax and to seek as high a level of current income exempt from
regular Federal tax, as is believed to be consistent with preservation of
capital, maintenance of liquidity and stability of principal. No assurance can
be given that these objectives will be achieved. The following discussion
expands upon the description of the Fund's investment objectives and policies in
the Prospectus.
The Fund's assets will be invested primarily in high quality debt obligations
issued by or on behalf of the State of Florida, other states, territories and
possessions of the United States and their authorities, agencies,
instrumentalities and political subdivisions, the interest on which is, in the
opinion of bond counsel to the issuer at the date of issuance, currently exempt
from regular Federal income taxation ("Municipal Obligations") and in
participation certificates (which, in the opinion of Battle Fowler LLP, counsel
to the Fund, cause the Fund to be treated as the owner of the underlying
Municipal Obligations) in Municipal Obligations purchased from banks, insurance
companies or other financial institutions. Dividends paid by the Fund which are
"exempt-interest dividends" by virtue of being properly designated by the Fund
as derived from Municipal Obligations and participation certificates in
Municipal Obligations will be exempt from Federal income tax provided the Fund
complies with Section 852(b)(5) of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). Although the Supreme Court has determined that
Congress has the authority to subject the interest on bonds such as the
Municipal Obligations to regular Federal income taxation, existing law excludes
such interest from regular Federal income tax. However, "exempt-interest
dividends" may be subject to the Federal alternative minimum tax.
Securities, the interest income on which may be subject to the Federal
alternative minimum tax (including participation certificates in such
securities), may be purchased by the Fund without limit. Securities, the
interest income on which is subject to regular Federal, state and local income
tax, will not exceed 20% of the value of the Fund's total assets. (See "Federal
Income Taxes" herein.) Further, interest on Municipal Obligations is includable
in a 0.12% additional corporate minimum tax imposed by the Superfund Amendments
and Reauthorization Act of 1986. To the extent the Fund's assets consist
exclusively of obligations (including participation certificates) issued by or
on behalf of the State of Florida or any Florida local governments, or their
instrumentalities, authorities or districts ("Florida Municipal Obligations") or
territories and possessions of the United States and their authorities,
agencies, instrumentalities and political subdivisions on December 31st of each
taxable year, shareholders of the Fund will be exempt from the Florida
intangible personal property tax. (See "Florida Taxes" herein.) To the extent
that suitable Florida Municipal Obligations are not available for investment by
the Fund, the Fund may purchase Municipal Obligations issued by other states,
their agencies and instrumentalities, the dividends on which will be designated
by the Fund as derived from interest income which will be, in the opinion of
bond counsel to the issuer at the date of issuance, exempt from regular Federal
income tax. Except as a temporary defensive measure during periods of adverse
market conditions as determined by the Manager, the Fund will invest at least
65% of its assets in Florida Municipal Obligations, although the exact amount of
the Fund's assets invested in such securities will vary from time to time. The
Fund seeks to maintain an investment portfolio with a dollar-weighted average
maturity of 90 days or less and to value its investment portfolio at amortized
cost and maintain a net asset value at a $1.00 per share of each Class. There
can be no assurance that this value will be maintained.
The Fund may hold uninvested cash reserves pending investment. The Fund's
investments may include "when-issued" Municipal Obligations, stand-by
commitments and taxable repurchase agreements. Although the Fund will attempt to
invest 100% of its assets in Municipal Obligations and in participation
certificates in Municipal Obligations, the Fund reserves the right to invest up
to 20% of the value of its total assets in securities, the interest income on
which is subject to regular Federal, state and local income tax. The Fund will
invest more than 25% of its assets in participation certificates purchased from
banks in industrial revenue bonds and other Florida Municipal Obligations. In
view of this "concentration" in bank participation certificates in Florida
Municipal Obligations, an investment in Fund shares should be made with an
understanding of the characteristics of the banking industry and the risks which
such an investment may entail. (See "Variable Rate Demand Instruments and
Participation Certificates" herein.) The investment objectives of the Fund
described in the preceding paragraphs of this section may not be changed unless
approved by the holders of a majority of the outstanding shares of the Fund that
would be affected by such a change. As used herein, the term "majority of the
outstanding shares" of the Fund means, respectively, the vote of the lesser of
(i) 67% or more of the shares of the
2
<PAGE>
Fund present at a meeting, if the holders of more than 50% of the outstanding
shares of the Fund are present or represented by proxy, or (ii) more than 50% of
the outstanding shares of the Fund.
The Fund may only purchase Municipal Obligations that have been determined by
the Fund's Board of Trustees to present minimal credit risks and that are
Eligible Securities at the time of acquisition. The term Eligible Securities
means (i) Municipal Obligations with remaining maturities of 397 days or less
and rated in the two highest short-term rating categories by any two nationally
recognized statistical rating organizations ("NRSROs") or in such categories by
the only NRSRO that has rated the Municipal Obligations (collectively, the
"Requisite NRSROs") (acquisition in the latter situation must also be ratified
by the Board of Trustees); (ii) Municipal Obligations with remaining maturities
of 397 days or less but that at the time of issuance were long-term securities
(i.e., with maturities greater than 366 days) and whose issuer has received from
the Requisite NRSROs a rating with respect to comparable short-term debt in the
two highest short-term rating categories and (iii) unrated Municipal Obligations
determined by the Fund's Board of Trustees to be of comparable quality. Where
the issuer of a long-term security with a remaining maturity which would
otherwise qualify it as an Eligible Security does not have rated short-term debt
outstanding, the long-term security is treated as unrated but may not be
purchased if it has a long-term rating from any NRSRO that is below the two
highest long-term categories. A determination of comparability by the Board of
Trustees is made on the basis of its credit evaluation of the issuer, which may
include an evaluation of a letter of credit, guarantee, insurance or other
credit facility issued in support of the Municipal Obligations or participation
certificates. (See "Variable Rate Demand Instruments and Participation
Certificates" herein). While there are several organizations that currently
qualify as NRSROs, two examples of NRSROs are Standard & Poor's Corporation
("S&P's") and Moody's Investors Service, Inc. ("Moody's"). The two highest
ratings by S&P's and Moody's are "AAA" and "AA" by S&P's 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's or "MIG-1" and "MIG-2" by Moody's in the case of
notes; "A-1" and "A-2" by S&P's 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 and "SP-1/AA" by S&P's. Such
instruments may produce a lower yield than would be available from less highly
rated instruments. The Fund's Board of Trustees has determined that Municipal
Obligations which are backed by the credit of the Federal Government will be
considered to have a rating equivalent to Moody's "Aaa". (See "Description of
Ratings" herein.)
All investments by the Fund will mature or will be deemed to mature within 397
days or less from the date of acquisition and the average maturity of the Fund
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.
As a non-diversified investment company, the Fund is not subject to any
statutory restriction under the Investment Company Act of 1940 (the "1940 Act")
with respect to investing its assets in one or relatively few issuers. This
non-diversification may present greater risks than in the case of a diversified
company. However, the Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Code. The Fund will be restricted in that at
the close of each quarter of the taxable year at least 50% of the value of its
total assets must be represented by cash, government securities, investment
company securities and other securities limited in respect of any one issuer to
not more than 5% in value of the total assets of the Fund and to not more than
10% of the outstanding voting securities of such issuer. In addition, at the
close of each quarter of its taxable year, not more than 25% in value of the
Fund's total assets may be invested in securities of one issuer other than
Government securities. The limitations described in this paragraph regarding
qualification as a "regulated investment company" are not fundamental policies
and may be revised to the extent applicable Federal income tax requirements are
revised. (See "Federal Income Taxes" herein.)
DESCRIPTION OF MUNICIPAL OBLIGATIONS
As used herein, "Municipal Obligations" include the following as well as
"Variable Rate Demand Instruments and Participation Certificates."
1) Municipal Bonds with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition.
Municipal Bonds are debt obligations of states, cities, counties,
municipalities and municipal agencies (all of which are generally referred
to as "municipalities") which generally have a maturity at the time of
issue of one
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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 faith, credit and taxing power for the payment
of principal and interest. Issuers of general obligation bonds include
states, counties, cities, towns and other governmental units. The principal
of, and interest on revenue bonds are payable from the income of specific
projects or authorities and generally are not supported by the issuer's
general power to levy taxes. In some cases, revenues derived from specific
taxes are pledged to support payments on a revenue bond.
In addition, certain kinds of "private activity bonds" are issued by public
authorities to provide funding for various privately operated industrial
facilities (hereinafter referred to as "industrial revenue bonds" or
"IRBs"). Interest on the IRBs is generally exempt, with certain exceptions,
from regular Federal income tax pursuant to Section 103(a) of the Code,
provided the issuer and corporate obligor thereof continue to meet certain
conditions. (See "Federal Income Taxes" herein.) IRBs are, in most cases,
revenue bonds and do not generally constitute the pledge of the credit of
the issuer of such bonds. The payment of the principal and interest on IRBs
usually depends solely on the ability of the user of the facilities
financed by the bonds or other guarantor to meet its financial obligations
and, in certain instances, the pledge of real and personal property as
security for payment. If there is no established secondary market for the
IRBs, the IRBs or the participation certificates in IRBs purchased by the
Fund will be supported by letters of credit, guarantees or insurance that
meet the definition of Eligible Securities at the time of acquisition and
provide the demand feature which may be exercised by the Fund at any time
to provide liquidity. Shareholders should note that the Fund may invest in
IRBs acquired in transactions involving a Participating Organization. In
accordance with Investment Restriction 6 herein, the Fund is permitted to
invest up to 10% of the portfolio in high quality, short-term Municipal
Obligations (including IRBs) meeting the definition of Eligible Securities
at the time of acquisition that may not be readily marketable or have a
liquidity feature.
2) Municipal Notes with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition. The principal kinds of
Municipal Notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes and project notes. Notes sold in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuing municipality or agency. Project notes
are issued by local agencies and are guaranteed by the United States
Department of Housing and Urban Development. Project notes are also secured
by the full faith and credit of the United States. The Fund's investments
may be concentrated in Municipal Notes of Florida issuers.
3) Municipal Commercial Paper that is an Eligible Security at the time of
acquisition. Issues of Municipal Commercial Paper typically represent very
short-term, unsecured, negotiable promissory notes. These obligations are
often issued to meet seasonal working capital needs of municipalities or to
provide interim construction financing 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 purchase or conditional sale contracts (which
normally provide for title to the leased asset to pass eventually to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. The debt-issuance
limitations of many state constitutions and statutes are deemed to be
inapplicable because of the inclusion in many leases or contracts of
"non-appropriation" clauses 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. To reduce this risk, the Fund will
only purchase Municipal Leases subject to a non-appropriation clause where
the payment of principal and accrued interest is backed by an unconditional
irrevocable letter of credit, a guarantee, insurance or other comparable
undertaking of an approved financial institution. These types of Municipal
Leases may be considered illiquid and subject to the 10% limitation of
investments in illiquid securities set forth under "Investment
Restrictions" contained herein. The Board of 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
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the frequency of trades for the obligation, the number of dealers willing
to purchase or sell the obligations and the number of other potential
buyers and the nature of the marketplace for the obligations, including the
time needed to dispose of the obligations and the method of soliciting
offers. If the Board determines that any Municipal Leases are illiquid,
such lease will be subject to the 10% limitation on investments in illiquid
securities.
5) Any other Federal tax-exempt, and to the extent possible, Florida Income
tax-exempt obligations issued by or on behalf of states and municipal
governments and their authorities, agencies, instrumentalities and
political subdivisions, whose inclusion in the Fund would be consistent
with the Fund's "Investment Objectives, Policies and Risks" and permissible
under Rule 2a-7 under the 1940 Act.
Subsequent to its purchase by the Fund, a rated Municipal Obligation may cease
to be rated or its rating may be reduced below the minimum required for purchase
by the Fund. If this occurs, the Board of Trustees of the Fund shall reassess
promptly whether the Municipal Obligation presents minimal credit risks and
shall cause the Fund to take such action as the Board of Trustees determines in
the best interest of the Fund and its shareholders. However, reassessment is not
required if the Municipal Obligation is disposed of or matures within five
business days of the Manager becoming aware of the new rating and provided
further that the Board of Trustees is subsequently notified of the Manager's
actions.
In addition, in the event that a Municipal Obligation (1) is in default, (2)
ceases to be an Eligible Security or (3) there is a determination that it no
longer presents minimal credit risks, the Fund will dispose of the Municipal
Obligation absent a determination by the Fund's Board of Trustees that disposal
of the Municipal Obligation would not be in the best interests of the Fund. In
the event that the Municipal Obligation is disposed of it shall be disposed of
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 Municipal Obligation which immediately before default accounted for
1/2 of 1% or more of the Fund's total assets, the Fund shall promptly notify the
Securities and Exchange Commission of such fact and of the actions that the Fund
intends to take in response to the situation. Certain obligations issued by
instrumentalities of the United States Government are not backed by the full
faith and credit of the United States Treasury but only by the creditworthiness
of the instrumentality. The Fund's Board of Trustees has determined that any
obligation that depends directly, or indirectly through a government insurance
program or other guarantee, on the full faith and credit of the United States
Government will be considered to have a rating in the highest category. Where
necessary to ensure that the Municipal Obligations are Eligible Securities or
where the obligations are not freely transferable, the Fund will require that
the obligation to pay the principal and accrued interest be backed by an
unconditional irrevocable bank letter of credit, a guarantee, insurance or other
comparable undertaking of an approved financial institution that would qualify
the investment as an Eligible Security.
Variable Rate Demand Instruments and Participation Certificates
Variable rate demand instruments that the Fund will purchase are tax-exempt
Municipal 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 or insurance issued with respect to such
instrument.
The variable rate demand instruments in which the Fund may invest are payable on
demand on not more than thirty calendar days' notice and may be exercised at any
time or at specified intervals not exceeding 397 days depending upon the terms
of the instrument. Variable rate demand instruments that cannot be disposed of
promptly within seven days in the ordinary course of business are illiquid
securities. The terms of the instruments provide that interest rates are
adjustable at intervals ranging from daily to up to 397 days and the adjustments
are based upon the "prime rate"* of a bank or other appropriate interest rate
adjustment index as provided in the respective instruments. The Fund 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 fund
utilizing the amortized cost method of valuation under Rule 2a-7 of the 1940 Act
may purchase variable rate demand instruments only if (i) the instrument is
subject to an unconditional demand feature, exercisable by the Fund in the event
of a default in the payment of principal or interest on the underlying
securities, that is an Eligible Security, or (ii) the instrument is not subject
to an unconditional demand feature but does qualify as an Eligible Security and
has a long-term rating by the Requisite NRSROs in one of the two highest rating
categories, or if unrated, is
- --------------------------------------------------------------------------------
* The "prime rate" is generally the rate charged by a bank to its creditworthy
customers for short-term loans. The prime rate of a particular bank may differ
from other banks and will be the rate announced by each bank on a particular
day. Changes in the prime rate may occur with great frequency and generally
become effective on the date announced.
- --------------------------------------------------------------------------------
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determined to be of comparable quality by the Fund's Board of Trustees. The
Fund's Board of Trustees may determine that an unrated variable rate demand
instrument meets the Fund's high quality criteria if it is backed by a letter of
credit or guarantee or is insured by an insurer that meets the quality criteria
for the Fund stated herein or on the basis of a credit evaluation of the
underlying obligor. If an instrument is ever not deemed to be an Eligible
Security, the Fund either will sell it in the market or exercise the demand
feature.
The variable rate demand instruments that the Fund may invest in include
participation certificates purchased by the Fund from banks, insurance companies
or other financial institutions in fixed or variable rate, tax-exempt Municipal
Obligations (expected to be concentrated in IRBs) owned by such institutions or
affiliated organizations. The Fund will not purchase participation certificates
in fixed rate tax-exempt Municipal Obligations without obtaining an opinion of
counsel that the Fund will be treated as the owner thereof for Federal income
tax purposes. A participation certificate gives the Fund an undivided interest
in the Municipal Obligation in the proportion that the Fund's participation
interest bears to the total principal amount of the Municipal Obligation and
provides the demand repurchase feature described below. Where the institution
issuing the participation does not meet the Fund's eligibility criteria, the
participation is backed by an irrevocable letter of credit or guaranty of a bank
(which may be the bank issuing the participation certificate, a bank issuing a
confirming letter of credit to that of the issuing bank, or a bank serving as
agent of the issuing bank with respect to the possible repurchase of the
certificate of participation) or insurance policy of an insurance company that
the Board of Trustees of the Fund has determined meets the prescribed quality
standards for the Fund. The Fund has the right to sell the participation
certificate back to the institution and, where applicable, draw on the letter of
credit or insurance after no more than 30 days notice either at any time or at
specified intervals not exceeding 397 days (depending on the terms of the
participation), for all or any part of the full principal amount of the Fund's
participation interest in the security plus accrued interest. The Fund intends
to exercise the demand only (1) upon a default under the terms of the bond
documents, (2) as needed to provide liquidity to the Fund in order to make
redemptions of Fund 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 Fund. The total fees generally range from 5% to 15% of the
applicable prime rate or other interest rate index. With respect to insurance,
the Fund will attempt to have the issuer of the participation certificate bear
the cost of the insurance, although the Fund retains the option to purchase
insurance if necessary, in which case the cost of insurance will be an expense
of the Fund subject to the expense limitation (see "Expense Limitation" herein).
The Manager has been instructed by the Fund's Board of Trustees to continually
monitor the pricing, quality and liquidity of the variable rate demand
instruments held by the Fund, including the participation certificates, on the
basis of published financial information and reports of the rating agencies and
other bank analytical services to which the Fund may subscribe. Although these
instruments may be sold by the Fund, the Fund intends to hold them until
maturity, except under the circumstances stated above (see "Federal Income
Taxes" herein).
In view of the "concentration" of the Fund in bank participation certificates in
Florida Municipal Obligations, which may be secured by bank letters of credit or
guarantees, an investment in the Fund should be made with an understanding of
the characteristics of the banking industry and the risks which such an
investment may entail. Banks are subject to extensive governmental regulations
which may limit both the amounts and types of loans and other financial
commitments which may be made and interest rates and fees which may be charged.
The profitability of this industry is largely dependent upon the availability
and cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operations of this industry and exposure to credit losses
arising from possible financial difficulties of borrowers might affect a bank's
ability to meet its obligations under a letter of credit. The Fund may invest
25% or more of the net assets of any portfolio in securities that are related in
such a way that an economic, business or political development or change
affecting one of the securities would also affect the other securities
including, for example, securities the interest upon which is paid from revenues
of similar type projects, or securities the issuers of which are located in the
same state.
While the value of the underlying variable rate demand instruments may change
with changes in interest rates generally, the variable rate nature of the
underlying variable rate demand instruments should minimize changes in value of
the instruments. Accordingly, as interest rates decrease or increase, the
potential for capital appreciation and the risk of potential capital
depreciation is less than would be the case with a portfolio of fixed income
securities. The portfolio may contain variable maximum rates set by state law
and 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
portfolio may
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contain variable rate demand participation certificates in fixed rate Municipal
Obligations. The fixed rate of interest on these Municipal Obligations will be a
ceiling on the variable rate of the participation certificate. In the event that
interest rates increased so that the variable rate exceeded the fixed rate on
the Municipal Obligations, the Municipal Obligations could no longer be valued
at par and may cause the Fund to take corrective action, including the
elimination of the instruments from the portfolio. Because the adjustment of
interest rates on the variable rate demand instruments is made in relation to
movements of the applicable banks' "prime rates", or other interest rate
adjustment index, the variable rate demand instruments are not comparable to
long-term fixed rate securities. Accordingly, interest rates on the variable
rate demand instruments may be higher or lower than current market rates for
fixed rate obligations of comparable quality with similar maturities.
Because of the variable rate nature of the instruments, the Fund's yield will
decline and its shareholders will forego the opportunity for capital
appreciation during periods when prevailing interest rates have declined. On the
other hand, during periods where prevailing interest rates have increased, the
Fund's yield will increase and its shareholders will have reduced risk of
capital depreciation.
For purposes of determining whether a variable rate demand instrument held by
the Fund matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (1) the period required
before the Fund 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 Fund's dollar-weighted average
portfolio maturity. If a variable rate demand instrument ceases to be an
eligible security it will be sold in the market or through exercise of the
repurchase demand feature to the issuer.
When-Issued Securities
New issues of certain Municipal Obligations frequently are offered on a
when-issued basis. The payment obligation and the interest rate that will be
received on the Municipal Obligations are each fixed at the time the buyer
enters into the commitment although delivery and payment of the Municipal
Obligations normally take place within 45 days after the date of the Fund's
commitment to purchase. Although the Fund will only make commitments to purchase
when-issued Municipal Obligations with the intention of actually acquiring them,
the Fund may sell these securities before the settlement date if deemed
advisable by the Manager.
Municipal Obligations purchased on a when-issued basis and the securities held
in the Fund's portfolio are subject to changes in value (both generally changing
in the same way, that is, both experiencing appreciation when interest rates
decline and depreciation when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Purchasing Municipal Obligations on
a when-issued basis can involve a risk that the yields available in the market
when the delivery takes place may actually be higher or lower than those
obtained in the transaction itself. A separate account of the Fund consisting of
cash or liquid debt securities equal to the amount of the when-issued
commitments will be established at the Fund's custodian bank. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market value. If the market or fair value of such
securities declines, additional cash or highly liquid securities will be placed
in the account daily so that the value of the account will equal the amount of
such commitments by the Fund. On the settlement date of the when-issued
securities, the Fund will meet its obligations from then-available cash flow,
sale of securities held in the separate account, sale of other securities or,
although it would not normally expect to do so, from sale of the when-issued
securities themselves (which may have a value greater or lesser than the Fund's
payment obligations). Sale of securities to meet such obligations may result in
the realization of capital gains or losses, which are not exempt from Federal
income tax.
Stand-by Commitments
When the Fund purchases Municipal Obligations it may also acquire standby
commitments from banks and other financial institutions with respect to such
Municipal Obligations. Under a standby commitment, a bank or broker-dealer
agrees to purchase at the Fund's option a specified Municipal Obligation at a
specified price with same day settlement. A standby commitment is the equivalent
of a "put" option acquired by the Fund with respect to a particular Municipal
Obligation held in its portfolio.
The amount payable to the Fund upon its exercise of a standby commitment
normally would be (1) the acquisition cost of the Municipal Obligation
(excluding any accrued interest that the Fund paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the security, plus (2) all interest accrued on
the security since the last interest payment date during the period the security
was owned by the Fund. Absent unusual circumstances relating to a change in
market value,
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<PAGE>
the Fund would value the underlying Municipal Obligation at amortized cost.
Accordingly, the amount payable by a bank or dealer during the time a standby
commitment is exercisable would be substantially the same as the market value of
the underlying Municipal Obligation.
The Fund's right to exercise a standby commitment would be unconditional and
unqualified. A standby commitment would not be transferable by the Fund,
although it could sell the underlying Municipal Obligation to a third party at
any time.
The Fund expects that standby commitments generally will be available without
the payment of any direct or indirect consideration. However, if necessary and
advisable, the Fund may pay for standby 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
standby commitments held in the Fund's portfolio would not exceed 1/2 of 1% of
the value of the Fund's total assets calculated immediately after each standby
commitment was acquired.
The Fund would enter into standby 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 does not meet the
eligibility criteria, only where the issuer of the standby commitment has
received a rating which meets the eligibility criteria or, if not rated,
presents a minimal risk of default as determined by the Board of Trustees. The
Fund's reliance upon the credit of these banks and broker-dealers would be
supported by the value of the underlying Municipal Obligations held by the Fund
that were subject to the commitment.
The Fund intends to acquire standby commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The purpose of this practice is to permit the Fund to be fully
invested in securities the interest on which is exempt from Federal income 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 standby commitment.
The acquisition of a standby commitment would not affect the valuation or
assumed maturity of the underlying Municipal Obligations which will continue to
be valued in accordance with the amortized cost method. Standby commitments
acquired by the Fund would be valued at zero in determining net asset value. In
those cases in which the Fund paid directly or indirectly for a standby
commitment, its cost would be reflected as unrealized depreciation for the
period during which the commitment is held by the Fund. Standby commitments
would not affect the dollar-weighted average maturity of the Fund's portfolio.
The maturity of a security subject to a standby commitment is longer than the
standby repurchase date.
The standby commitments that the Fund 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 Fund, and that the maturity of the underlying security
will generally be different from that of the commitment.
In addition, the Fund may apply to the Internal Revenue Service for a ruling, or
seek from its counsel an opinion, that interest on Municipal Obligations subject
to standby commitments will be exempt from Federal income taxation (see "Federal
Income Taxes" herein). In the absence of a favorable tax ruling or opinion of
counsel, the Fund will not engage in the purchase of securities subject to
standby commitments.
TAXABLE SECURITIES
Although the Fund will attempt to invest 100% of its net assets in tax-exempt
Municipal Obligations, the Fund may invest up to 20% of the value of its total
assets in securities of the kind described below, the interest income on which
is subject to regular Federal income tax, under any one or more of the following
circumstances: (a) pending investment of proceeds of sales of Fund shares or of
portfolio securities, (b) pending settlement of purchases of portfolio
securities and (c) to maintain liquidity for the purpose of meeting anticipated
redemptions. In addition, the Fund may temporarily invest more than 20% in such
taxable securities when, in the opinion of the Manager, it is advisable to do so
because of adverse market conditions affecting the market for Municipal
Obligations. The kinds of taxable securities in which the Fund may invest are
limited to the following short-term, fixed-income securities (maturing in 397
days or less from the time of purchase): (1) obligations of the United States
Government or its agencies, instrumentalities or authorities; (2) commercial
paper meeting the definition of Eligible Securities at the time of acquisition;
(3) certificates of deposit of domestic banks with assets of $1 billion or more;
and (4) repurchase agreements with respect to any Municipal Obligations or other
securities which the Fund is permitted to own. (See "Federal Income Taxes"
herein.)
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Repurchase Agreements
The Fund may invest in instruments subject to repurchase agreements with
securities dealers or member banks of the Federal Reserve System. Under the
terms of a typical repurchase agreement, the Fund would acquire an underlying
debt instrument for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase and the Fund to resell the
instrument at a fixed price and time, thereby determining the yield during the
Fund's holding period. This results in a fixed rate of return insulated from
market fluctuations during such period. A repurchase agreement is subject to the
risk that the seller may fail to repurchase the security. Repurchase agreements
may be deemed to be loans under the 1940 Act. All repurchase agreements entered
into by the Fund shall be fully collateralized at all times during the period of
the agreement in that the value of the underlying security shall be at least
equal to the amount of the loan, including the accrued interest thereon, and the
Fund or its custodian shall have possession of the collateral, which the Fund's
Board believes will give it a valid, perfected security interest in the
collateral. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities are not owned
by the Fund but only constitute collateral for the seller's obligation to pay
the repurchase price. Therefore, the Fund may suffer time delays and incur costs
in connection with the disposition of the collateral. The Fund's Board believes
that the collateral underlying repurchase agreements may be more susceptible to
claims of the seller's creditors than would be the case with securities owned by
the Fund. It is expected that repurchase agreements will give rise to income
which will not qualify as tax-exempt income when distributed by the Fund. The
Fund will not invest in a repurchase agreement maturing in more than seven days
if any such investment together with illiquid securities held by the Fund exceed
10% of the Fund's total net assets. (See Investment Restriction Number 6
herein.) Repurchase agreements are subject to the same risks described herein
for standby commitments.
FLORIDA RISK FACTORS
Because the Fund invests in Florida issues, it is susceptible to political,
economic, regulatory or other factors affecting issuers of Florida Municipal
Obligations and bank participant certificates therein. The following is only a
brief summary of the special risk factors affecting the State of Florida and
does not purport to be a complete or exhaustive description of all adverse
conditions to which issuers of Florida obligations may be subject.
THE STATE ECONOMY. In 1980 the State of Florida (the "State") ranked seventh
among the fifty states with a population of 9.7 million people. The State has
grown dramatically since then and, as of April 1, 1994, ranked fourth among the
fifty states with an estimated population of 13.9 million, an overall increase
of approximately 26.1% since 1985. Net migration has been fairly steady with an
average of 235,600 new residents each year from 1985 through 1994. Since 1985
the prime working age population (18-44) has grown at an average annual rate of
2.2%. The share of Florida's total working age population (18-59) to total state
population is approximately 54%. Non-farm employment has grown by approximately
37.9% since 1985. The service sector is Florida's largest employment sector,
presently accounting for 86.4% of total non-farm employment. Manufacturing jobs
in Florida are concentrated in the area of high-tech and high value-added
sectors, such as electrical and electronic equipment as well as printing and
publishing. Foreign trade has contributed significantly to Florida's employment
growth. Florida's dependence on highly cyclical construction and
construction-related manufacturing has declined. Total contract construction
employment as a share of total non-farm employment has fallen from a peak of
over 10% in 1973, to approximately 7.5% in 1980, to approximately 5% in 1994.
Although the job creation rate for the State since 1985 is almost over two times
the rate for the nation as a whole, in recent years, the unemployment rate for
the State has tracked above the national average. The average rate of
unemployment for Florida since 1985 is 6.3%, while the national average is 6.4%.
Because Florida has a proportionately greater retirement age population,
property income (dividends, interest and rent) and transfer payments (social
security and pension benefits) are a relatively more important source of income.
In 1994, Florida employment income represented 61.5% of total personal income
while, nationally, employment income represented 72.6% of total personal income.
The ability of the State and its local units of government to satisfy the Debt
Obligations may be affected by numerous factors which impact on the economic
vitality of the State in general and the particular region of the State in which
the issuer of the Debt Obligations is located. South Florida is particularly
susceptible to international trade and currency imbalances and to economic
dislocations in Central and South America, due to its geographical location and
its involvement with foreign trade, tourism and investment capital. South and
central Florida are impacted by problems in the agricultural sector,
particularly with regard to the citrus and sugar industries. Short-term adverse
economic conditions may be created in these areas, and in the State as a whole,
due to crop failures, severe weather conditions or other agriculture-related
problems. The State economy also
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has historically been somewhat dependent on the tourism and construction
industries and is sensitive to trends in those sectors.
THE STATE BUDGET. Although the law requires the State to recommend a biennial
budget, the Legislature only enacts a one-year budget. In the second year of
each cycle, a supplemental recommendation is developed in which the
recommendations for legislative fiscal policies enacted in the first year are
adjusted. This supplemental recommendation may also suggest revenues or policy
changes. Under the State Constitution and applicable statutes, the State budget
as a whole, and each separate fund within the State budget, must be kept in
balance from currently available revenues during each State fiscal year. (The
State's fiscal year runs from July 1 through June 30.) The Governor and the
Comptroller of the State are charged with the responsibility of ensuring that
sufficient revenues are collected to meet appropriations and that no deficit
occurs in any State fund.
The financial operations of the State covering all receipts and expenditures are
maintained through the use of four types of funds: the General Revenue Fund,
Trust Funds, the Working Capital Fund and the Budget Stabilization Fund. The
majority of the State's tax revenues are deposited in the General Revenue Fund
and moneys in the General Revenue Fund are expended pursuant to appropriations
acts. In fiscal year 1994-95, appropriations for education, health and welfare
and public safety represented approximately 49%, 32% and 11%, respectively, of
expenditures from the General Revenue Fund. The Trust Funds consist of moneys
received by the State which under law or trust agreement are segregated for a
purpose authorized by law. Revenues in the General Revenue Fund which are in
excess of the amount needed to meet appropriations may be transferred to the
Working Capital Fund.
STATE REVENUES. Estimated General Revenues, Working Capital Fund revenue and
Budget Stabilization funds of $15,149.1 million for the fiscal year 1995-96
represent an increase of 2.2% over revenues for fiscal year 1994-95. Estimated
Revenue for fiscal year 1995-96 of $14,456.7 million represents an increase of
5.9% over fiscal year 1994-95. The State's budget for fiscal year 1995-96 has
provided for a $188.1 million reduction in the General Revenue Fund due to the
successful constitutional challenge of the $295 fee imposed on the issuance of
certificates of title for vehicles previously titled outside the State (see
"Litigation" herein).
In fiscal year 1994-95, the State derived approximately 66% of its total direct
revenues for deposit in the General Revenue Fund, Trust Funds and Working
Capital Fund from State taxes and fees. Federal grants and other special
revenues accounted for the remaining revenues. The greatest single source of tax
receipts in the State is the 6% sales and use tax. For the fiscal year ended
June 30, 1995, receipts from the sales and use tax totaled $10,672 million, an
increase of approximately 6.0% over fiscal year 1993-94. In addition to the 6%
State sales tax, local governments may (by referendum) assess a 0.5% or 1%
discretionary sales surtax within their county. Proceeds from this local option
sales tax are earmarked for funding local infrastructure programs and acquiring
land for public recreation, or the protection or conservation of local natural
resources in accordance with State law. In addition, non-consolidated counties
with a population in excess of 800,000 may levy a local option sales tax to fund
indigent health care. The tax rate of this health care surtax may not exceed
0.5% and the combined levy of this tax with the infrastructure surtax may not
exceed 1%. Furthermore, charter counties which adopted a charter prior to June
1, 1976 and each county with a consolidated county/municipal government may (by
referendum) assess up to a 1% discretionary sales surtax within their county, to
be earmarked for the development, construction, maintenance and operation of a
fixed guideway rapid transit system or for use on county roads, bridges or bus
systems, or to service bonds financing roads or bridges, in accordance with
State law. The second largest source of State tax receipts is the tax on motor
fuels including the tax receipts distributed to local governments. Receipts from
the taxes on motor fuels are almost entirely dedicated to trust funds for
specific purposes or transferred to local governments and are not included in
the General Revenue Fund. For the fiscal year ended June 30, 1994, collections
of this tax totaled $1,733.4 million.
The State currently does not impose a personal income tax. However, the State
does impose a corporate income tax on the net income of corporations,
organizations, associations and other artificial entities for the privilege of
conducting business, deriving income or existing within the State. For the
fiscal year ended June 30, 1995, receipts from the corporate income tax totaled
$1,063.5 million, an increase of approximately 1.5% from fiscal year 1993-94.
The Documentary Stamp Tax collections totaled $695.5 million during fiscal year
1994-95, or approximately 11.4% under fiscal year 1993-94. The Alcoholic
Beverage Tax, an excise tax on beer, wine and liquor and a major source of state
funds totaled $437.3 million in fiscal year 1994-95. Additionally, the State
levies a surcharge on alcoholic beverages sold for consumption on the premises.
In fiscal year 1994-95, a total of $97.4 million was collected from these
surcharges. Collections of the Intangible Personal Property Tax raised $818.0
million in fiscal year 1994-95, a 2.1% decline from the previous fiscal year.
The Florida lottery produced sales of $2.14 billion in fiscal year 1994-95 of
which $853.2 million was used for education.
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While the State does not levy ad valorem taxes on real property or tangible
personal property, counties, municipalities and school districts are authorized
by law, and special districts may be authorized by law, to levy ad valorem
taxes. Under the State Constitution, ad valorem taxes may not be levied by
counties, municipalities, school districts and water management districts in
excess of the following respective millages upon the assessed value of real
estate and tangible personal property: for all county purposes, 10 mills; for
all municipal purposes, 10 mills; for all school purposes, 10 mills; and for
water management purposes, either 0.05 mill or 1.0 mill, depending upon
geographic location. These millage limitations do not apply to taxes levied for
payment of bonds and taxes levied for periods not longer than two years when
authorized by a vote of the electors. (Note: one mill equals one-tenth of one
cent.)
The State Constitution and statutes provide for the exemption of homesteads from
certain taxes. The homestead exemption is an exemption from all taxation, except
for assessments for special benefits, up to a specific amount of the assessed
valuation of the homestead. This exemption is available to every person who has
the legal or equitable title to real estate and maintains thereon his or her
permanent home. All permanent residents of the State are currently entitled to a
$25,000 homestead exemption from levies by all taxing authorities; however, such
exemption is subject to change upon voter approval.
As of January 1, 1994, the annual increase in the assessed valuation of
homestead property is constitutionally limited to the lesser of 3% or the
increase in the Consumer Price Index during the relevant year, except in the
event of a sale thereof during such year, and except as to improvements thereto
during such year.
Since municipalities, counties, school districts and other special purpose units
of local governments with power to issue general obligation bonds have authority
to increase the millage levy for voter approved general obligation debt to the
amount necessary to satisfy the related debt service requirements, the
constitutional valuation cap is not expected to adversely affect the ability of
these entities to pay the principal of or interest on such general obligation
bonds. However, in periods of high inflation, those local government units whose
operating millage levies are approaching the constitutional cap and whose tax
base consists largely of residential real estate, may, as a result of the
constitutional valuation cap, need to place greater reliance on non-ad valorem
revenue sources to meet their operating budget needs.
STATE GENERAL OBLIGATION BONDS AND STATE REVENUE BONDS. The State Constitution
does not permit the State to issue debt obligations to fund governmental
operations. Generally, the State Constitution authorizes State bonds pledging
the full faith and credit of the State only to finance or refinance the cost of
State fixed capital outlay projects, upon approval by a vote of the electors,
and provided that the total outstanding principal amount of such bonds does not
exceed 50% of the total tax revenues of the State for the two preceding fiscal
years. Revenue bonds may be issued by the State or its agencies without a vote
of the electors only to finance or refinance the cost of State fixed capital
outlay projects or higher education student loans which are payable solely from
funds derived directly from sources other than State tax revenues.
Exceptions to the general provisions regarding the full faith and credit pledge
of the State are contained in specific provisions of the State Constitution
which authorize the pledge of the full faith and credit of the State, without
electorate approval, but subject to specific coverage requirements, for: certain
road and bridge projects (including the actual and incidental costs of acquiring
real property or the rights thereto for state roads), county education projects,
State higher education projects, State system of Public Education and
construction of air and water pollution control and abatement facilities, solid
waste disposal facilities and certain other water facilities.
Local Bonds. The State Constitution provides that counties, school districts,
municipalities, special districts and local governmental bodies with taxing
powers may issue debt obligations payable from ad valorem taxation and maturing
more than 12 months after issuance, only (i) to finance or refinance capital
projects authorized by law, provided that electorate approval is obtained; or
(ii) to refund outstanding debt obligations and interest and redemption premium
thereon at a lower net average interest cost rate.
Counties, municipalities and special districts are authorized to issue revenue
bonds to finance a variety of self-liquidating projects pursuant to the laws of
the State, such revenue bonds to be secured by and payable from the rates, fees,
tolls, rentals and other charges for the services and facilities furnished by
the financed projects. Under State law, counties and municipalities are
permitted to issue bonds payable from special tax sources for a variety of
purposes, and municipalities and special districts may issue special assessment
bonds.
BOND RATINGS. General obligation bonds of the State are currently rated Aa by
Moody's and AA by S&P's Corporation.
LITIGATION. Due to its size and its broad range of activities, the State (and
its officers and employees) are involved in numerous routine lawsuits. The
managers of the departments of the State involved in such routine
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lawsuits believed that the results of such pending litigation would not
materially affect the State's financial position. In addition to the routine
litigation pending against the State, its officers and employees, the following
lawsuits and claims are also pending:
(A) In a suit, plaintiff has sought title to Hugh Taylor Birch State Recreation
Area by virtue of a reverter clause in the deed from Hugh Taylor Birch to
the State. A final judgment at trial was entered in favor of the State. The
case was appealed to the Fourth District Court of Appeal which affirmed the
decision of the lower court in favor of the State. Therefore, the loss
exposure has been eliminated.
(B) In a suit, the Florida Supreme Court prospectively invalidated a tax
preference methodology under former Sections 554.06 and 565.12 of the
Florida Statutes (1985). This ruling was appealed to the United States
Supreme Court which reversed the State Supreme Court and remanded the
matter back to the State court. The Supreme Court's opinion suggested that
one of the State's options for correcting the constitutional problems would
be to assess and collect back taxes at the higher rates applicable to those
who were ineligible for the tax preference from all taxpayers who had
benefited from the tax preference during the contested tax period. The
State chose to seek a recovery of taxes from those who benefited from the
tax preference by requiring them to pay taxes at the higher rate that
applied to out-of-state manufacturers and distributors. The Florida Supreme
Court remanded the matter to the Circuit Court for the Second Judicial
Circuit to hear arguments on the method chosen by the State to provide a
clear and certain remedy. The trial court's decision against the State was
on appeal at the First District Court of Appeal. With the exception of one
party, all parties have settled their claims with the State. The First
District Court of Appeal held that the remaining party had no standing to
be part of the suit and dismissed the case. On April 24, 1995, the United
States Supreme Court denied review of the appellate court's dismissal. As a
result, the State has no remaining exposure in this case.
(C) A federal class action suit brought against the Department of Corrections,
alleging race discrimination in hiring and employment practices, originally
went to trial in 1982 with the Department prevailing on all claims except a
partial summary judgment to a plaintiff sub-class claiming a discriminatory
impact on hiring caused by an examination requirement. Jurisdictional
aspects of the testing issue were appealed to the Eleventh Circuit Court of
Appeals which vacated the trial court's order and was upheld by the U.S.
Supreme Court. The district court consolidated three successor lawsuits
with this case and entered a final judgment in favor of the State. The case
was appealed to the Eleventh Circuit Court of Appeals which affirmed all
but one issue in favor of the State. The remaining issue is pending appeal
to the United States Supreme Court by the State.
(D) Complaints were filed in the Second Judicial Circuit seeking a declaration
that Sections 624.509, 624.512 and 624.514, Florida Statutes (1988) violate
various U.S. and Florida Constitutional provisions. Relief was sought, in
the form of a tax refund. The Florida Supreme Court reversed the trial
court in favor of the State. Plaintiffs have petitioned for certiorari with
the U.S. Supreme Court. The State has settled all outstanding litigation in
this area. Similar issues had been raised in the following cases which were
part of the settlement: Ford Motor Company v. Bill Gunter, Case No.
86-3714, 2nd Judicial Circuit, and General Motors Corporation v. Tom
Gallagher, Case Nos. 90-2045 and 88-2925, 2nd Judicial Circuit, where the
plaintiffs are challenging Section 634.131, Florida Statutes, which imposes
taxes on the premiums received for certain motor vehicle service
agreements. Current estimates indicate that the State's potential refund
exposure under the remaining refund applications yet to be denied is
approximately $150 million. However, the State hopes that refund exposure
will be reduced as these refund requests begin to be denied based upon the
Florida Supreme Court decision in the instant case.
(E) In two cases, plaintiffs have sought approximately $25 million in
intangible tax refunds based partly upon claims that Florida's intangible
tax statutes are unconstitutional. In the first case, the First District
Court of Appeal rejected the taxpayer's argument, and upon further review,
the United States Supreme Court affirmed that decision. In the second case,
the parties are currently involved in ongoing discovery. A settlement
officer is anticipated, which would result in a significant reduction in
the plaintiff's refund claim.
(F) A lawsuit was filed against the Department of Health and Rehabilitative
Services (DHRS) and the Comptroller of the State of Florida involving a
number of issues arising out of the implementation of a DHRS computer
system and seeking declaratory relief and money damages. The estimated
potential liability to the state is in excess of $40 million.
(G) Plaintiffs in a case have sought a declaration that statutory assessments
on certain hospital net revenues are invalid, unconstitutional, and
unenforceable and request temporary and permanent injunctive relief be
granted prohibiting the enforcement or collection of the assessment and
that all monies paid to the State by
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the plaintiffs and the class members within the four years preceding the
filing of the action be reimbursed by the defendants with interest. In a
trial hearing, the court ordered that a final judgment be entered in favor
of the State, An appeal was filed with the First District Court of Appeal
on June 15, 1995 and is being briefed. An unfavorable outcome to this case
could result in the possibility of approximately $116 million in claimed
refunds during the tax period in question.
(H) In an inverse condemnation suit claiming that the actions of the State
constitute a taking of certain leases for which compensation is due, the
Circuit Judge granted the State's motion for summary judgment finding that
the State had not deprived plaintiff of any royalty rights it might have.
Plaintiff has appealed. Additionally, plaintiff's request for a drilling
permit was rejected after administrative proceedings before the Department
of Environmental Protection. Plaintiff has appealed the decision.
(I) In an inverse condemnation suit alleging the regulatory taking of property
without compensation in the Green Swamp Area of Critical State Concern, a
motion for a summary judgment for the plaintiff was denied and the State's
motion to dismiss for failure to prosecute is pending. As a result of the
proceedings in this case, the loss exposure to the State has been greatly
reduced.
(J) In two cases, plaintiffs have challenged the constitutionality of the $295
fee imposed on the issuance of certificates of title for vehicles
previously titled outside the State. The circuit court granted summary
judgment to the plaintiff, finding that the fee violated the Commerce
Clause of the U.S. Constitution. The Court enjoined further collection of
the fee and has ordered refunds to all those who have paid since the
statute came into existence in mid-1991. The State appealed these cases to
the Florida Supreme Court. The Florida Supreme Court upheld the refund of
the impact fee and directed the Orange County Circuit Court to oversee
refund procedures. The Department of Highway Safety and Motor Vehicles is
setting up the procedure for taxpayer refunds, which total approximately
$189 million. Additionally, a new suit alleges that those who were required
to pay the $295 impact fee under the predecessor statute to that which was
declared unconstitutional are also due a refund, inasmuch as that statute
also violates the Commerce Clause of the U.S. Constitution. The trial court
found that the plaintiffs had not exhausted their administrative remedies,
and the plaintiffs have appealed the trial court's order to the Fourth
District Court of Appeal. Approximately $29 million was collected under the
predecessor statute.
(K) Santa Rosa County has filed a complaint for declaratory relief against the
State requesting the Circuit Court to: (1) find that Section 206.60(2)(a),
Florida Statutes, does not allow the Department to deduct administrative
expenses unrelated to the collection, administration, and distribution of
the county gas tax; and (2) order the department to pay Santa Rosa County
all moneys shown to have been unlawfully deducted from the motor fuel tax
revenues plus interest. Santa Rosa County sought refunds of approximately
$45 million. A final judgment issued in February 18, 1994, enjoined the
Department from deducting administrative expenses unrelated to the
collection of county motor fuel tax, beginning with the 1994-95 fiscal year
and denied Santa Rosa County's request for return of the amounts previously
deducted with pre- and post-judgment interest. The case in now concluded.
(L) Lee Memorial Hospital has contested the calculation of its disproportionate
share payment for the 1992-93 State fiscal year. The Division of
Administrative Hearings has relinquished this case and ordered it back to
the appropriate administrative agency for informal hearing procedures.
(M) A lawsuit has challenged the freezing of nursing home reimbursement rates
for the period January 1, 1990 through July 1, 1990. The First District
Court of Appeals ruled against the Agency for Health Care Administration
(AHCA). The AHCA's petition for review of this decision was denied. This
action affirmed the decision of the District Court of Appeals which
concluded these cases with a loss to AHCA of approximately $40 million. In
a related case, the plaintiffs seek class action certification for all
nursing homes which were not plaintiffs in the original action for the
recovery of alleged underpayment for Medicaid care in nursing homes. If
unfavorable, the potential liability for AHCA could be $29 million, with
the State responsible for $13 million and the Federal government
responsible for the balance. Management intends to fully litigate this
matter.
(N) The Florida Department of Transportation (DOT) has filed an action against
adjoining property owners seeking a declaratory judgment from the Dade
County Circuit Court that the DOT is not the owner of the property subject
to a claim by the U.S. Environmental Protection Agency (EPA). This case is
in the preliminary pleading stage. The EPA has agreed to await the outcome
of the DOT's declaratory action before proceeding further. If DOT is
unsuccessful in its actions, the potential liability for possible clean-up
costs could exceed $25 million.
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(O) In a class action suit, clients of residential placement for the placement
for the developmentally disabled are seeking refunds for services where
children were entitled to free education under the Education for
Handicapped Act (EHA). The district court held that the State could not
charge maintenance fees for children between the ages of 5 and 17 based on
the EHA. If unfavorable, the State's potential cost of refunding these
charges could exceed $42 million.
(P) In this case, a suit was filed challenging the $15 fee imposed for securing
a handicapped parking decal for a motor vehicle as in violation of the
Americans with Disabilities Act. The plaintiff seeks an estimated $12
million in refunds for fees paid from 1991-95. The State's motion to
dismiss for lack of proper subject matter jurisdiction is pending.
(Q) In this class action, the suit alleges a refund of documentary stamp taxes
paid on transfers of real property as a result of marriage dissolutions
where the parties claimed the property as an estate by the entireties and
were jointly and severally liable on a mortgage encumbering the property. A
final hearing is set for November 28, 1995. The State does not have an
exact figure as to its potential exposure. The Department of Revenue can be
contacted for this information.
(R) In this class action against GTE, telephone company customers allege that
GTE and other telephone companies are collecting a 7%, instead of 6% State
sales tax on intrastate long distance calls. Plaintiffs seek a refund of
these taxes paid. The States does not have an exact figure as to its
potential exposure. The Department of Revenue can be contacted for this
information.
SUMMARY. Many factors including national, economic, social and environmental
policies and conditions, most of which are not within the control of the State
or its local units of government, could affect or could have an adverse impact
on the financial condition of the State. Additionally, the limitations placed by
the State Constitution on the State and its local units of government with
respect to income taxation, ad valorem taxation, bond indebtedness and other
matters discussed above, as well as other applicable statutory limitations, may
constrain the revenue-generating capacity of the State and its local units of
government and, therefore, the ability of the issuers of the Bonds to satisfy
their obligations thereunder.
There can be no assurance that general economic difficulties or the financial
circumstances of Florida or its counties and municipalities will not adversely
affect the market value of Florida Municipal Obligations or the ability of the
obligors to pay debt service on such obligations.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions which
apply to all portfolios and which 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 Fund may not:
1. Make portfolio investments other than as described under "Investment
Objectives, Policies and Risks" or any other form of Federal tax-exempt
investment which meets the Fund's high quality criteria, as determined by
the Board of Trustees and which is consistent with the Fund's objectives
and policies.
2. Borrow Money. This restriction shall not apply to borrowings from banks for
temporary or emergency (not leveraging) purposes, including the meeting of
redemption requests that might otherwise require the untimely disposition
of securities, in an amount up to 15% of the value of the Fund's total
assets (including the amount borrowed) valued at market less liabilities
(not including the amount borrowed) at the time the borrowing was made.
While borrowings exceed 5% of the value of the Fund's total assets, the
Fund will not make any investments. Interest paid on borrowings will reduce
net income.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in
an amount up to 15% of the value of its total assets and only to secure
borrowings for temporary or emergency purposes.
4. Sell securities short or purchase securities on margin, or engage in the
purchase and sale of put, call, straddle or spread options or in writing
such options, except to the extent that securities subject to a demand
obligation and standby commitments may be purchased as set forth under
"Investment Objectives, Policies and Risks" herein.
5. Underwrite the securities of other issuers, except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security.
6. Purchase securities subject to restrictions on disposition under the
Securities Act of 1933 ("restricted securities"), except the Fund may
purchase variable rate demand instruments which contain a demand feature.
The Fund will not invest in a repurchase agreement maturing in more than
seven days if any such
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investment together with securities that are not readily marketable held by
the Fund exceed 10% of the Fund's net assets.
7. Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, or oil and gas interests, but this
shall not prevent the Fund from investing in Municipal Obligations secured
by real estate or interests in real estate.
8. Make loans to others, except through the purchase of portfolio investments,
including repurchase agreements, as described under "Investment Objectives,
Policies and Risks" herein.
9. Purchase more than 10% of all outstanding voting securities of any one
issuer or invest in companies for the purpose of exercising control.
10. Invest more than 25% of its assets in the securities of "issuers" in any
single industry, provided that the Fund may invest more than 25% of its
assets in bank participation certificates and there shall be no limitation
on the purchase of those Municipal Obligations and other obligations issued
or guaranteed by the United States Government, its agencies or
instrumentalities. When the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from those of
the government creating the issuing entity and a security is backed only by
the assets and revenues of the entity, the entity would be deemed to be the
sole issuer of the security. Similarly, in the case of an industrial
revenue bond, if that bond is backed only by the assets and revenues of the
non-governmental user, then such non-governmental user would be deemed to
be the sole issuer. If, however, in either case, the creating government or
some other entity, such as an insurance company or other corporate obligor,
guarantees a security or a bank issues a letter of credit, such a guarantee
or letter of credit would be considered a separate security and would be
treated as an issue of such government, other entity or bank. With respect
to 75% of the total amortized cost value of the Fund's assets, not more
than 5% of the Fund's assets may be invested 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 5% of the total assets of the Fund.
However, if the puts are exercisable by the Fund in the event of default on
payment of principal and interest on the underlying security, then the Fund
may invest up to 10% of its assets in securities underlying puts issued or
guaranteed by the same institution; additionally, a single bank can issue
its letter of credit or a single financial institution can issue a credit
enhancement covering up to 10% of the Fund's assets, where the puts offer
the Fund such default protection.
11. Invest in securities of other investment companies, except the Fund may
purchase unit investment trust securities where such unit trusts meet the
investment objectives of the Fund and then only up to 5% of the Fund's net
assets, except as they may be acquired as part of a merger, consolidation
or acquisition of assets.
12. Issuer senior securities, except insofar as the Fund may be deemed to have
issued a senior security in connection with any permitted borrowing.
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or in the amount of the Fund's assets will not constitute a
violation of such restriction.
PORTFOLIO TRANSACTIONS
The Fund's purchases and sales of portfolio securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Purchases from underwriters of
portfolio securities include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price. 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.
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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.
HOW TO PURCHASE AND REDEEM SHARES
The material relating to the purchase and redemption of shares in the Prospectus
is herein incorporated by reference.
NET ASSET VALUE
The Fund does not determine net asset value per share of each Class on the
following holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
The net asset value of the Fund's shares is determined as of 12 noon, New York
City time, on each Fund Business Day. It is computed by dividing the value of
the Fund's net assets (i.e., the value of its securities and other assets less
its liabilities, including expenses payable or accrued but excluding capital
stock and surplus) by the total number of shares outstanding.
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, except that if fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Trustees will consider whether any action should be initiated, as
described in the following paragraph. Although the amortized cost method
provides certainty in valuation, it may result in periods during which the value
of an instrument is higher or lower than the price an investment company would
receive if the instrument were sold.
The Fund's Board of Trustees has established procedures to stabilize the Fund's
net asset value at $1.00 per share of each Class. These procedures include a
review of the extent of any deviation of net asset value per share, based on
available market rates, from the Fund's $1.00 amortized cost per share of each
Class. Should that deviation exceed 1/2 of 1%, the Board will consider whether
any action should be initiated to eliminate or reduce material dilution or other
unfair results to shareholders. Such action may include redemption of shares in
kind, selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. The Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
remaining maturity greater than 397 days, will limit portfolio investments,
including repurchase agreements, to those United States dollar-denominated
instruments that the Fund's Board of Trustees determines present minimal credit
risks, and will comply with certain reporting and record keeping procedures. The
Fund has also established procedures to ensure compliance with the requirement
that portfolio securities are Eligible Securities. (See "Investment Objectives,
Policies and Risks" herein.)
YIELD QUOTATIONS
The Fund calculates a seven-day yield quotation using a standard method
prescribed by the rules of the Securities and Exchange Commission. Under that
method, the Fund's yield figure, which is based on a chosen seven-day period, is
computed as follows: the Fund's return for the seven-day period (which is
obtained by dividing the net change in the value of a hypothetical account
having a balance of one share at the beginning of the period by the value of
such account at the beginning of the period (expected to always be $1.00) 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
16
<PAGE>
accounts. Realized capital gains or losses and unrealized appreciation or
depreciation of the Fund's portfolio securities are not included in the
computation. Therefore annualized yields may be different from effective yields
quoted for the same period.
The Fund's "effective yield" is obtained by adjusting its "current yield" to
give effect to the compounding nature of the Fund's portfolio, as follows: The
unannualized base period return is compounded and brought out to the nearest one
hundredth of one percent by adding one to the base period return, raising the
sum to a power equal to 365 divided by 7, and subtracting one from the result,
i.e., effective yield = (base period return + 1)365/7 - 1.
Although published yield information is useful to investors in reviewing the
Fund's performance, investors should be aware that the Fund's yield fluctuates
from day to day. The Fund's yield for any given period is not an indication, or
representation by the Fund, of future yields or rates of return on the Fund's
shares, and may not provide a basis for comparison with bank deposits or other
investments that pay a fixed yield for a stated period of time. Investors who
purchase the Fund's shares directly may realize a higher yield than Participant
Investors because they will not be subject to any fees or charges that may be
imposed by Participating Organizations.
The Fund may from time to time advertise its tax equivalent yield. The tax
equivalent yield 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, 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 product 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 taxable equivalent 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.
MANAGER
The Investment Manager for the Fund is Reich & Tang Asset Management L.P., a
Delaware limited partnership with principal offices at 600 Fifth Avenue, New
York, New York 10020 (the "Manager"). The Manager was at November 30, 1995
manager, advisor or supervisor with respect to assets aggregating in excess of
$8.4 billion. In addition to the Fund, the Manager's advisory clients include,
among others, California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax
Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Institutional Daily Income Fund, Michigan Daily Tax Free
Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York Daily
Tax Free Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Reich
& Tang Government Securities Trust, Short Term Income Fund, Inc. and Tax Exempt
Proceeds Fund, Inc. The Manager also advises pension trusts, profit-sharing
trusts and endowments.
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 directors or officers of Reich & Tang
Asset Management, Inc., the sole general partner of the Manager, or employees of
the Manager or its affiliates.
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 Investment Management Contract was approved by the shareholders at their
first annual meeting on_________________. The Investment Management Contract was
approved by the Board of Trustees, including a majority of trustees who are not
interested persons (as defined in the 1940 Act), and shareholders of the Fund or
the Manager effective -------------------------. The Investment Management
Contract has a term which extends to June 30, 1996, and may be continued in
force thereafter for successive twelve-month periods beginning each July 1st,
provided that such continuance is specifically approved annually by majority
vote of the Fund's outstanding voting securities or by its Board of Trustees,
and in either case by a majority of the trustees who are not parties to the
Investment Management Contract or interested persons by any such party, by votes
cast in person at a meeting called for the purpose of voting on such matter.
The Investment Management Contract is terminable without penalty by the Fund on
sixty days' written notice when authorized either by majority vote of its
outstanding voting shares or by a vote of a majority of its Board of 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
17
<PAGE>
or gross negligence on the part of the Manager, or of reckless disregard of its
obligations thereunder, the Manager shall not be liable for any action or
failure to act in accordance with its duties thereunder.
Under the Investment Management Contract, the Manager receives from the Fund a
fee of .40% per annum of the Fund's average daily net assets. The fees are
accrued daily and paid monthly. For the Fund's fiscal year ended August 31,
1995, the fee paid to the Manager was $165,350.
Pursuant to the Administrative Services Contract with the Fund, the Manager also
performs clerical, accounting supervision, office service and related functions
for the Fund and provides the Fund with personnel to (i) supervise the
performance of accounting related services by Investors Fiduciary Trust Company,
the Fund's bookkeeping or recordkeeping agent, (ii) prepare reports to and
filings with regulatory authorities and (iii) perform such other services as the
Fund may from time to time request of the Manager. The personnel rendering such
services may be employees of the Manager, of its affiliates or of other
organizations. The Manager at its discretion may voluntarily waive all or a
portion of the management fee. For its services under the Administrative
Services Contract, the Manager receives from the Fund a fee of .20% per annum of
the Fund's average daily net assets. The Manager at its discretion may waive its
rights to any portion of the management fee or the administrative services fee
and may use any portion of the management fee for purposes of shareholder and
administrative services and distribution of the Fund's shares. There can be no
assurance that such fees will be waived in the future (See "Distribution and
Service Plan" herein).
Investment management fees and operating expenses which are attributable to both
Classes of the Fund will be allocated daily to each Class share based on the
percentage of outstanding shares at the end of the day. Additional shareholder
services provided by Participating Organizations to Class A shareholders
pursuant to the Plan shall be compensated by the Distributor from its
shareholder servicing fee, the Manager from its management fee and the Fund
itself. Expenses incurred in the distribution of Class B shares and the
servicing of Class B shares shall be paid by the Manager.
Expense Limitation
The Manager has agreed pursuant to the Investment Management Contract, (See
"Distribution and Service Plan" herein), to reimburse the Fund for its expenses
(exclusive of interest, taxes, brokerage, and extraordinary expenses) which in
any year exceed the limits on investment company expenses prescribed by any
state in which the Fund's shares are qualified for sale. For the purpose of this
obligation to reimburse expenses, the Fund's annual expenses are estimated and
accrued daily, and any appropriate estimated payments are made to it on a
monthly basis. Subject to the obligations of the Manager to reimburse the Fund
for its excess expenses as described above, the Fund has, under the Investment
Management Contract, confirmed its obligation for payment of all its other
expenses, including 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, Securities and Exchange Commission registration fees and
expenses, state securities laws registration fees and expenses, expenses of
preparing and printing the Fund's prospectus for delivery to existing
shareholders and of printing application forms for shareholder accounts, and the
fees and reimbursements payable to the Manager under the Investment Management
Contract and the Administrative Services Contract and the Distributor under the
Shareholder Servicing Agreement.
The Fund may from time to time hire its own employees or contract to have
management services performed by third parties (including Participating
Organizations) as discussed herein, and the management of the Fund intends to do
so whenever it appears advantageous to the Fund. The Fund's expenses for
employees and for such services are among the expenses subject to the expense
limitation described above.
MANAGEMENT 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, 41 - President and Trustee of the Fund, is President of the
Mutual Funds Division of the Manager since September 1994. Mr. Duff was formerly
Director of Mutual Fund Administration at NationsBank which he was associated
with from June 1981 to August 1994. Mr. Duff is President and a Director of
California
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<PAGE>
Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc.,
Daily Tax Free Income Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income Fund, Inc. and Short Term Income
Fund, Inc., President and Chairman of Reich & Tang Government Securities Trust,
President and Trustee of Institutional Daily Income Fund and Pennsylvania Daily
Municipal Income Fund, Executive Vice President of Reich & Tang Equity Fund,
Inc., and President and Chief Executive Officer of Tax Exempt Proceeds Fund,
Inc.
Dr. W. Giles Mellon, 64 - Trustee of the Fund, is Professor of Business
Administration and Area Chairman of Economics in the Graduate School of
Management, Rutgers University with which he has been associated since 1966. His
address is Rutgers University Graduate School of Management, 92 New Street,
Newark, New Jersey 07102. Dr. Mellon is also a Director of California Daily Tax
Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax
Free Income Fund, Inc., Delafield Fund, Inc., Michigan Daily Tax Free Income
Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Reich & Tang Equity Fund, Inc. and Short Term
Income Fund, Inc. and a Trustee of Institutional Daily Income Fund, Reich & Tang
Government Securities Trust and Pennsylvania Daily Municipal Income Fund.
Robert Straniere, 54 - Trustee of the Fund, has been a member of the New York
State Assembly and a partner with the Straniere Law Firm since 1981. His address
is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is also a
Director of California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax
Free Income Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc.,
Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income
Fund, Inc., North Carolina Daily Municipal Income Fund, Inc., Reich & Tang
Equity Fund, Inc. and Short Term Income Fund, Inc. and a Trustee of
Institutional Daily Income Fund, Reich & Tang Government Securities Trust and
Pennsylvania Daily Municipal Income Fund and a Director of Life Cycle Funds,
Inc.
Dr. Yung Wong, 56 - Trustee of the Fund, was Director of Shaw Investment
Management (UK) Limited from 1994 to October 1995 and formerly General Partner
of Abacus Limited Partnership (a general partner of a venture capital investment
firm) from 1984 to 1994. His address is 29 Alden Road, Greenwich, Connecticut
06831. Dr. Wong is a Director of Republic Telecom Systems Corporation (provider
of telecommunications equipment) since January 1989, and of TelWatch, Inc.
(provider of network management software) since August 1989. Dr. Wong is also a
Director of California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax
Free Income Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc.,
Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income
Fund, Inc., North Carolina Daily Municipal Income Fund, Inc., Reich & Tang
Equity Fund, Inc., Short Term Income Fund, Inc. and a Trustee of Institutional
Daily Income Fund, Reich & Tang Government Securities Trust, Pennsylvania Daily
Municipal Income Fund and Eclipse Financial Asset Trust.
Molly Flewharty, 44 - Vice President of the Fund, is Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. which she was associated with from
December 1977 to September 1993. Ms. Flewharty is also Vice President of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield
Fund, Inc., Institutional Daily Income Fund, Michigan Daily Tax Free Income
Fund, Inc., New York Daily Tax Free Income Fund, Inc., New Jersey Daily
Municipal Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Reich
& Tang Government Securities Trust and Short Term Income Fund, Inc.
Lesley M. Jones, 47- Vice President of the Fund, is Senior Vice President of the
Mutual Funds Division of the Manager since September 1993 which she was
associated with from April 1973 to September 1993. Ms. Jones was formerly Senior
Vice President of Reich & Tang, Inc. Ms. Jones is also a Vice President of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc.,
Institutional Daily Income Fund, Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily
Municipal Income Fund, Reich & Tang Equity Fund, Inc., Reich & Tang Government
Securities Trust and Short Term Income Fund, Inc.
Dana E. Messina, 39- Vice President of the Fund, is Executive Vice President of
the Mutual Funds Division of the Manager since January 1995 and was Vice
President from September 1993 to January 1995. Ms. Messina was formerly Vice
President of Reich & Tang, Inc. which she was associated with from December 1980
to September 1993. Ms. Messina is also Vice President of California Daily Tax
Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Cortland
Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc.,
Institutional Daily Income Fund, Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income
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<PAGE>
Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich &
Tang Equity Fund, Inc., Reich & Tang Government Securities Trust, Short Term
Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc.
Bernadette N. Finn, 48 - Secretary of the Fund, is Vice President of the Mutual
Funds Division of the Manager since September 1993. Ms. Finn was formerly Vice
President and Assistant Secretary of Reich & Tang, Inc. which she was associated
with from September 1970 to September 1993. Ms. Finn is also Secretary of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc., Delafield
Fund, Inc., Institutional Daily Income Fund, Michigan Daily Tax Free Income
Fund, Inc., New York Daily Tax Free Income Fund, Inc., New Jersey Daily
Municipal Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Tax Exempt Proceeds Fund, Inc. and a
Vice President and Secretary of Reich & Tang Government Securities Trust, Reich
& Tang Equity Fund, Inc. and Short Term Income Fund, Inc.
Richard De Sanctis, 39 - Treasurer of the Fund, is Treasurer of the Manager
since September 1993. Mr. De Sanctis was formerly Controller of Reich & Tang,
Inc. from January 1991 to September 1993 and Vice President and Treasurer of
Cortland Financial Group, Inc. and Vice President of Cortland Distributors, Inc.
from 1989 to December 1990. He is also Treasurer of California Daily Tax Free
Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free
Income Fund, Inc., Delafield Fund, Inc., Institutional Daily Income Fund,
Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income
Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich &
Tang Equity Fund, Inc., Reich & Tang Government Securities Trust and Short Term
Income Fund, Inc., Tax Exempt Proceeds Fund, Inc. and is Vice President and
Treasurer of Cortland Trust, Inc.
Trustees of the Fund not affiliated with the Manager receive from the Fund an
annual retainer of $1,000 and a fee of $250 for each Board of Trustees meeting
attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Trustees who are affiliated with the Manager do not
receive compensation from the Fund. See Compensation Table below.
<TABLE>
<CAPTION>
COMPENSATION TABLE
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Aggregate Compensation Pension or Retirement Total Compensation from
Name of Person, from Registrant for Benefits Accrued as Estimated Annual Fund and Fund Complex
Position Fiscal Year Part of Fund Expenses Benefits upon Retirement Paid to Trustees*
W. Giles Mellon, $2,000.00 0 0 $51,500.00 (14 Funds)
Director
Robert Straniere, $2,000.00 0 0 $51,500.00 (14 Funds)
Director
Yung Wong, $2,000.00 0 0 $51,500.00 (14 Funds)
Director
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ending August 31, 1995 (and, with respect to certain of the
funds in the Fund Complex, estimated to be paid during the fiscal year ending
August 31, 1995). 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.
</TABLE>
Counsel and Auditors
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Messrs. Battle Fowler LLP, 75 East 55th Street, New York, New
York 10022. Matters in connection with Florida law are passed upon by Gunster,
Yoakley, Valdes-Fauli & Stewart, PA., Phillips Point, Suite 500 East, 777 South
Flagler Drive, West Palm Beach, Florida 33401. Matters in connection with
Massachusetts law are passed upon by Dechert Price & Rhoads, 477 Madison Avenue,
New York, New York 10022.
McGladrey & Pullen LLP, 555 Fifth Avenue, New York, New York 10017, independent
certified public accountants, have been selected as auditors for the Fund.
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<PAGE>
DISTRIBUTION AND SERVICE PLAN
Pursuant to Rule 12b-1 under the 1940 Act, the Securities and Exchange
Commission has required that an investment company which bears any direct or
indirect expense of distributing its shares must do so only in accordance with a
plan permitted by the Rule. The Fund's Board of Trustees has adopted a
distribution and service plan (the "Plan") and, pursuant to the Plan, the Fund
has entered into a Distribution Agreement and a Shareholder Servicing Agreement
(with respect to Class A shares only) with Reich & Tang Distributors L.P. (the
"Distributor"), as distributor of the Fund's shares.
Reich & Tang Asset Management, Inc. serves as the sole general partner for Reich
& Tang Asset Management L.P. and Reich & Tang Distributors L.P., and Reich &
Tang Asset Management L.P. serves as the sole limited partner of the
Distributor.
Under the Plan, the Fund and the Distributor will enter into a Shareholder
Servicing Agreement with respect to the Class A shares. For its services under
the Shareholder Servicing Agreement, the Distributor receives a servicing fee of
.25% per annum of the average daily net assets of the Class A shares of the Fund
(the "Shareholder Servicing Fee"). The fee is accrued daily and paid monthly and
any portion of the fee may be deemed to be used by the Distributor for payments
to Participating Organizations with respect to servicing their clients or
customers who are shareholders of the Class A shares of the Fund.
Under the Distribution Agreement, the Distributor, for nominal consideration and
as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
The Plan and the Shareholder Servicing Agreement provide that, in addition to
the Shareholder Servicing Fee, the Fund will pay for (i) telecommunications
expenses including the cost of dedicated lines and CRT terminals, incurred by
the Participating Organizations and Distributor in carrying out their
obligations under the Shareholder Servicing Agreement with respect to the Class
A shares and (ii) preparing, printing and delivering the Fund's prospectus to
existing shareholders of the Fund and preparing and printing subscription
application forms for shareholder accounts.
The Plan provides that the Manager may make payments from time to time from its
own resources, which may include the management fee and past profits, for the
following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements for performing shareholder servicing and related
administrative functions on behalf of the Class A shares of the Fund; (ii) to
compensate certain Participating Organizations for providing assistance in
distributing the 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 shares. The
Distributor may also make payments from time to time from its own resources,
which may include the Shareholding Servicing Fee with respect to Class A shares
and past profits for the purpose enumerated in (i) above. The Distributor will
determine the amount of such payments made pursuant to the Plan, provided that
such payments will not increase the amount which the Fund is required to pay to
the Manager and the Distributor for any fiscal year under the Investment
Management Contract, the Administrative Services Contract or the Shareholder
Servicing Agreement in effect for that year.
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.
For the Fund's fiscal year ended August 31, 1995, the Fund paid shareholder
servicing and administration fees of $63,089 to the Distributor. During this
same period the Manager and Distributor made payments under the Plan to or on
behalf of Participating Organizations of $87,355. The excess of such payments
over the total payments the Manager received from the Fund represents
distribution expenses funded by the Manager from its own resources including the
management fee.
The Plan was approved by the shareholders of the Fund at their first annual
meeting held on September 1, 1994. The Board of Trustees approved the Plan
effective September 8, 1994. The Plan provides that it will remain in effect
until August 31, 1996 and thereafter may continue in effect for successive
annual periods beginning each September 1st provided it
21
<PAGE>
is approved by the Class A shareholders or by the Board of Trustees, including a
majority of trustees who are not interested persons of the Fund and who have no
direct or indirect interest in the operation of the Plan or in the agreements
related to the Plan. The Plan further provides that it may not be amended to
increase materially the costs which may be spent by the Fund for distribution
pursuant to the Plan without Class A shareholder approval, and the other
material amendments must be approved by the trustees in the manner described in
the preceding sentence. The Plan may be terminated at any time by a vote of a
majority of the disinterested trustees of the Fund or the Fund's Class A
shareholders.
DESCRIPTION OF SHARES
The Fund was established as a Massachusetts Business Trust under the laws of
Massachusetts by an Agreement and Declaration of Trust dated August 31, 1994.
The Fund has an unlimited authorized number of shares of beneficial interest.
These shares are entitled to one vote per share with proportional voting for
fractional shares. There are no conversion or preemptive rights in connection
with any shares of the Fund. All shares, when issued in accordance with the
terms of the offering, will be fully paid and nonassessable. Shares are
redeemable at net asset value, at the option of the shareholder.
The Fund is subdivided into two classes of beneficial interest, Class A and
Class B. Each share, regardless of class, will represent an interest in the same
portfolio of investments and will have identical voting, dividend, liquidation
and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that: (i) the
Class A and Class B shares will have different class designations; (ii) only the
Class A shares will be assessed a service fee pursuant to the Rule 12b-1
Distribution and Service Plan of the Fund of .25% of the Fund's average daily
net assets; (iii) only the holders of the Class A shares would be entitled to
vote on matters pertaining to the Plan and any related agreements in accordance
with provisions of Rule 12b-1; and (iv) the exchange privilege will permit
shareholders to exchange their shares only for shares of the same class of an
Exchange Fund. Payments that are made under the Plans will be calculated and
charged daily to the appropriate class prior to determining daily net asset
value per share and dividends/distributions.
On November 30, 1995 there were 19,859,970.82 shares of Class A common stock
outstanding and 20,690,742.89 shares of Class B common stock outstanding. As of
November 30, 1995, the amount of shares owned by all officers and Trustees of
the Fund as a group was less than 1% of the outstanding shares of the Fund. Set
forth below is certain information as to persons who owned 5% or more of the
Fund's outstanding common stock as of November 30, 1995:
CLASS A
% of Nature of
Name and Address Class Ownership
Neuberger & Berman 44.29% Record
as Agent for Customer
ATTN. Steve Gallaro
11 Broadway Operation Control Dept.
New York, NY 10004
Windmere Corporation 41.72% Record
ATTN Ellen Litt
5980 Miami Lakes Drive
Miami, FL 33014
Fundtech Service L.P. 5.94% Record
as Agent for Various
Beneficial Owners
600 Fifth Avenue
New York NY 10020
22
<PAGE>
CLASS B
% of Nature of
Name and Address Class Ownership
Fundtech Service L.P. 50.03% Record
as Agent for Various
Beneficial Owners
600 Fifth Avenue
New York NY 10020
Timothy A. Braswell 9.52% Beneficial
17925 South East Village Circle
Tequesta, FL 33469
B.H. Christopher 8.40% Beneficial
6202 Emmons Lane
Tampa, FL 33469
The Related Companies 7.29% Record
of Florida, Inc.
ATTN Francisco Matute
2828 Coral Way, PH
Miami, FL 33145
Edgar Otto 5.24% Beneficial
621 Northwest 53rd Street
One Park Place, Suite #320
Boca Raton, FL 33487
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
trustees can elect 100% of the trustees if the holders choose to do so, and, in
that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Trustees. 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. Meetings of shareholders may be called at any time by the
President, and at the request in writing, or by resolution, of a majority of
Trustees, or upon the written request of holders of shares entitled to cast not
less than 10% of all the votes entitled to be cast at such meeting. Annual and
other meetings may be required with respect to such additional matters relating
to the Fund as may be required by the 1940 Act, such as for the election of
Trustees, for approval of the revised investment advisory contracts with respect
to a particular class or series of shares, for approval of the Fund's
distribution agreement with respect to a particular class or series of shares
and the removal of Fund Trustee(s) and communication among shareholders, any
registration of the Fund with the Securities and Exchange Commission or any
state, or as the Trustees may consider necessary or desirable. Each Trustee
serves until the next meeting of the shareholders called for the purpose of
considering the election or reelection of such Trustee or of a successor to such
Trustee, and until the election and qualification of his or her successor,
elected at such a meeting, or until such Trustee sooner dies, resigns, retires
or is removed by the vote of the shareholders.
FEDERAL INCOME TAXES
The Fund will elect to qualify under the Code and under Florida law as a
"regulated investment company" that distributes "exempt-interest dividends". The
Fund intends to continue to qualify for regulated investment company status so
long as such qualification is in the best interests of its shareholders. Such
qualification relieves the Fund of liability for Federal income taxes to the
extent its earnings are distributed in accordance with the applicable provisions
of the Code.
The Fund's policy is to distribute as dividends each year 100% and in no event
less than 90% of its tax-exempt interest income, net of certain deductions.
Exempt-interest dividends, as defined in the Code, are dividends or any part
thereof (other than capital gain dividends) paid by the Fund that are
attributable to interest on obligations, the interest on which is exempt from
regular Federal income tax, and designated by the Fund as exempt-interest
dividends in a written notice mailed to the Fund's shareholders not later than
60 days after the
23
<PAGE>
close of its taxable year. The percentage of the total dividends paid by the
Fund during any taxable year that qualifies as exempt-interest dividends will be
the same for all shareholders receiving dividends during the year.
Exempt-interest dividends are to be treated by the Fund's shareholders as items
of interest excludable from their gross income under Section 103(a) of the Code.
However, a shareholder is advised to consult his tax advisors with respect to
whether exempt-interest dividends retain the exclusion under Section 103 of the
Code if such shareholder would be treated as a "substantial user" or "related
person" under Section 147(a) of the Code with respect to some or all of the
"private activity" bonds, if any, held by the Fund. If a shareholder receives an
exempt-interest dividend with respect to any share and such share has been held
for six months or less, then any loss on the sale or exchange of such share will
be disallowed to the extent of the amount of such exempt-interest dividend. The
Code provides that interest on indebtedness incurred, or continued, to purchase
or carry certain tax-exempt securities such as shares of the Fund is not
deductible. Therefore, among other consequences, a certain proportion of
interest on indebtedness incurred, or continued, to purchase or carry securities
on margin may not be deductible during the period an investor holds shares of
the Fund. For Social Security recipients, interest on tax-exempt bonds,
including exempt-interest dividends paid by the Fund, is to be added to adjusted
gross income for purposes of computing the amount of social security benefits
includable in gross income. The amount of such interest received will have to be
disclosed on the shareholders' Federal income tax returns. Taxpayers other than
corporations are required to include as an item of tax preference for purposes
of the Federal alternative minimum tax all tax-exempt interest on "private
activity" bonds (generally, a bond issue in which more than 10% of the proceeds
are used in a non-governmental trade or business) (other than Section 501(c)(3)
bonds) issued after August 7, 1986. Thus, this provision will apply to the
portion of the exempt-interest dividends from the Fund's assets, that are
attributable to such post-August 7, 1986 private activity bonds, if any of such
bonds are acquired by the Fund. Corporations are required to increase their
alternative minimum taxable income for purposes of calculating their alternative
minimum tax liability by 75% of the amount by which the adjusted current
earnings (which will include tax-exempt interest) of the corporation exceeds the
alternative minimum taxable income (determined without this item). Further,
interest on the Municipal Obligations is includable in a 0.12% additional
corporate minimum tax imposed by the Superfund Amendments and Reauthorization
Act of 1986. In addition, in certain cases, Subchapter S corporations with
accumulated earnings and profits from Subchapter C years are subject to a
minimum tax on excess "passive investment income" which includes tax-exempt
interest.
Although it is not intended, it is possible that the Fund may realize short-term
or long-term capital gains or losses from its portfolio transactions. The Fund
may also realize short-term or long-term capital gains upon the maturity or
disposition of securities acquired at discounts resulting from market
fluctuations. Short-term capital gains will be taxable to shareholders as
ordinary income when they are distributed. Any net capital gains (the excess of
its net realized long-term capital gain over its net realized short-term capital
loss) will be distributed annually to the Fund's shareholders. The Fund will
have no tax liability with respect to distributed net capital gains and the
distributions will be taxable to shareholders as long-term capital gains
regardless of how long the shareholders have held Fund shares. However, Fund
shareholders who at the time of such a net capital gain distribution have not
held their Fund shares for more than 6 months, and who subsequently dispose of
those shares at a loss, will be required to treat such loss as a long-term
capital loss to the extent of the net capital gain distribution. Distributions
of net capital gain will be designated as a "capital gain dividend" in a written
notice mailed to the Fund's shareholders not later than 60 days after the close
of the Fund's taxable year. Preferential treatment may be available for net
capital gains.
The Fund intends to distribute at least 90% of its investment company taxable
income (taxable income subject to certain adjustments exclusive of the excess of
its net long-term capital gain over its net short-term capital loss) for each
taxable year. The Fund will be subject to Federal income tax on any
undistributed investment company taxable income. To the extent such income is
distributed it will be taxable to shareholders as ordinary income. Expenses paid
or incurred by the Fund will be allocated between tax-exempt and taxable income
in the same proportion as the amount of the Fund's tax-exempt income bears to
the total of such exempt income and its gross income (excluding from gross
income the excess of capital gains over capital losses). If the Fund does not
distribute at least 98% of its ordinary income and 98% of its capital gain net
income for a taxable year, the Fund will be subject to a nondeductible 4% excise
tax on the excess of such amounts over the amounts actually distributed.
If a shareholder fails to provide the Fund with a current taxpayer
identification number, the Fund generally is required to withhold 31% of taxable
interest, dividend payments, and proceeds from the redemption of shares of the
Fund.
24
<PAGE>
Dividends and distributions to shareholders will be treated in the same manner
for Federal income tax purposes whether received in cash or reinvested in
additional shares of the Fund.
With respect to the variable rate demand instruments, including participation
certificates therein, the Fund has obtained and is relying on the opinion of
Battle Fowler LLP, counsel to the Fund, that it will be treated for Federal
income tax purposes as the owner thereof and the interest on the underlying
Municipal Obligations will be tax-exempt to the Fund. Counsel has pointed out
that the Internal Revenue Service has announced that it will not ordinarily
issue advance rulings on the question of ownership of securities or
participation interests therein subject to a put and, as a result, the Internal
Revenue Service could reach a conclusion different from that reached by counsel.
From time to time, proposals have been introduced before Congress to restrict or
eliminate the Federal income tax exemption for interest on Municipal
Obligations. If such a proposal were introduced and enacted in the future, the
ability of the Fund to pay exempt-interest dividends would be adversely affected
and the Fund would reevaluate its investment objective and policies and consider
changes in the structure. Many important changes were made to the Federal income
tax system by the Revenue Reconciliation Act of 1993 (P.L. 103-66), including an
increase in marginal tax rates. P.L. 99-514 provided a unified state volume
limitation for many types of tax-exempt bonds and revised current arbitrage
restrictions.
In South Carolina v. Baker, the U.S. Supreme Court held that the Federal
government may constitutionally require states to register bonds they issue and
may subject the interest on such bonds to Federal tax if not registered, and
that there is no constitutional prohibition against the Federal government's
taxing the interest earned on state or other municipal bonds. The Supreme Court
decision affirms the authority of the Federal government to regulate and control
bonds such as the Municipal Obligations and to tax such bonds in the future. The
decision does not, however, affect the current exemption from taxation of the
interest earned on the Municipal Obligations in accordance with Section 103 of
the Code.
FLORIDA TAXES
The following is based upon the advice of Gunster, Yoakley, Valdes-Fauli &
Stewart, PA., special Florida counsel to the Fund.
The Fund will not be subject to income, franchise or other taxes of a similar
nature imposed by the State of Florida or its subdivisions, agencies or
instrumentalities. Florida does not currently impose an income tax on
individuals. Thus, individual shareholders of the Fund will not be subject to
any Florida state income tax on distributions received from the Fund. However,
certain distributions will be taxable to corporate shareholders which are
subject to Florida corporate income tax. Florida currently imposes an
"intangibles tax" at the annual rate of 0.2% on certain securities and other
intangible assets owned by Florida residents. Bonds (including participation
certificates) issued by the State of Florida or its subdivisions ("Florida
Securities"), as well as bonds issued by the government of the United States or
the governments of certain U.S. territories and possessions, including Guam and
Puerto Rico (collectively, "Federal Securities"), are exempt from the Florida
intangibles tax. If, on December 31 of any year, the Fund's portfolio consists
solely of Florida and Federal Securities, the Fund's shares will be exempt from
the Florida intangibles tax. If, however, the Fund's December 31 portfolio
includes any nonexempt securities, then the Fund shares owned by Florida
residents may be subject to the Florida intangibles tax to the extent the Fund's
portfolio includes securities other than Federal Securities. The Fund itself
will not be subject to the Florida intangibles tax.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
04105, is custodian for the Fund's cash and securities, and is the transfer
agent and dividend disbursing agent for shares of the Fund. The transfer agent
and custodian does not assist in, and is not responsible for, investment
decisions involving assets of the Fund.
25
<PAGE>
DESCRIPTION OF RATINGS*
Description of Moody's Investors Service, Inc.'s two highest municipal bond
ratings
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Con. (_____) Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) 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:
MIG1 - 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.
MIG2 - 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 Corporation's 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 in 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.
S&P's does not provide ratings for state and municipal notes.
Description of Standard & Poor's Corporation's 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.
A1 - 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.
- -----------------
* As described by the rating agencies.
26
<PAGE>
A2 - 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 related issues: Prime-1, highest
quality; Prime-2, higher quality.
27
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA DAILY MUNICIPAL INCOME FUND
INDEPENDENT AUDITOR'S REPORT
===============================================================================
The Board of Trustees and Shareholders
Florida Daily Municipal Income Fund
We have audited the accompanying statement of net assets of Florida Daily
Municipal Income Fund as of August 31, 1995 and the related statement of
operations, the statement of changes in net assets and the selected financial
information for the period from September 19, 1994 (Commencement of Operations)
to August 31, 1995. These financial statements and selected financial
information are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and selected financial
information based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and selected financial
information are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of Florida Daily Municipal Income Fund as of August 31, 1995, the
results of its operations, the changes in its net assets and the selected
financial information for the period indicated, in conformity with generally
accepted accounting principles.
/s/ McGladrey & Pullen, LLP
McGladary & Pullen, LLP
New York, New York
September 27, 1995
28
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA DAILY MUNICIPAL INCOME FUND
STATEMENT OF NET ASSETS
AUGUST 31, 1995
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
---------------
Face Maturity Standard
Amount Date Yield Value Moody's & Poors
------ ---- ----- ----- ------- -----
Tax Exempt Commercial Paper (17.34%)
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 1,300,000 City of Jacksonville, FL - Series A 09/08/95 3.75% $ 1,300,000 P1 A1
1,100,000 City of Orlando, FL 10/05/95 3.60 1,100,000 P1 A1+
1,000,000 Florida Municipal Power Agency RB
(Initial Pooled Loan Project) - Series A
LOC First Union National Bank 11/17/95 3.70 1,000,000 VMIG-1 A1+
2,000,000 Sunshine State Government Financing
Commission RB - Series 1986
LOC Union Bank of Switzerland/Morgan Guaranty Trust Company
/National Westminster Bank PLC 11/15/95 3.40 2,000,000 VMIG-1
- ----------- ----------
5,400,000 Total Tax Exempt Commercial Paper 5,400,000
- ----------- ----------
<CAPTION>
Other Tax Exempt Investments (3.21%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 1,000,000 Miami, FL TAN 09/28/95 4.04% $ 1,000,639 MIG-1 SP-1+
- ----------- -----------
1,000,000 Total Other Tax Exempt Investments 1,000,639
---------- -----------
<CAPTION>
Other Variable Rate Demand Instruments (c) (75.80%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 City of Naples, FL
(Naples County Hospital Incorporated Project)
LOC Mellon Bank, N.A. 11/01/22 3.65% $ 100,000 A1
300,000 Dade County, FL HFA
LOC Trust Co. Bank of Atlanta 09/01/05 3.45 300,000 A1+
1,000,000 Dade County, FL IDA PCRB
(Florida Power & Light Co. Project) 04/01/20 3.35 1,000,000 VMIG-1 A1+
200,000 Dade County, Florida Capital Asset - Subseries 1990
LOC Sanwa Bank, Ltd. 10/01/10 3.70 200,000 VMIG-1 A1+
2,700,000 Dade County, FL IDA RB
(Florida Convalescent Association)
LOC Bank of Tokyo, Ltd. 12/01/11 3.85 2,700,000 VMIG-1
2,300,000 St. John's County, FL HRB
(Flagler Hospital, Inc.) - Series 1986A
LOC Kredietbank 08/01/16 3.65 2,300,000 VMIG-1
1,000,000 Florida HFA MHRB (Falls of Venice Project) (b)
LOC PNC Bank 12/01/11 4.00 1,000,000
100,000 Gulf Breeze, FL RB - Series 1985B
FGIC Insured 12/01/15 3.55 100,000 VMIG-1 A1+
1,400,000 Gulf Breeze, FL RB - Series 1985C
FGIC Insured 12/01/15 3.55 1,400,000 VMIG-1 A1
1,300,000 Indian River County, FL IDRB
(Florida Convention Centers Project)
LOC Toronto-Dominion Bank 01/01/11 4.20 1,300,000 P1
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
29
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA DAILY MUNICIPAL INCOME FUND
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1995
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
---------------
Face Maturity Standard
Amount Date Yield Value Moody's & Poors
------ ---- ----- ----- ------- -----
Other Variable Rate Demand Instruments (c) (Continued)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,700,000 Jacksonville, FL HRB
(University Medical Center) - Series 1989
LOC Sumitomo Bank, Ltd. 02/01/19 3.75% $ 2,700,000 VMIG-1
1,000,000 Jacksonville, FL HRB (Baptist Medical Center Project)
MBIA Insured 06/01/08 3.55 1,000,000 VMIG-1 A1+
1,000,000 Jacksonville, FL IDRB
(University of Florida Health Science Center) - Series 1989
LOC Barnett Bank of Jacksonville 07/01/19 3.65 1,000,000 VMIG-1
710,000 Lee, FL IDRB (Christian & Missionary Alliance) - Series 1985
LOC Banque Paribas 04/01/10 3.68 710,000 A1
200,000 Monroe County, FL IDA
(Beverly Enterprises) - Series 1985
LOC Morgan Guaranty Trust Company 06/01/10 3.55 200,000 VMIG-1
900,000 Ocean Highway & Port Authority FL IDA RB
(Port, Airport & Marina Improvement)
LOC ABN AMRO Bank N.V. 12/01/20 3.70 900,000 VMIG-1 A1+
700,000 Orange County, FL Health Facilities Authority
(Mayflower Retirement Co. Project) - Series 1988
LOC Banque Paribas 03/01/18 3.65 700,000 A1
1,000,000 Orange County, FL IDRB
(Florida Convention Centers Project) - Series A
LOC Toronto-Dominion Bank 01/01/11 4.00 1,000,000 P1
2,000,000 Palm Beach County, FL
(Norton Gallery of Art Project) - Series 1995
LOC Northern Trust 05/01/25 3.60 2,000,000 A1+
1,000,000 Pinellas County, FL (Summit McGregor Property)
LOC Nations Bank 07/01/07 3.75 1,000,000 P1 A1
1,000,000 Pinellas County, FL Industry Council IDRB
(Genca Corporation Project) (b)
LOC PNC Bank 11/01/09 3.90 1,000,000
1,000,000 Pinellas County, FL (Indian Country Project) (b)
LOC Wachovia Bank & Trust Co., N.A. 10/01/01 3.60 1,000,000
- ----------- ------------
23,610,000 Total Other Variable Rate Demand Instruments 23,610,000
- ----------- ------------
Total Investments (96.35%) (Cost $30,010,639+) 30,010,639
Cash and Other Assets in Excess of Liabilities (3.65%) 1,137,200
------------
Net Assets (100.00%) $ 31,147,839
============
Net Asset Value, offering and redemption price per share:
Class A Shares, 20,976,330 Shares Outstanding (Note 3) $ 1.00
============
Class B Shares, 10,175,406 Shares Outstanding (Note 3) $ 1.00
============
+ Aggregate cost for federal income tax purposes is identical.
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
30
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA DAILY MUNICIPAL INCOME FUND
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1995
===============================================================================
FOOTNOTES:
(a) Unless the variable rate demand instruments are assigned their own ratings,
the ratings noted are those of the holding company of the bank whose letter
of credit collateralizes such instruments. P1 and A1+ are the highest
ratings assigned for tax exempt commercial paper.
(b) Securities that are not rated which the Fund's Board of Trustees has
determined to be of comparable quality to those rated securities in which
the Fund invests.
(c) Securities payable on demand at par including accrued interest (usually
with seven days notice) and unconditionally secured as to principal and
interest by a bank letter of credit. The interest rates are adjustable and
are based on bank prime rates or other interest rate adjustment indices.
The rate shown is the rate in effect at the date of this statement.
<TABLE>
<CAPTION>
KEY:
<S> <C> <C> <C> <C> <C>
HFA = Housing Finance Authority MHRB = Multi-family Housing Revenue Bond
HRB = Hospital Revenue Bond PCRB = Pollution Control Revenue Bond
IDA = Industrial Development Authority RB = Revenue Bond
IDRB = Industrial Development Revenue Bond TAN = Tax Anticipation Note
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
31
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA DAILY MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
SEPTEMBER 19, 1994 (COMMENCEMENT OF OPERATIONS) TO AUGUST 31, 1995
===============================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Income:
Interest....................................................................$ 1,627,270
-----------------
Expenses: (Note 2)
Investment management fee................................................... 165,350
Administration fee.......................................................... 82,675
Shareholder servicing fee................................................... 63,089
Custodian, shareholder servicing and related shareholder expenses........... 117,228
Legal, compliance and filing fees........................................... 20,617
Audit and accounting........................................................ 53,313
Trustees' fees.............................................................. 6,116
Amortization of organization expenses....................................... 10,896
Other....................................................................... 2,923
-----------------
Total expenses........................................................... 522,207
Less: Fees waived and expenses reimbursed (Note 2).......................( 398,419)
-----------------
Net expenses............................................................. 123,788
-----------------
Net investment income....................................................... 1,503,482
<CAPTION>
REALIZED GAIN (LOSS) ON INVESTMENTS
<S> <C>
Net realized gain (loss) on investments.....................................( 3,897)
-----------------
Increase in net assets from operations......................................$ 1,499,585
=================
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
32
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA DAILY MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
===============================================================================
<TABLE>
<CAPTION>
September 19, 1994
(Commencement of Operations)
to August 31, 1995
------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income.................................................... $ 1,503,482
Net realized gain (loss) on investments.................................. ( 3,897)
-----------------
Increase (decrease) in net assets from operations............................ 1,499,585
Dividends to shareholders from net investment income
Class A ................................................................. ( 894,135)
Class B.................................................................. ( 609,347)
Transactions in shares of beneficial interest (Note 3)
Class A ................................................................. 20,976,330
Class B.................................................................. 10,075,406
-----------------
Total increase (decrease).............................................. 31,047,839
Net assets:
Beginning of period...................................................... 100,000
-----------------
End of period............................................................ $ 31,147,839
=================
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
33
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA DAILY MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. Summary of Accounting Policies.
Florida Daily Municipal Income Fund is a no-load, non-diversified, open-end
management investment company registered under the Investment Company Act of
1940. The Fund was established as a Massachusetts Business Trust on August 31,
1994 and commenced operations on September 19, 1994. The Fund has two classes of
stock authorized, Class A and Class B. The Class A shares are subject to a
service fee pursuant to the Distribution and Service Plan. The Class B shares
are not subject to a service fee. In all other respects the Class A and Class B
shares represent the same interest in the income and assets of the Fund. Its
financial statements are prepared in accordance with generally accepted
accounting principles for investment companies as follows
a) Valuation of Securities -
Investments are valued at amortized cost. Under this valuation method, a
portfolio instrument is valued at cost and any discount or premium is
amortized on a constant basis to the maturity of the instrument. The
maturity of variable rate demand instruments is deemed to be the longer of
the period required before the Fund is entitled to receive payment of the
principal amount or the period remaining until the next interest rate
adjustment.
b) Federal Income Taxes -
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
all of its tax exempt and taxable income to its shareholders. Therefore, no
provision for federal income tax is required.
c) Dividends and Distributions -
Dividends from investment income (excluding capital gains and losses, if
any, and amortization of market discount) are declared daily and paid
monthly. Distributions of net capital gains, if any, realized on sales of
investments are made after the close of the Fund's fiscal year, as declared
by the Fund's Board of Directors.
d) General -
Securities transactions are recorded on a trade date basis. Interest income
is accrued as earned. Realized gains and losses from securities
transactions are recorded on the identified cost basis.
2. Investment Management Fees and Other Transactions with Affiliates.
Under the Investment Management Contract, the Fund pays an investment management
fee to Reich & Tang Asset Management L.P. (Manager) at the annual rate of .40%
of the Fund's average daily net assets. The Manager is required to reimburse the
Fund for its expenses (exclusive of interest, taxes, brokerage, and
extraordinary expenses) to the extent that such expenses, including the
investment management and the shareholder servicing and administration fees, for
any fiscal year exceed the limits on investment company expenses prescribed by
any state in which the Fund's shares are qualified for sale. No such
reimbursement was required for the period ended August 31, 1995.
Pursuant to an Administrative Services Contract the Fund pays to the Manager an
annual fee of .20% of the Fund's average daily net assets.
- -------------------------------------------------------------------------------
34
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA DAILY MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
2. Investment Management Fees and Other Transactions with Affiliates
(Continued).
Pursuant to a Distribution Plan adopted under Securities and Exchange Commission
Rule 12b-1, the Fund and Reich & Tang Distributors L.P. (the Distributor) have
entered into a Distribution Agreement and a Shareholder Servicing Agreement,
only with respect to Class A shares of the Fund. For its services under the
Shareholder Servicing Agreement, the Distributor receives from the Fund with
respect only to the Class A shares, a fee equal to .25% of the Fund's average
daily net assets. There were no additional expenses borne by the Fund pursuant
to the Distribution Plan.
During the period ended August 31, 1995, the Manager and the Distributor
voluntarily waived investment management fees and administration fees of
$165,350 and $82,675, respectively, and reimbursed other operating expenses
amounting to $150,394.
Fees are paid to Trustees who are unaffiliated with the Manager on the basis of
$1,000 per annum plus $250 per meeting attended.
Included in the Statement of Operations under the caption "Custodian,
shareholder servicing and related shareholder expenses" are fees of $2,141 paid
to Fundtech Services L.P., an affiliate of the Manager, as servicing agent for
the Fund.
3. Transactions in Shares of Beneficial Interest.
At August 31, 1995, an unlimited number of shares of beneficial interest ($.01
par value) were authorized and capital paid in amounted to $31,151,736.
Transactions, all at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
Class A
October 6, 1994
(Commencement of Operations)
to August 31, 1995
------------------
<S> <C>
Sold............................................... 221,569,078
Issued on reinvestment of dividends................ 816,529
Redeemed........................................... ( 201,409,277)
-----------------
Net increase (decrease)............................ 20,976,330
=================
</TABLE>
<TABLE>
<CAPTION>
Class B
September 19, 1994
(Commencement of Operations)
to August 31, 1995
------------------
<S> <C>
Sold............................................... 185,971,722
Issued on reinvestment of dividends................ 576,818
Redeemed........................................... ( 176,473,134)
----------------
Net increase (decrease)............................ 10,075,406
================
</TABLE>
- -------------------------------------------------------------------------------
35
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA DAILY MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
4. Sales of Securities.
Accumulated undistributed realized losses at August 31, 1995 amounted to $3,897.
Such amount represents tax basis capital losses which may be carried forward to
offset future capital gains. Such losses expire August 31, 2003.
5. Concentration of Credit Risk.
The Fund invests primarily in obligations of political subdivisions of the State
of Florida and, accordingly, is subject to the credit risk associated with the
non-performance of such issuers. Approximately 77% of these investments are
further secured, as to principal and interest, by letters of credit issued by
financial institutions. The Fund maintains a policy of monitoring its exposure
by reviewing the credit worthiness of the issuers, as well as that of the
financial institutions issuing the letters of credit, and by limiting the amount
of holdings with letters of credit from one financial institution.
6. Selected Financial Information.
Reference is made to page 2 of the Prospectus for Selected Financial
Information.
- -------------------------------------------------------------------------------
36
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits.
(a) Financial Statements.
Included in Prospectus (Part A):
(1) Selected Financial Information
(2) Table of Fees and Expenses
Included in Statement of Additional Information (Part B):
(1) Report of McGladrey & Pullen LLP, independent certified public
accountants, dated September 27, 1995.
(2) Statement of Net Assets at August 31, 1995 (audited).
(3) Statement of Operations for the year ended August 31, 1995 (audited).
(4) Statement of Changes in Net Assets for the year ended August 31, 1995
(audited).
(5) Notes to Financial Statements.
(b) Exhibits.
* (1) Declaration of Trust of the Registrant.
* (2) By-laws of the Registrant.
(3) Not applicable.
(4) Not applicable.
* (5) Investment Management Contract between the Registrant and New England
Investment Companies, L.P.
* (6) Distribution Agreement between the Registrant and Reich & Tang
Distributors L.P.
(7) Not applicable.
* (8) Custody Agreement between the Registrant and Investors Fiduciary Trust
Company.
* (9) Transfer Agent Agreement between the Registrant and Fundtech Service
L.P.
* (9.1) Administrative Services Agreement between the Registrant and New
England Investment Companies, L.P.
* (10.1) Consent of Messrs. Battle Fowler LLP to the use of their name under the
heading "Investment Objectives, Policies and Risks", "Federal Income
Taxes" and "Counsel and Auditors" in the Prospectus and in the
Statement of Additional Information.
- --------------------
* Filed with Pre-Effective Amendment No. 1 to Registration Statement No.
33-81920 on September 6, 1994, and is incorporated herein by
reference.
C-1
<PAGE>
* (10.2) Opinion of Gunster, Yoakley & Stewart, P.A. as to Florida Law,
including their consent to the filing thereof and to the use of
their name under the heading "Florida Income Taxes" in the Prospectus
and "Counsel and Auditors" in the Statement of Additional Information.
* (10.3) Opinion of Dechert, Price & Rhoads as to the legality of the securities
being registered, and as to Massachusetts Law, including their consent
to the filing thereof and to the use of their name under the heading
"Counsel and Auditors" in the Statement of Additional Information.
(11) Consent of Independent Certified Public Accountants filed as Exhibit 11
herein.
(12) Not applicable.
* (13) Written assurance of New England Investment Companies, L.P. that its
purchase of shares of the Registrant was for investment purposes with-
out any present intention of redeeming or reselling.
(14) Not applicable.
* (15.1) Distribution Plan Pursuant to Rule 12b-1 under the Investment Company
Act of 1940.
* (15.2) Distribution Agreement between the Registrant and Reich & Tang
Distributors L.P.
* (15.3) Shareholder Servicing and Administration Agreement between the
Registrant and Reich & Tang Distributors L.P.
(16) Not applicable.
OTHER EXHIBITS: Powers of Attorney.
ITEM 25. Persons Controlled by or Under Common Control with Registrant.
None.
ITEM 26. Number of Holders of Securities.
Number of Record Holders
Title of Class as of November 30, 1995
-------------- -------------------------
Class A
Common Stock 267
(par value $.001)
Class B
Common Stock 21
(par value $.001)
ITEM 27. Indemnification.
Registrant incorporates herein by reference to Item 27 of the
Registration Statement filed with the Commission on September 6, 1994.
- --------------------
* Filed with Pre-Effective Amendment No. 1 to said Registration
Statement No. 33-81920 on September 6, 1994, and is incorporated
herein by reference.
C-2
<PAGE>
ITEM 28. Business and Other Connections of Investment Adviser.
The description of Reich & Tang Asset Management L.P. under the caption
"Management of the Fund" in the Prospectus and in the Statement of Additional
Information constituting parts A and B, respectively, of the Registration
Statement are incorporated herein by reference.
New England Mutual Life Insurance Company, ("The New England") of which New
England Investment Companies, Inc. ("NEIC") is an indirect wholly-owned
subsidiary, owns approximately 68.1% of the outstanding partnership units of New
England Investment Companies, L.P. ("NEICLP) and Reich & Tang, Inc. owns
approximately 22.8% of the outstanding partnership units of NEICLP. NEICLP is
the limited partner and owner of a 99.5% interest in Reich & Tang Asset
Management L.P. Reich & Tang Asset Management, Inc. serves as the sole general
partner and owner of the remaining .5% interest of Reich & Tang Asset Management
L.P. and serves as the sole general partner of Reich & Tang Distributors L.P.
Reich & Tang Asset Management L.P. serves as the sole limited partner of the
Distributor.
Registrant's investment adviser, Reich & Tang Asset Management L.P., is a
registered investment adviser. Reich & Tang Asset Management L.P.'s investment
advisory clients include California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax
Free Income Fund, Inc.,Institutional Daily Income Fund, Lebenthal Fund, Inc.,
Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income
Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund, Short
Term Income Fund, Inc., and Tax Exempt Proceeds Fund, Inc., registered
investment companies whose addresses are 600 Fifth Avenue, New York, New York
10020, which invest principally in money market instruments, Delafield Fund,
Inc. and Reich & Tang Equity Fund, Inc., registered investment companies whose
addresses are 600 Fifth Avenue, New York, New York 10020, which invest
principally in equity securities, and Reich & Tang Government Securities Trust,
a registered investment company whose address is 600 Fifth Avenue, New York, New
York 10020, which invests solely in securities issued or guaranteed by the
United States Government. In addition, Reich & Tang Asset Management L.P. is the
sole general partner of Alpha Associates, August Associates, Reich & Tang
Minutus L.P., Reich & Tang Equity Partnerships L.P. and Tucek Partners, L.P.,
private investment partnerships organized as limited partnerships.
Peter S. Voss, President, Chief Executive Officer and a Director of NEIC
since October 1992, Chairman of the Board of NEIC since December 1992, Group
Executive Vice President, Bank of America, responsible for the global asset
management private banking businesses, from April 1992 to October 1992,
Executive Vice President of Security Pacific Bank, and Chief Executive Officer
of Security Pacific Hoare Govett Companies a wholly-owned subsidiary of Security
Pacific Corporation, from April 1988 to April 1992, Director of The New England
since March 1993, Chairman of the Board of Directors of NEIC's subsidiaries
other than Loomis, Sayles & Company, L.P. ("Loomis") and Back Bay Advisors, L.P.
("Back Bay"), where he serves as a Director, and Chairman of the Board of
Trustees of all of the mutual funds in The TNE Fund Group and Zenith Funds. G.
Neil Ryland, Executive Vice President, Treasurer and Chief Financial Officer
NEIC since July 1993, Executive Vice President and Chief Financial Officer of
The Boston Company, a diversified financial services company, from March 1989
until July 1993, from September 1985 to December 1988, Mr. Ryland was employed
by Kenner Parker Toys, Inc. as Senior Vice President and Chief Financial
Officer. Edward N. Wadsworth, Executive Vice President, General Counsel, Clerk
and Secretary of NEIC since December 1989, Senior Vice President and Associate
General Counsel of The New England from 1984 until December 1992, and Secretary
of Westpeak and Draycott and the Treasurer of NEIC. Lorraine C. Hysler has been
Secretary of RTAM since July 1994, Assistant Secretary of NEIC since September
1993, Vice President of the Mutual Funds Group of NEICLP from September 1993
until July 1994, and Vice President of Reich & Tang Mutual Funds since July
1994. Ms. Hysler joined Reich & Tang, Inc. in May 1977 and served as Secretary
from April 1987 until September 1993.
C-3
<PAGE>
Richard E. Smith, III has been a Director of RTAM since July 1994, President and
Chief Operating Officer of the Capital Management Group of NEICLP from May 1994
until July 1994, President and Chief Operating Officer of the Reich & Tang
Capital Management Group since July 1994, Executive Vice President and Director
of Rhode Island Hospital Trust from March 1993 to May 1994, President, Chief
Executive Officer and Director of USF&G Review Management Corp. from January
1988 until September 1992. Steven W. Duff has been a Director of RTAM since
October 1994, President and Chief Executive Officer of Reich & Tang Mutual Funds
since August 1994, Senior Vice President of NationsBank from June 1981 until
August 1994, Mr. Duff is President and a Director of California Daily Tax Free
Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free
Income Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc. and Short Term Income Fund, Inc.,
President and Chairman of Reich & Tang Government Securities Trust, President
and Trustee of Institutional Daily Municipal Income Fund, Pennsylvania Daily
Municipal Income Fund, President and Chief Executive Officer of Tax Exempt
Proceeds Fund, Inc., and Executive Vice President of Reich & Tang Equity Fund,
Inc. Bernadette N. Finn has been Vice President/Compliance of RTAM since July
1994, Vice President of Mutual Funds Division of NEICLP from September 1993
until July 1994, Vice President of Reich & Tang Mutual Funds since July 1994.
Ms. Finn joined Reich & Tang, Inc. in September 1970 and served as Vice
President from September 1982 until May 1987 and as Vice President and Assistant
Secretary from May 1987 until September 1993. Ms. Finn is also Secretary of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Cortland Trust, Inc., Delafield Fund, Inc., Daily Tax Free Income
Fund, Inc., Institutional Daily Municipal Income Fund, Michigan Daily Tax Free
Income Funds, Inc., New Jersey Daily Municipal Income Fund, Inc., New York Daily
Tax Free Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pennsylvania Daily Municipal Income Fund and Tax Exempt Proceeds Fund, Inc., a
Vice President and Secretary of Reich & Tang Equity Fund, Inc., Reich & Tang
Government Securities Trust and Short Term Income Fund, Inc. Richard De Sanctis
has been Treasurer of RTAM since July 1994, Assistant Treasurer of NEIC since
September 1993 and Treasurer of the Mutual Funds Group of NEICLP from September
1993 until July 1994, Treasurer of the Reich & Tang Mutual Funds since July
1994. Mr. De Sanctis joined Reich & Tang, Inc. in December 1990 and served as
Controller of Reich & Tang, Inc., from January 1991 to September 1993. Mr. De
Sanctis was Vice President and Treasurer of Cortland Financial Group, Inc. and
Vice President of Cortland Distributors, Inc. from 1989 to December 1990. Mr. De
Sanctis is also Treasurer of California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Institutional Daily Municipal Income Fund, Michigan Daily
Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New
York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., Reich & Tang Government Securities Trust, Short Term Income Fund, Inc. and
Tax Exempt Proceeds Fund, Inc. and is Vice President and Treasurer of Cortland
Trust, Inc.
ITEM 29. Principal Underwriters.
(a) Reich & Tang Distributors L.P., the Registrant's Distributor, is also
distributor for California Daily Tax Free Income Fund, Inc., Connecticut Daily
Tax Free Income Fund, Inc., Cortland Trust, Inc., Delafield Fund, Inc., Daily
Tax Free Income Fund, Inc., Institutional Daily Income Fund, Michigan Daily Tax
Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York
Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income Fund,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Reich
& Tang Government Securities Trust, Short Term Income Fund, Inc. and Tax Exempt
Proceeds Fund, Inc.
C-4
<PAGE>
(b) The following are the directors and officers of Reich & Tang Asset
Management, Inc., the general partner of Reich & Tang Asset Management L.P.
Reich & Tang Distributors L.P. does not have any officers. The principal
business address of Messrs. Voss, Ryland, and Wadsworth is 399 Boylston Street,
Boston, Massachusetts 02116. For all other persons, the principal business
address is 600 Fifth Avenue, New York, New York 10022.
Positions and Offices
With the General Partner Positions and Offices
Name of the Distributor With Registrant
Peter S. Voss President and Director None
G. Neal Ryland Director None
Edward N. Wadsworth Clerk None
Richard E. Smith III Director None
Steven W. Duff Director President & Trustee
Bernadette N. Finn Vice President/Compliance Secretary
Lorraine C. Hysler Secretary None
Richard De Sanctis Vice President and Treasurer Treasurer
ITEM 30. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder
are maintained in the physical possession of the Registrant; at Reich & Tang
Asset Management L.P., 600 Fifth Avenue, New York, New York 10020, the
Registrant's manager and at Investors Fiduciary Trust Company, 127 West 10th
Street, Kansas City, Missouri 64105, the Registrant's custodian.
ITEM 31. Management Services.
Not applicable.
ITEM 32. Undertaking.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) The Registrant undertakes to call a meeting of holders of beneficial
interest for the purposes of voting on the question of removal of a
trustee or trustees if requested to do so by the holders of at least
10% of the Fund's outstanding shares, and the Registrant shall assist
in communications with other holders of beneficial interest.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that it has
met all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, and State of New York, on the 18th day of December, 1995.
FLORIDA DAILY MUNICIPAL INCOME FUND
By: /s/ Bernadette N. Finn
Bernadette N. Finn
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
Signature Capacity Date
(1) Principal Executive Officer
Steven W. Duff President and
Trustee
By:/s/ Steven W. Duff 12/18/95
Steven W. Duff
(2) Principal Financial and
Accounting Officer
By:/s/ Richard De Sanctis Treasurer 12/18/95
Richard De Sanctis
(3) Majority of Trustees
Steven W. Duff President and
Trustee }
Yung Wong Trustee }
W. Giles Mellon Trustee }
Robert Straniere Trustee }
By: /s/ Bernadette N. Finn 12/18/95
Bernadette N. Finn
Attorney-in-Fact
EXHIBIT 11
McGLADREY & PULLEN L.L.P.
Certified Public Accountants & Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated September 27, 1995, on the
financial statements referred to therein in Post-Effective Amendment No. 2 to
the Registration Statement on Form N-1A, File No. 33-81920 of Short Term Income
Fund, Inc., as filed with the Securities and Exchange Commission.
We also consent to the reference to our Firm in the Prospectus under the
caption "Selected Financial Information" and in the Statement of Additional
Information under the caption "Counsel and Auditors."
/s/McGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP
New York, New York
December 15, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
extracted from the financial statements and supporting
schedules as of the end of the most current period and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000927516
<NAME> Florida Daily Municipal Income Fund
<S> <C>
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-19-1994
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