RULE 497(c)
Registration No. 33-81920
FLORIDA
DAILY MUNICIPAL 600 FIFTH AVENUE, NEW YORK, NY 10020
INCOME FUND (212) 830-5220
PROSPECTUS
January 2 , 1998
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 is concentrated in the
securities issued by Florida or entities within Florida and the Fund may invest
a significant percentage of its assets in a single issuer. Therefore, an
investment in the Fund may be riskier than investment in other types of money
market funds. 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 a prospective investors
should know before investing in the Fund . A Statement of Additional Information
about the Fund has been filed with the Securities and Exchange Commission
("SEC") and is available upon request and without charge by calling or writing
the Fund at the above address. The "Statement of Additional Information" bears
the same date as this Prospectus and is incorporated by reference into this
Prospectus in its entirety. The SEC maintains a website (http.//www.sec.gov.)
that contains the Statement of Additional Information and other reports and
information regarding the Fund which have been filed electronically with the
SEC.
Reich & Tang Asset Management L.P. acts as investment manager of the Fund and
Reich & Tang Distributors, Inc. acts as distributor of the Fund's shares. Reich
& Tang Asset Management L.P. is a registered investment adviser. Reich & Tang
Distributors, Inc. is a registered broker-dealer and member of the National
Association of Securities Dealers, Inc.
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 insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency.
This Prospectus should be read and retained by investors for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT BEING OFFERED VIA THE
INTERNET TO RESIDENTS OF PARTICULAR STATES.
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TABLE OF FEES AND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets) Class A Class B
Management Fees - After fee waiver 0.33% 0.33%
12b-1 Fees 0.25% 0.00%
Other Expenses - After fee waiver 0.17% 0.13%
Administration Fees -After fee waiver 0.01% 0.01%
------
Total Fund Operating Expenses 0.75% 0.46%
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the following on a $1000 investment, assuming 5% annual return
(cumulative through the end of each year):
Class A $8 $24 $42 $93
Class B $5 $15 $26 $58
</TABLE>
The purpose of the above fee table is to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a further discussion of these fees see "Management of the Fund"
and "Distribution and Service Plan" herein. The Manager has voluntarily waived
the portion of the Management Fee and a portion of the Administration Fee;
absent such waivers, the Management Fee and Administration Fee would have been
.40% and .21%, respectively. In addition, absent fee waivers total Fund
Operating Expenses would have been 1.02% for Class A and .73% for Class B.
The figures reflected in this example should not be considered as a
representation of past or future expenses. Actual expenses may be greater or
less than those shown above.
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FINANCIAL HIGHLIGHTS
The following financial highlights of 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended Year Ended Period Ended
Class A August 31, 1997 August 31, 1996 August 31, 1995**
- ------- --------------- --------------- -----------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period................ $ 1.00 $ 1.00 $ 1.00
--------------- -------------- --------------
Income from investment operations:
Net investment income............................. 0.030 0.031 0.032
Less distributions:
Dividends from net investment income.............. ( 0.030 ) ( 0.031 ) ( 0.032 )
-------------- ------------- -------------
Net asset value, end of period...................... $ 1.00 $ 1.00 $ 1.00
=============== =============== =============
Total Return........................................ 3.08% 3.09% 3.60%*
Ratios/Supplemental Data
Net assets, end of period (000)..................... $ 96,683 $ 36,758 $ 20,974
Ratios to average net assets:
Expenses............................................ 0.57% 0.56% 0.40%*
Net investment income............................... 3.03% 3.05% 3.54%*
Expenses paid indirectly............................ -- 0.06% --
Management and administration fees waived and expenses reimbursed 0.51% 0.67% 0.95%*
Year Ended Year Ended Period Ended
Class B August 31, 1997 August 31, 1996 August 31, 1995**
- ------- --------------- --------------- -----------------
<S> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period................ $ 1.00 $ 1.00 $ 1.00
--------------- -------------- --------------
Income from investment operations:
Net investment income............................. 0.033 0.033 0.036
Less distributions:
Dividends from net investment income............... ( 0.033 ) ( 0.033 ) ( 0.036 )
-------------- ----------- -------------
Net asset value, end of period...................... $ 1.00 $ 1.00 $ 1.00
=============== ============= ==============
Total Return........................................ 3.34% 3.35% 3.84%*
Ratios/Supplemental Data
Net assets, end of period (000)..................... $ 11,782 $ 9,611 $ 10,174
Ratios to average net assets:
Expenses............................................ 0.30% 0.31% 0.14%*
Net investment income............................... 3.27% 3.34% 3.78%*
Expenses paid indirectly............................ -- 0.06% --
Management and administration fee waived and expenses reimbursed 0.51% 0.67% 0.95%*
* Annualized
** Class A commenced operations on October 6, 1994 and Class B commenced
operations on September 19, 1994.
</TABLE>
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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 the interest on which is exempt from regular federal
income tax under Section 103 of the Internal Revenue Code (the "Code") 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 regular 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, Inc. (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
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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 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, interest on such bonds, and accordingly
"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
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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 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 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 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
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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 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 Ratings
Services, a division of The McGraw-Hill Companies ("S&P") and Moody's Investors
Service, Inc. ("Moody's"). The two highest ratings by S&P and Moody's are "AAA"
and "AA" by S&P in the case of long-term bonds and notes or "Aaa" and "Aa" by
Moody's in the case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by
Moody's in the case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2"
by Moody's in the case of tax-exempt commercial paper. The highest rating in the
case of variable and floating demand notes is "VMIG-1" by Moody's 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."
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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 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
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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.
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
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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.
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 Inc., 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.
As of November 30, 1997, the Manager was investment manager, adviser or
supervisor with respect to assets aggregating in excess of $10.67 billion. The
Manager acts as manager or administrator of fifteen other registered investment
companies and also advises pension trusts, profit-sharing trusts and endowments.
Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") is the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager due to a restructuring by New England Investment
Companies, Inc. ("NEIC"). Reich & Tang Asset Management, Inc. (a wholly-owned
subsidiary of NEICOP) is the sole general partner and owner of the remaining .5%
interest of the Manager. NEIC, a Massachusetts corporation, serves as the
managing general partner of NEICOP.
The Manager is a wholly-owned subsidiary of NEICOP, but Reich & Tang Asset
Management, Inc., its sole general partner, is an indirect subsidiary of
Metropolitan Life Insurance Company ("MetLife"). Also, MetLife directly and
indirectly owns approximately 47% of the outstanding partnership interests of
NEICOP, and may be deemed a "controlling person" of the Manager. Reich & Tang,
Inc. owns directly and indirectly approximately 13.7% of the outstanding
partnership interests of NEICOP.
MetLife is a mutual life insurance company with assets of $297.6 billion at
December 31, 1996. It is the second largest life insurance company in the
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United States in terms of total assets. On August 30, 1996, The New England
Mutual Life Insurance Company ("The New England") and MetLife merged, with
MetLife being the continuing company. MetLife provides a wide range of insurance
and investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.6 trillion at December 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEICOP is a holding company offering a broad array of investment styles across a
wide range of asset categories through thirteen subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units, in addition to the manager, include
AEW Capital Management, L.P., Back Bay Advisors, L.P., Capital Growth
Management, Limited Partnership, Greystone Partners, L.P., Harris Associates,
L.P., Jurika & Voyles, L.P., Loomis, Sayles & Company, L.P., New England Funds,
L.P., New England Investment Associates, Inc., Snyder Capital Management, L.P.,
Vaughan, Nelson, Scarborough & McCullough, L.P., and Westpeak Investment
Advisors, L.P. These affiliates in the aggregate are investment advisors or
managers to 80 other registered investment companies.
The recent restructuring of NEICLP did not result in a change in control of the
Manager and has no impact upon the Manager's performance of its responsibilities
and obligations. The merger between The New England and MetLife resulted in an
"assignment" of the Investment Management Contract relating to the Fund. Under
the 1940 Act, such an assignment caused the automatic termination of this
agreement. On November 28, 1995, the Board of Trustees, including a majority of
the trustees who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved a new Investment Management Contract effective
August 30, 1996, which has a term which extends to July 31, 1998 and may be
continued in force thereafter for successive twelve-month periods beginning each
August 1, provided that such continuance is specifically approved annually by
majority vote of the Fund's outstanding voting securities or by its Board of
Trustees, and in either case by a majority of the trustees who are not parties
to the Investment Management Contract or interested persons of any such party,
by votes cast in person at a meeting called for the purpose of voting on such
matter.
The Investment Management Contract was approved by a majority of the
shareholders of the Fund on April 4, 1996 and contains the same terms and
conditions governing the Manager's investment management responsibilities as the
Fund's previous Investment Management Contract with the Manager, except as to
the date of execution and termination.
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. In
addition, Reich & Tang Distributors, Inc., 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. 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,
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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 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.
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. 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. 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.
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
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<PAGE>
payment in portfolio securities until the payment has been converted into
Federal Funds.
Shares will be issued as of the first determination of the Fund's net asset
value per share 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. Unless other instructions are given
in proper form to the Fund's transfer agent, a check for the proceeds of a
redemption will be sent to the shareholders' address of record. If a shareholder
elects to redeem all the shares of the Fund he owns, all dividends accrued to
the date of such redemption will be paid to the shareholder along with the
proceeds of the redemption.
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven days after the shares are tendered for
redemption, except for any period during which the New York Stock Exchange, Inc.
is closed (other than customary weekend and holiday closings) or during which
the SEC determines that trading thereon is restricted, or for any period during
which an emergency (as determined by the SEC) exists as a result of which
disposal by the Fund of its portfolio securities is not reasonably practicable
or as a result of which it is not reasonably practicable for the Fund fairly to
determine the value of its net assets, or for such other period as the SEC may
by order permit for the protection of the shareholders of the Fund.
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.
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Investments Through
Participating Organizations
Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. "Participating
Organizations" are securities brokers, banks and financial institutions or other
industry professionals or organizations which have entered into shareholder
servicing agreements with the 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
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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. 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 Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member of the Federal Reserve System
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
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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 13232
Newark, New Jersey 07101-3232
There is a $100 minimum for subsequent purchases of shares. All payments should
clearly indicate the shareholder's account number.
Provided that the information on the subscription form on file with the Fund is
still applicable, a shareholder may reopen an account without filing a new
subscription order form at any time during the year the shareholder's account is
closed or during the following calendar year.
Redemption of Shares
A redemption is effected immediately following, and at a price determined in
accordance with, the next determination of net asset value per share of each
class 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 Funds
600 Fifth Avenue
New York, New York 10020
Normally the redemption proceeds are paid by check and mailed to the shareholder
of record.
Checks
By making the appropriate election on their subscription order form,
shareholders may request a supply of checks which may be used to effect
redemptions from the Class of Shares of the Fund in which they invest. The
checks, which will be
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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 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
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<PAGE>
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 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 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 of the same class may be exchanged
only between investment company accounts registered in identical names. Before
making an exchange, the investor should review the current prospectus of the
investment company into which the exchange is to be made.
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 Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
or, for shareholders who have elected that option, by telephoning the Fund at
212-830-5220 (within New York 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.
19
<PAGE>
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 SEC has required that an
investment company which bears any direct or indirect expense of distributing
its shares must do so only in accordance with a plan permitted by Rule 12b-1.
The Fund's Board of Trustees has adopted a distribution and service plan (the
"Plan") and, pursuant to the Plan, the Fund and Reich & Tang Distributors, Inc.
(the "Distributor") have entered into a Distribution Agreement and a Shareholder
Servicing Agreement (with respect to Class A shares of the Fund only).
Under the Distribution Agreement, the Distributor serves as distributor of the
Fund's shares and, for nominal consideration, as agent for the Fund, will
solicit orders for the purchase of the Fund's shares, provided that any orders
will not be binding on the Fund until accepted by the Fund as principal.
Under the Shareholder Servicing Agreement, the Distributor receives with respect
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 with respect to Class A
shares and (ii) preparing, printing and delivering the Fund's prospectus to
existing shareholders of the Fund and preparing and printing subscription
application forms for shareholder accounts.
The Plan provides that the Manager may make payments from time to time from its
own resources, which may include the management fee and past profits for the
following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements, for performing shareholder servicing on behalf of the Class
A shares of the Fund; (ii) to compensate certain Participating Organizations for
providing assistance in distributing the Class A shares 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
20
<PAGE>
and printing of brochures and other promotional materials, mailings to
prospective shareholders, advertising, and other promotional activities,
including the salaries and/or commissions of sales personnel in connection with
the distribution of the Fund's Class A shares. The Distributor may also make
payments from time to time from its own resources, which may include the
Shareholder Servicing Fee (with respect to Class A shares) and past profits, for
the purposes enumerated in (i) above. The Distributor will determine the amount
of such payments made pursuant to the Plan, provided that such payments will not
increase the amount which the Fund is required to pay to the Manager and
Distributor for any fiscal year under either the Investment Management Contract
in effect for that year or under the Shareholder Servicing Agreement in effect
for that year.
The Glass-Steagall Act and other applicable laws and regulations prohibit banks
and other depository institutions from engaging in the business of underwriting,
selling or distributing most types of securities. However, in the opinion of the
Manager based on the advice of counsel, these laws and regulations do not
prohibit such depository institutions from providing other services for
investment companies such as the shareholder servicing and related
administrative functions referred to above. The Fund's Board of Trustees will
consider appropriate modifications to the Fund's operations, including
discontinuance of any payments then being made under the Plan to banks and other
depository institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to provide the
above-mentioned services. It is not anticipated that the discontinuance of
payments to such an institution would result in loss to shareholders or change
in the Fund's net asset value. In addition, state securities laws on this issue
may differ from the interpretations of Federal law expressed herein and banks
and financial institutions may be required to register as dealers pursuant to
state law.
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 having undistributed
capital gain income within the meaning of the Code. The Fund will inform
shareholders of the amount and nature of its income and gains in a written
notice mailed to shareholders not later than 60 days after the close of the
Fund's taxable year. For Social Security recipients, interest on tax-exempt
bonds, including 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. Interest on certain "private activity
bonds" (generally, a bond issue in which more than 10% of the proceeds are used
for a non-governmental trade or business and which meets the private security or
payment test, or a bond issue which meets the private loan financing test)
issued after August 7, 1986 will constitute an item of tax preference
21
<PAGE>
subject to the individual alternative minimum tax. 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). 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 LLP,
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
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 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.
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 SEC as a
non-diversified, open-end management investment company.
22
<PAGE>
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 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 SEC,
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) for such class 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, 801 Pennsylvania Street, Kansas City,
Missouri 64105 is custodian for the Fund's cash and securities. Reich & Tang
Services, Inc., 600 Fifth Avenue, New York, New York 10020 is the transfer agent
and dividend agent for the shares of the Fund. The Fund's transfer agent and
custodian does not assist in, and is not responsible for, investment decisions
involving assets of the Fund.
23
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Table of Fees and Expenses............................2
Financial Highlights..................................3
Introduction..........................................4
Investment Objectives, FLORIDA
Policies and Risks..................................5 DAILY
Management of the Fund...............................10 MUNICIPAL
Description of Shares................................12 INCOME
Dividends and Distributions..........................12 FUND
How to Purchase and Redeem Shares....................13
Investments Through
Participating Organizations......................15 Prospectus
Direct Purchase and January 2, 1998
Redemption Procedures............................16
Initial Purchases of Shares........................16
Electronic Funds Transfers (EFT), Pre-authorized
Credit and Direct Deposit Privilege..............16
Subsequent Purchases of Shares.....................17
Redemption of Shares...............................17
Exchange Privilege.................................19
Specified Amount Automatic Withdrawal Plan.........19
Distribution and Service Plan........................20
Federal Income Taxes.................................21
Florida Taxes........................................22
General Information..................................22
Net Asset Value......................................23
Custodian and Transfer Agent.........................23
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.
</TABLE>
<PAGE>
EVERGREEN SHARES OF
FLORIDA DAILY
MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROSPECTUS
January 2, 1998
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 is concentrated in the
securities issued by Florida or entities within Florida and the Fund may invest
a significant percentage of its assets in a single issuer. Therefore an
investment in the Fund may be riskier than investment in other types of money
market funds. The Fund offers two classes of shares to the general public,
however only Class A shares are offered by this Prospectus. The Class A shares
of the Fund are subject to a service fee pursuant to the Fund's Rule 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 a prospective investor
should know before investing in the Fund. A Statement of Additional Information
about the Fund has been filed with the Securities and Exchange Commission (the
"SEC") and is available upon request and without charge by calling the Fund at
(800)807-2940. The "Statement of Additional Information" bears the same date as
this Prospectus and is incorporated by reference into this Prospectus in its
entirety. Investors should be aware that the Evergreen shares may not be
purchased other than through certain securities dealers with whom Evergreen
Funds Distributor, Inc. ("EFD") has entered into agreements for this purpose or
directly from EFD. Evergreen shares have been created for the primary purpose of
providing a Florida tax-free money market fund product for shareholders of
certain funds distributed by EFD. Shares of the Fund other than Evergreen shares
are offered pursuant to a separate Prospectus. The SEC maintains a website
(http.//www.sec.gov.) that contains the Statement of Additional Information and
other reports and information regarding the Fund which have been filed
electronically with the SEC.
Reich & Tang Asset Management L.P. acts as investment manager of the Fund and
Reich & Tang Distributors, Inc. acts as distributor of the Fund's shares. Reich
& Tang Asset Management L.P. is a registered investment adviser. Reich & Tang
Distributors, Inc. is a registered broker-dealer and member of the National
Association of Securities Dealers, Inc.
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 insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency.
This Prospectus should be read and retained by investors for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT BEING OFFERED VIA THE
INTERNET TO RESIDENTS OF PARTICULAR STATES.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TABLE OF CONTENTS
TABLE OF FEES AND EXPENSES 3 SHAREHOLDER SERVICES 12
FINANCIAL HIGHLIGHTS 4 Effect of Banking Laws 14
INTRODUCTION 5 DISTRIBUTION AND SERVICE PLAN 14
INVESTMENT OBJECTIVES, FEDERAL INCOME TAXES 15
POLICIES AND RISKS FLORIDA TAXES 15
MANAGEMENT OF THE FUND 9 GENERAL INFORMATION 16
Management and Investment Management Contract 9 NET ASSET VALUE 16
DESCRIPTION OF SHARES 10 CUSTODIAN AND TRANSFER AGENT 16
DIVIDENDS AND DISTRIBUTIONS 11
HOW TO PURCHASE AND REDEEM SHARES 11
How to Buy Shares 11
How to Redeem Shares 11
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF FEES AND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of average net assets) Class A Class B
Management Fees - After fee waiver 0.33% 0.33%
12b-1 Fees 0.25% 0.00%
Other Expenses - After fee waiver 0.17% 0.13%
Administration Fees -After fee waiver 0.01% 0.01%
------
Total Fund Operating Expenses 0.75% 0.46%
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the following on a $1000 investment, assuming 5% annual return
(cumulative through the end of each year):
Class A $8 $24 $42 $93
Class B $5 $15 $26 $58
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 portion of the Management Fee and a portion of the Administration Fee;
absent such waivers, the Management Fee and Administration Fee would have been
.40% and .21%, respectively. In addition, absent fee waivers,total Fund
Operating Expenses would have been 1.02% for Class A and .73% for Class B.
The figures reflected in this example should not be considered as a
representation of past or future expenses. Actual expenses may be greater or
less than those shown above.
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following financial highlights 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended Year Ended Period Ended
Class A August 31, 1997 August 31, 1996 August 31, 1995**
- ------- --------------- --------------- -----------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period................ $ 1.00 $ 1.00 $ 1.00
-------------- ------------- ----------
Income from investment operations:
Net investment income............................. 0.030 0.031 0.032
Less distributions:
Dividends from net investment income.............. ( 0.030 ) ( 0.031) ( 0.032)
------------- ----------- -----------
Net asset value, end of period...................... $ 1.00 $ 1.00 $ 1.00
============== ============= ==========
Total Return........................................ 3.08% 3.09% 3.60%*
Ratios/Supplemental Data
Net assets, end of period (000)..................... $ 96,683 $ 36,758 $ 20,974
Ratios to average net assets:
Expenses............................................ 0.57% 0.56% 0.40%*
Net investment income............................... 3.03% 3.05% 3.54%*
Expenses paid indirectly............................ -- 0.06% --
Management and Administration fees waived and
expense reimbursed................. 0.51% 0. 67% 0.95%*
Year Ended Year Ended Period Ended
Class B August 31, 1997 August 31, 1996 August 31, 1995**
- ------- --------------- --------------- -----------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period................ $ 1.00 $ 1.00 $ 1.00
-------------- ------------- ----------
Income from investment operations:
Net investment income............................. 0.033 0.033 0.036
Less distributions:
Dividends from net investment income............... ( 0.033 ) ( 0.033) ( 0.036)
------------- ----------- -----------
Net asset value, end of period...................... $ 1.00 $ 1.00 $ 1.00
============== ============= ==========
Total Return........................................ 3.34% 3.35% 3.84%*
Ratios/Supplemental Data
Net assets, end of period (000)..................... $ 11,782 $ 9,611 $ 10,174
Ratios to average net assets:
Expenses............................................ 0.30% 0.31% 0.14%*
Net investment income............................... 3.27 3.34% 3.78%*
Expenses paid indirectly............................ -- 0.06% --
Management and Administration fee waived and
expense reimbursed................. 0.51% 0.67% 0.95%*
* Annualized
** Class A commenced operations on October 6, 1994 and Class B commenced
operations on September 19, 1994.
</TABLE>
4
<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 the interest on which is exempt
from regular federal income tax under Section 103 of the Internal Revenue Code
(the "Code") 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 regular
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, Inc., (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, Eastern
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 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.
Evergreen shares are identical to other shares of the Fund, which are
offered pursuant to a separate prospectus, with respect to investment objectives
and yield, but differ with respect to certain other matters. See "How to
Purchase and Redeem Shares" and "Shareholder Services."
5
<PAGE>
- --------------------------------------------------------------------------------
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, interest on such bonds and accordingly
"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 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 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 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
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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 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 Ratings
Services, a division of The McGraw-Hill Companies ("S&P") and Moody's Investors
Service, Inc. ("Moody's"). The two highest ratings by S&P and Moody's are "AAA"
and "AA" by S&P in the case of long-term bonds and notes or "Aaa" and "Aa" by
Moody's in the case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by
Moody's in the case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2"
by Moody's in the case of tax-exempt commercial paper. The highest rating in the
case of variable and floating demand notes is "VMIG-1" by Moody's 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 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
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<PAGE>
consistent with achieving an orderly disposition by sale, exercise of any demand
feature or otherwise. In the event of a default with respect to a security which
immediately before default accounted for 1/2 of 1% or more of the Fund's total
assets, the Fund shall promptly notify the SEC of such fact and of the actions
that the Fund intends to take in response to the situation.
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.
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
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<PAGE>
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
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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.
As of November 30, 1997, the Manager was investment manager, adviser or
supervisor with respect to assets aggregating in excess of $11.1 billion. The
Manager acts as manager or administrator of fifteen other registered investment
companies and also advises pension trusts, profit-sharing trusts and endowments.
Effective January 1, 1998, NEIC Operating Partnership, L.P.("NEICOP")is
the limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager due to a restructuring by New England Investment
Companies, Inc. ("NEIC"). Reich & Tang Asset Management, Inc. (a wholly-owned
subsidiary of NEICOP) is the sole general partner and owner of the remaining .5%
interest of the Manager. NEIC, a Massachusetts corporation, serves as the
managing general partner of NEICOP.
The Manager is a wholly-owned subsidiary of NEICOP, but Reich & Tang
Asset Management, Inc., its sole general partner, is an indirect subsidiary of
Metropolitan Life Insurance Company ("MetLife"). Also, MetLife directly and
indirectly owns approximately 47% of the outstanding partnership interests of
NEICOP, and may be deemed a "controlling person" of the Manager. Reich & Tang,
Inc. owns directly and indirectly approximately 13.7% of the outstanding
partnership interests of NEICOP.
MetLife is a mutual life insurance company with assets of $297.6
billion at December 31, 1996. It is the second largest life insurance company in
the United States in terms of total assets. On August 30, 1996, The New England
Mutual Life Insurance Company ("The New England") and MetLife merged, with
MetLife being the continuing company. MetLife provides a wide range of insurance
and investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.6 trillion at December 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEICOP is a holding company offering a broad array of investment styles
across a wide range of asset categories through thirteen subsidiaries, divisions
and affiliates offering a wide array of investment styles and products to
institutional clients. Its business units, in addition to the manager, include
AEW Capital Management,
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<PAGE>
L.P., Back Bay Advisors, L.P., Capital Growth Management, Limited Partnership,
Greystone Partners, L.P., Harris Associates, L.P., Jurika & Voyles, L.P.,
Loomis, Sayles & Company, L.P., New England Funds, L.P., New England Investment
Associates, Inc., Snyder Capital Management, L.P., Vaughan, Nelson, Scarborough
& McCullough, L.P., and Westpeak Investment Advisors, L.P. These affiliates in
the aggregate are investment advisors or managers to 80 other registered
investment companies.
The recent restructuring of NEICLP did not result in a change in
control of the Manager and has no impact upon the Manager's performance of its
responsibilities and obligations. The merger between The New England and MetLife
resulted in an "assignment" of the Investment Management Contract relating to
the Fund. Under the 1940 Act, such an assignment caused the automatic
termination of this agreement. On November 28, 1995 the Board of Trustees,
including a majority of the trustees who are not interested persons (as defined
in the 1940 Act) of the Fund or the Manager, approved a new Investment
Management Contract effective August 30, 1996, which has a term which extends to
July 31, 1998 and may be continued in force thereafter for successive
twelve-month periods beginning each August 1, provided that such continuance is
specifically approved annually by majority vote of the Fund's outstanding voting
securities or by its Board of Trustees, and in either case by a majority of the
trustees who are not parties to the Investment Management Contract or interested
persons of any such party, by votes cast in person at a meeting called for the
purpose of voting on such matter.
The Investment Management Contract was approved by a majority of the
shareholders of the Fund on April 4, 1996 and contains the same terms and
conditions governing the Manager's investment management responsibilities as the
Fund's previous Investment Management Contract with the Manager, except as to
the date of execution and termination.
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 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, Inc., 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.
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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.
10
<PAGE>
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.
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DIVIDENDS AND DISTRIBUTIONS
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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.
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 cask.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.
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HOW TO PURCHASE AND REDEEM SHARES
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HOW TO BUY SHARES
You can purchase shares of the Fund through broker-dealers, banks or
other financial intermediaries, or directly through EFD. The minimum initial
investment is $1,000 which may be waived in certain situations. There is no
minimum for subsequent investments. In states where EFD is not registered as a
broker-dealer, shares of the Fund will only be sold through other broker-dealers
or other financial institutions that are registered. Only Evergreen Class A
shares are offered through this Prospectus. Instructions on how to purchase
shares of the Fund are set forth in the Share Purchase Application.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss the Fund or the Fund's Manager incurs.
If such investor is an existing shareholder, the Fund may redeem shares from his
or her account to reimburse the Fund or the Fund's Manager for any loss. In
addition, such investors may be prohibited or restricted from making further
purchase in any of the Evergreen mutual funds.
HOW TO REDEEM SHARES
You may "redeem", i.e., sell your shares in the Fund to the Fund on any Fund
Business Day, either directly or through your financial intermediary. The price
you will receive is the net asset value next calculated after the Fund receives
your request in proper form. Proceeds generally will be sent to you within seven
days. However, for shares recently purchased by check, the Fund will not send
proceeds until it is reasonably satisfied that the check has been collected
(which may take up to ten days). Once a redemption request has been telephoned
or mailed, it is irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. The Fund must receive
instructions from your financial intermediary before 4:00 p.m. (Eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service. Certain financial intermediaries may require that
you give instructions earlier than 4:00 p.m. (Eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to State Street Bank and Trust Company ("State
Street") which is the registrar, transfer agent and dividend disbursing agent
for the Fund. Stock power forms are available from your financial intermediary,
State Street, and many commercial banks. Additional documentation is required
for the sale of shares by corporations, financial intermediaries, fiduciaries
and surviving joint owners. Signature guarantees are required for all redemption
requests for shares with a value of more than $10,000 or where the redemption
proceeds are to be mailed to an address other than that shown in the account
registration. A signature guarantee must be provided by a bank or
11
<PAGE>
trust company (not a Notary Public), a member firm of a domestic stock exchange
or by other financial institutions whose guarantees are acceptable to State
Street.
Shareholders may withdraw amounts of $1,000 or more from their accounts
by calling State Street at 800-423-2615 between the hours of 8:00 a.m. to 5:30
p.m. (Eastern time) each Fund Business Day. Redemption requests made after 4:00
p.m. (Eastern time) will be processed using the net asset value determined on
the next business day. Such redemption requests must include the shareholder's
account name, as registered with the Fund, and the account number. During
periods of drastic economic or market changes, shareholders may experience
difficulty in effecting telephone redemptions. Shareholders who are unable to
reach State Street by telephone should follow the procedures outlined above for
redemption by mail.
The telephone redemption service is not available to shareholders
automatically. Shareholders wishing to use the telephone redemption service must
indicate this on the Share Purchase Application and choose how the redemption
proceeds are to be paid. Redemption proceeds will either (i) be mailed by check
to the shareholder at the address in which the account is registered or (ii) be
wired to an account with the same registration as the shareholder's account in
the Fund at a designated commercial bank. State Street currently deducts a $5.00
wire charge from all redemption proceeds wired. This charge is subject to change
without notice. Redemption proceeds will be wired on the same day if the request
is made prior to 12 noon (Eastern time). Such shares, however, will not earn
dividends for that day. Redemption requests received after 12 noon will earn
dividends for that day, and the proceeds will be wired on the following business
day. A shareholder who decides later to use this service, or to change
instructions already given, should fill out a Shareholder Services Form and send
it to State Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts
02205-9827, with such shareholder's signature guaranteed by a bank or trust
company (not a Notary Public), a member firm of a domestic stock exchange or by
other financial institutions whose guarantees are acceptable to State Street.
Shareholders should allow approximately ten days for such form to be processed.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. These procedures include requiring some
form of personal identification prior to acting upon instructions and tape
recording of telephone instructions. If the Fund fails to follow such
procedures, it may be liable for any losses due to unauthorized or fraudulent
instructions. The Fund will not be liable for following telephone instructions
reasonably believed to be genuine. The Fund reserves the right to refuse a
telephone redemption if it is believed advisable to do so. Financial
intermediaries may charge a fee for handling telephone requests. Procedures for
redeeming Fund shares by telephone may be modified or terminated without notice
at any time.
Redemptions by Check. Upon request, the Fund will provide holders of Class A
shares, without charge, with checks drawn on the Fund that will clear through
State Street. Shareholders will be subject to State Street's rules and
regulations governing such checking accounts. Checks will be sent usually within
ten business days following the date the account is established. Checks may be
made payable to the order of any payee in an amount of $250 or more. The payee
of the check may cash or deposit it like a check drawn on a bank. (Investors
should be aware that, as in the case with regular bank checks, certain banks may
not provide cash at the time of deposit, but will wait until they have received
payment from State Street.) When such a check is presented to State Street for
payment, State Street, as the shareholder's agent, causes the Fund to redeem a
sufficient number of full and fractional shares in the shareholder's account to
cover the amount of the check. Checks will be returned by State Street if there
are insufficient or uncollectable shares to meet the withdrawal amount. The
check writing procedure for withdrawal enables shareholders to continue earning
income on the shares to be redeemed up to but not including the date the
redemption check is presented to State Street for payment.
Shareholders wishing to use this method of redemption should fill out the
appropriate part of the Share Purchase Application (including the Signature
Card) and mail the completed form to State Street Bank and Trust Company, P.O.
Box 9021, Boston, Massachusetts 02205-9827. Shareholders requesting this service
after an account has been opened must contact State Street since additional
documentation will be required. Currently there is no charge either for checks
or for the clearance of any checks. This service may be terminated or altered at
any time.
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
The Fund offers the following shareholder services. For more
information about these services or your account, contact EFD or the toll-free
number on the front of this Prospectus. Some services are described in more
detail in the Share Purchase Application.
Systematic Investment Plan. You may make monthly or quarterly investments into
an existing account automatically in amounts of not less than $25.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $25,000 per
investment. Telephone investment requests received by 3:00 p.m. (Eastern time)
will be credited to a shareholder's account two business days after the request
is received.
12
<PAGE>
Systematic Cash Withdrawal Plan. When an account of $10,000 or more is opened or
when an existing account reaches that size, you may participate in the Fund's
Systematic Cash Withdrawal Plan by filling out the appropriate part of the Share
Purchase Application. Under this plan, you may receive (or designated a third
party to receive) a monthly or quarterly check in a stated amount of not less
than $75. Fund shares will be redeemed as necessary to meet withdrawal payments.
All participants must elect to have their dividends and capital gain
distributions reinvested automatically. 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. 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.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified benefit and savings plans may make shares of the Fund and the
other Evergreen mutual funds available to their participants. Each Fund's
investment adviser may provide compensation to organizations providing
administrative and recordkeeping services to plans which make shares of the
Evergreen mutual funds available to their participants.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of the
Fund at the net asset value per share at the close of business on the last
business day of each month, unless otherwise requested by a shareholder in
writing. If the transfer agent does not receive a written request for subsequent
dividends and/or distributions to be paid in cash at least three full business
days prior to a given record date, the dividends and/or distributions to be paid
to a shareholder will be reinvested. If you elect to receive dividends and
distributions in cash and the U.S. Postal Service cannot deliver the checks, or
if the checks remain uncashed for six months, the checks will be reinvested into
your account at the then current net asset value.
Tax Sheltered Retirement Plans. You may open a pension and profit sharing
account in any Evergreen mutual fund (except those funds having an objective of
providing tax free income), including: (i) Individual Retirement Accounts
("IRAs") and Rollover IRAs; (ii) Simplified Employee Pension (SEP) for sole
proprietors, partnerships and corporations; and (iii) Profit-Sharing and Money
Purchase Pension Plans for corporations and their employees.
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.
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.
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, Eastern 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, Eastern 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 SEC determines that trading thereon is restricted, or for any period
during which an emergency (as determined by the SEC) exists as a result of which
disposal by the Fund of its portfolio securities is not reasonably practicable
or as a result of which it is not reasonably practicable for the Fund fairly to
determine the value of its net assets, or for such other period as the SEC may
by order permit for the protection of the shareholders of the Fund.
Redemption requests received by the Fund's transfer agent before 12
noon, Eastern time, on any Fund Business Day become effective at 12 noon that
day. Shares redeemed are not entitled to participate in dividends
13
<PAGE>
declared on the day a redemption becomes effective. A redemption request
received after 12 noon, Eastern time, on any Fund Business Day becomes effective
on the next Fund Business Day.
The Fund has reserved the right to close an account that through
redemptions has remained below $1,000 for 30 days. Shareholders will receive 60
days' written notice to increase the account value before the account is closed.
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.
EFFECT OF BANKING LAWS
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.
- --------------------------------------------------------------------------------
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, Inc. (the "Distributor") have entered
into a Distribution Agreement and a Shareholder Servicing Agreement (with
respect to Class A shares of the Fund only).
Under the Distribution Agreement, the Distributor serves as distributor
of the Fund's shares and, for nominal consideration 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
with respect to Class A Shares (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 Distributor will determine the amount of
such payments made pursuant to the Plan, provided that such payments will not
increase the amount which the Fund is required to pay to the Manager and
Distributor for any fiscal year under either the Investment Management Contract
in effect for that year or under the Shareholder Servicing Agreement in effect
for that year.
For the fiscal year ended August 31, 1997, the total amount spent
pursuant to the Plan for Class A shares was .34% of the average daily net assets
of the Fund, of which .25% of the average daily net assets was paid by the Fund
to the Distributor, pursuant to the Shareholder Servicing and Administration
Agreement and an amount
14
<PAGE>
representing .09% of the average daily net assets was paid by the Manager's
predecessor, $14,034 was utilized for compensation to sales personnel, $5,190 on
Prospectus printing and $1,759 on miscellaneous expenses.
The Glass-Steagall Act and other applicable laws and regulations
prohibit banks and other depository institutions from engaging in the business
of underwriting, selling or distributing most types of securities. However, in
the opinion of the Manager based on the advice of counsel, these laws and
regulations do not prohibit such depository institutions from providing other
services for investment companies such as the shareholder servicing and related
administrative functions referred to above. The Fund's Board of Trustees will
consider appropriate modifications to the Fund's operations, including
discontinuance of any payments then being made under the Plan to banks and other
depository institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to provide the
above-mentioned services. It is not anticipated that the discontinuance of
payments to such an institution would result in loss to shareholders or change
in the Fund's net asset value. In addition, state securities laws on this issue
may differ from the interpretations of Federal law expressed herein and banks
and financial institutions may be required to register as dealers pursuant to
state law.
- --------------------------------------------------------------------------------
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 tax-exempt 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 having
undistributed capital gain income within the meaning of the Code. The Fund will
inform shareholders of the amount and nature of its income and gains in a
written notice mailed to shareholders not later than 60 days after the close of
the Fund's taxable year. For Social Security recipients, interest on tax-exempt
bonds, including 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. Interest on certain "private activity
bonds" (generally, a bond issue in which more than 10% of the proceeds are used
for a non-governmental trade or business and which meets the private security or
payment test, or a bond issue which meets the private loan financing test)
issued after August 7, 1986 will constitute an item of tax preference subject to
the individual alternative minimum tax. Corporations 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). 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 LLP, 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 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
15
<PAGE>
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.
- --------------------------------------------------------------------------------
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 SEC 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 shareholders 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 SEC 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 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
SEC, 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, Eastern 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, 801 Pennsylvania Street, Kansas
City, Missouri 64105 is custodian for the Fund's cash and securities. State
Street Bank and Trust Company, P.O. Box 9021, Boston, Massachusetts 02205-9827
is the registrar, transfer agent and dividend disbursing agent for the shares of
the Fund. The Fund's transfer agent and custodian do not assist in, and are not
responsible for, investment decisions involving assets of the Fund.
16
<PAGE>
Distributor
Evergreen Funds Distributor, Inc., 230 Park Avenue, New York, New York 10169
For further information, contact the Fund at 2500 Westchester Avenue Purchase,
New York 10577
537625 (REV01)
1/97
<PAGE>
FLORIDA
DAILY MUNICIPAL 600 Fifth Avenue
INCOME FUND New York, N.Y. 10020
(212) 830-5220
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
Relating to the Florida Daily Municipal Income Fund
Prospectus dated January 2 , 1998
and the
Evergreen Shares of Florida Daily Municipal Income Fund
Prospectus dated January 2 , 1998
This Statement of Additional Information, although not in itself a Prospectus,
expands upon and supplements the information contained in the current Prospectus
dated January 2, 1998, of Florida Daily Municipal Income Fund and the Evergreen
Shares of Florida Daily Municipal Income Fund (each the "Fund" dated January 2,
1998), and should be read in conjunction with the respective Prospectus. The
Fund's Prospectus may be obtained from any Participating Organization or by
writing or calling the Fund.
If you wish to invest in Evergreen Shares of the Fund you should obtain a
separate prospectus by writing to State Street Bank and Trust Company, P.O. Box
9021, Boston, Massachusetts 02205-9827 or by calling (800) 807-2840. This
Statement of Additional Information is incorporated by reference into the
respective Prospectus in its entirety.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Table of Contents
- ----------------------------------------------------------------------------------------------------------------------
Investment Objectives, Net Asset Value......................................15
Policies and Risks......................................2 Yield Quotations.....................................15
Description of Municipal Obligations....................3 Manager..............................................16
Variable Rate Demand Instruments Expense Limitation.................................18
and Participation Certificates........................5 Management of the Fund...............................18
When-Issued Securities................................7 Compensation Table...................................20
Standby Commitments...................................7 Distribution and Service Plan........................20
Taxable Securities......................................8 Description of Shares................................21
Repurchase Agreements.................................8 Federal Income Taxes.................................23
Florida Risk Factors....................................9 Florida Taxes........................................24
Investment Restrictions.................................13 Custodian and Transfer Agent.........................24
Portfolio Transactions..................................14 Description of Ratings...............................25
How to Purchase Taxable Equivalent Yield Tables......................27
and Redeem Shares.....................................15 Independent Auditor's Report.........................29
Financial Statements.................................30
- ----------------------------------------------------------------------------------------------------------------------
</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.) 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 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
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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 Ratings
Services, a division of The McGraw-Hill Companies ("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, as amended (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 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
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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 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
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
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the Board of Trustees determines is in the best interest of the Fund and its
shareholders. However, reassessment is not required if the Municipal Obligation
is disposed of or matures within five business days of the Manager becoming
aware of the new rating and provided further that the Board of Trustees is
subsequently notified of the Manager's actions.
In addition, in the event that a Municipal Obligation (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 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
- --------------------------------------------------------------------------------
* 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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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 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
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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.
Standby 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, 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.
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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.)
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.
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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, 1995, ranked fourth among the
fifty states with an estimated population of 14.1 million, an overall increase
of approximately 32.7% since 1980. Net migration has been fairly steady with an
average of 224,240 new residents each year from 1987 through 1996. Since 1987
the prime working age population (18-44) has grown at an average annual rate of
2.1%. 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
36% since 1985. The service sector is Florida's largest employment sector,
presently accounting for 87% 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 1996. Although the job
creation rate for the State since 1987 is almost over two times the rate for the
nation as a whole, in 1995 and 1996, the unemployment rate for the State has
tracked below the national average. The average rate of unemployment for Florida
since 1987 is 6.2%, while the national average is also 6.2%. 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 1995, Florida employment
income represented 60.6% of total personal income while, nationally, employment
income represented 70.8% 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 has historically been somewhat dependent on the
tourism and construction industries and is sensitive to trends in those sectors.
The State Budget. Florida prepares an annual budget which is formulated each
year and presented to the Government and Legislature. 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 1995-96, appropriations for education, health and welfare
and public safety represented approximately 51%, 31% and 14%, respectively, of
funds available 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 $16,617.4 million for the fiscal year June 30,
1997 represent an increase of 6.7% over revenues for fiscal year ended June 30,
1996. Estimated Revenue for the fiscal year June 30, 1997 of $15,568.7 million
represents an increase of 6.3% over the fiscal year ended June 30, 1996. With
combined General Revenues, Working Capital Fund and Budget Stabilization Fund
appropriations at $15,537.2 million, unencumbered reserves at fiscal year end
June 30, 1997 are estimated at $1,080.2 million.
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In the fiscal year ended June 30, 1996, the State derived approximately 66% of
its total direct revenues for deposit in the General Revenue Fund, Trust Funds,
Working Capital Fund and Budget Stabilization funds from State taxes and fees.
Federal Funds 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, 1996, receipts from the sales and use
tax totaled $11,461 million, an increase of approximately 7.4% over the fiscal
year ended June 30, 1995. 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 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 surtax 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 may be remitted to an expressway or transportation authority
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, 1996, collections of this tax totaled $1,923.0
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, 1996, receipts from the corporate income tax totaled
$1,162.7 million, an increase of approximately 9.3% from the fiscal year ended
June 30, 1995. The Documentary Stamp Tax collections totaled $775.2 million
during the fiscal year ended June 30, 1996, or approximately an 11.5% increase
from the fiscal year ended June 30, 1995. The Alcoholic Beverage Tax, an excise
tax on beer, wine and liquor and a major source of state funds, totaled $441.5
million in the fiscal year June 30, 1996. Additionally, the State levies a
surcharge on alcoholic beverages sold for consumption on the premises. In the
fiscal year ended June 30, 1996, a total of $100.6 million was collected from
these surcharges. Collections of the Intangible Personal Property Tax raised
$895.9 million in the fiscal year ended June 30, 1996, a 9.5% increase from the
previous fiscal year. The Florida lottery produced sales of $2.7 billion in the
fiscal year ended June 30, 1996 of which $788.1 million was used for education.
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
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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.
Florida Retirement System
This system was created in 1970 to provide a retirement and survivor benefit
program for participating public employees. Although retirement coverage is
employee noncontributory and there are cost-of-living adjustments, the
Constitution does not allow any increase in the benefits unless that unit has
made provision for the funding of the increase on a sound actuarial basis. The
latest actuarial update of the Florida Retirement System prepared as of July 1,
1996 indicated that the value of the assets available for benefits funded 86.4%
of the pension benefit obligation.
Florida Hurricane Catastrophe Fund
The Florida Hurricane Catastrophe Fund (FHCF) was created in 1993 as a State
trust fund to provide reimbursement to qualified insurers for a portion of their
catastrophic hurricane losses; thereby creating additional insurance capacity to
ensure that covered structures (and their contents) damages or destroyed in a
hurricane may be repaired or reconstructed as soon as possible. Payments made to
insurers shall not exceed the monies in the fund, together with the maximum
amount of revenue bonds that may be issued by a county or municipality.
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 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) 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. DHRS filed motions
to dismiss based on the theory that administrative remedies set out in the
contract between E.D.S. Federal Corporation and DHRS had not been
exhausted. The trial court, however, denied the motion which was then
appealed to the First District Court of Appeal. In an effort to bring this
matter to a final hearing, the parties involved agreed to be heard in one
proceeding before a Special Master. The Special Master recommended against
DHRS which, including accrued interest, approximates $50 million. DHRS is
contesting the Special Master's recommendation.
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(B) 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 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, The trial court's ruling
for the State has been appealed by the plaintiff at the First District
Court of Appeal, DCA No. 95-2244. Briefs have been filed and oral arguments
have been requested. An unfavorable outcome to this case could result in
the possibility of refunds exceeding $100 million.
(C) 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 appealed to the First District Court of Appeal, but the case was
remanded to Circuit Court for trial.
(D) 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 refund exposure is in excess of $188 million.
Refunds, for the most part, have been made. After the refunding is
completed, this case will be concluded. Additionally, in a related suit,
plaintiff alleges that those who were required to pay the $295 impact fee
under the predecessor statute (Section 320.072, Florida Statutes, 1990) are
also due a refund, inasmuch as that statute also violates the Commerce
Clause of the U.S. Constitution. Approximately $29 million was collected
under the Statute. The Circuit Court has dismissed this claim and the
plaintiff has appealed to the Fourth District Court of Appeal.
(E) 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 is seeking clean-up costs,
pursuant to the Comprehensive Environmental Response Compensation and
Liability Act, regarding property which the EPA alleges is owned by the
FDOT (and formerly owned by CSX Transportation, Inc.). The EPA has agreed
to await the outcome of the Department's declaratory action before
proceeding further. If the Department is unsuccessful in its actions, the
possible clean-up costs could exceed $25 million.
(F) 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. The State's potential cost of refunding these charges could exceed
$42 million. However, attorneys are in the process of negotiating a
settlement amount.
(G) Plaintiffs have challenged the constitutionality of the Public Medical
Assistance Trust Fund (PMATF) annual assessment on net operating revenue of
free-standing out-patient facilities offering sophisticated radiology
services. A trial has not been scheduled. If the State is unsuccessful in
its actions, the potential refund liability could amount to approximately
$70 million.
(H) An action has been brought by one captain and one lieutenant in the
Department of Corrections seeking declaratory judgment that they (and
potentially 700 others similarly situated) are not exempt employees under
the Fair Labor Standard Act (FLSA) and, therefore, are entitled to overtime
compensation at a rate of not less than one-and one-half times their
regular rate of pay for overtime hours worked since April 1, 1992,
including liquidated damages. An answer has been filed and discovery is
underway. If the outcome is unfavorable, the potential loss to the State
could exceed $28 million.
(I) A constitutional challenge to a portion of Chapter 88-555, Laws of Florida,
has been made, whereby the Florida Legislature amended the annual and sick
leave benefits of State employees, decreasing the former and increasing the
latter. Several employees' unions challenged the Legislature's actions,
asserting that the Legislature had abridged their right to collectively
bargain, as guaranteed by Article I, Section 6 of the Florida Constitution.
The Circuit Court ordered the State to reinstate the benefits of the
affected employees to the original position contained in the employees'
collective bargaining agreement with the State. The District Court of
Appeal agreed. The Florida Supreme Court reversed the lower courts and
remanded the case to the Circuit Court, holding that the public employees'
collective bargaining rights were subject to the Legislature's
appropriations power and that unilateral changes to
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collective bargaining agreements by the Legislature were permissible
if necessitated by failure to appropriate enough money to fund the
agreement as written. The Supreme Court directed the Circuit Court to
determine whether the legislative appropriation was sufficient to fund the
annual and sick leave provisions of the collective bargaining agreement.
The Circuit Court determined that the appropriation for fiscal year 1988-89
was sufficient and ruled that "the leave benefits as negotiated must be
enforced." The District Court of Appeal affirmed.
The Defendant State of Florida filed a motion in Circuit Court seeking
clarification that the only year for which plaintiffs are entitled to
relief is fiscal year 1988-89. At the hearing, the plaintiffs asserted a
right to additional annual leave benefits from 1988 through the present, a
period not covered by the collective bargaining agreement in question and
beyond the scope of relief sought in the complaint. On March 5, 1996, the
Circuit Court ordered the State to restore annual leave credits for all
employees in the bargaining units represented by the plaintiffs for the
period of July 1, 1988 through the present. The State filed a motion for
rehearing on September 3, 1996. On September 5, 1996, the Circuit Court
refused to vacate or rehear the March 5, 1996 order. The State has appealed
to the First District Court of Appeal. On September 24, 1996, the State
filed a suggestion to certify the case directly to the Florida Supreme
Court for resolution.
If upheld, the cost of funding the Circuit Court's order may be as much as
$579 million.
(J) The following information concerning litigation involving the State of
Florida has been provided by the State of Florida Department of Legal
Affairs. Plaintiffs have challenged the constitutionality of a portion of
Chapter 88-555, Laws of Florida, whereby the Florida Legislature amended
the annual and sick leave benefits of State employees, decreasing the
former and increasing the latter. Several employees' unions challenged the
Legislature's actions, asserting that the Legislature had abridged their
right to collectively bargain, as guaranteed by Article I, Section 6 of the
Florida Constitution. The Florida Supreme Court ordered the State to pay
annual and sick leave for the year 1988-89 at the levels contained in the
collective bargaining agreement.
(K) The State of Florida settled its lawsuit against The American Tobacco Co.,
et al. on August 18, 1997. The $11.3 billion settlement requires an initial
payment of $1 billion to the State of Florida within one year and the
remainder of the settlement OT be paid over the next 24 years.
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.
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(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 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) Issue 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
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issuing institution for servicing the underlying obligation and issuing the
participation certificate, letter of credit, guarantee or insurance and
providing the demand repurchase feature.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. No preference in purchasing portfolio securities will
be given to banks or dealers that are Participating Organizations.
Investment decisions for the Fund will be made independently from those for any
other investment companies or accounts that may be or become managed by the
Manager or its affiliates. If, however, the Fund and other investment companies
or accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In some cases, this policy might adversely
affect the price paid or received by the Fund or the size of the position
obtainable for the Fund. In addition, when purchases or sales of the same
security for the Fund and for other investment companies managed by the Manager
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantage available to large denomination purchasers or
sellers.
No portfolio transactions are executed with the Manager or its affiliates acting
as principal. In addition, the Fund will not buy bankers' acceptances,
certificates of deposit or commercial paper from the Manager or its affiliates.
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, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
The net asset value of each class 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 for such class) 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
15
<PAGE>
the nearest hundredth of one percent). For purposes of the foregoing
computation, the determination of the net change in account value during the
seven-day period reflects (i) dividends declared on the original share and on
any additional shares, including the value of any additional shares purchased
with dividends paid on the original share and (ii) fees charged to all
shareholder accounts. Realized capital gains or losses and unrealized
appreciation or depreciation of the Fund's portfolio securities are not included
in the computation. Therefore annualized yields may be different from effective
yields quoted for the same period.
The Fund's "effective yield" 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. (See "Taxable Equivalent Yield
Table" herein.)
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 was at December 30, 1997, investment manager,
adviser, or supervisor with respect to assets aggregating in excess of $10.67
billion. In addition to the Fund, the Manager acts as investment manager and
administrator of fifteen other investment companies and also advises pension
trusts, profit-sharing trusts and endowments.
Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") is the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager due to a restructuring by New England Investment
Companies, Inc. ("NEIC"). Reich & Tang Asset Management, Inc. (a wholly-owned
subsidiary of NEICOP) is the sole general partner and owner of the remaining .5%
interest of the Manager. NEIC, a Massachusetts corporation, serves as the
managing general partner of NEICOP.
The Manager is a wholly-owned subsidiary of NEICOP, but Reich & Tang Asset
Management, Inc., its sole general partner, is an indirect subsidiary of
Metropolitan Life Insurance Company ("MetLife"). Also, MetLife directly and
indirectly owns approximately 47% of the outstanding partnership interests of
NEICOP, and may be deemed a "controlling person" of the Manager. Reich & Tang,
Inc. owns directly and indirectly approximately 13.7% of the outstanding
partnership interests of NEICOP.
MetLife is a mutual life insurance company with assets of $297.6 billion at
December 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. On August 30, 1996, The New England Mutual Life
Insurance Company ("The New England") and MetLife merged, with MetLife being the
continuing company. MetLife provides a wide range of insurance and investment
products and services to individuals and groups and is the leader among United
States life insurance companies in terms of total life insurance in force, which
exceeded $1.6 trillion at December 31, 1996 for MetLife and its insurance
affiliates. MetLife and its affiliates provide insurance or other financial
services to approximately 36 million people worldwide.
NEICOP is a holding company offering a broad array of investment styles across a
wide range of asset categories through thirteen subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients.
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<PAGE>
Its business units, in addition to the manager, include AEW Capital Management,
L.P., Back Bay Advisors, L.P., Capital Growth Management, Limited Partnership,
Greystone Partners, L.P., Harris Associates, L.P., Jurika & Voyles, L.P.,
Loomis, Sayles & Company, L.P., New England Funds, L.P., New England Investment
Associates, Inc., Snyder Capital Management, L.P., Vaughan, Nelson, Scarborough
& McCullough, L.P., and Westpeak Investment Advisors, L.P. These affiliates in
the aggregate are investment advisors or managers to 80 other registered
investment companies.
The recent restructuring of NEICLP did not result in a change in control of the
Manager and has no impact upon the Manager's performance of its responsibilities
and obligations. The merger between The New England and MetLife resulted in an
"Assignment" of the Investment Management Contract relating to the Fund. Under
the 1940 Act, such an Assignment caused the automatic termination of this
agreement. On November 28, 1995, the Board of Directors, including a majority of
the directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved a new Investment Management Contract effective
August 30, 1996, which has a term which extends to July 31, 1998 and may be
continued in force thereafter for successive twelve-month periods beginning each
August 1, provided that such majority vote of the Fund's outstanding voting
securities or by a majority of the directors who are not parties to the
Investment Management Contract or interested persons of any such party, by votes
cast in person at a meeting called for the purpose of voting on such matter.
The Investment Management Contract was approved by a majority of the
shareholders of the Fund on April 4, 1996 and contains the same terms and
conditions governing the Manager's investment management responsibilities as the
Fund's previous Investment Management Contract with the Manager, except as to
the date of execution and termination.
The merger and the change in control of the Manager is not expected to have any
impact upon the Manager's performance of its responsibilities and obligations
under the new Investment Management Contract.
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 is terminable without penalty by the Fund on
sixty days' written notice when authorized either by majority vote of its
outstanding voting shares or by a vote of a majority of its Board of Trustees,
or by the Manager on sixty days written notice, and will automatically terminate
in the event of its assignment. The Investment Management Contract provides that
in the absence of willful misfeasance, bad faith or gross negligence on the part
of the Manager, or of reckless disregard of its obligations thereunder, the
Manager shall not be liable for any action or failure to act in accordance with
its duties thereunder.
Under the Investment Management Contract, the Manager receives from the Fund a
fee of .40% per annum of the Fund's average daily net assets. The fees are
accrued daily and paid monthly.
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 .21% per annum of
the Fund's average daily net assets.
For the Fund's fiscal years ended August 31, 1997, August 31, 1996 and August
31, 1995, the fee payable to the Manager under the Investment Management
Contract was $342,844 $170,022, and $165,350, respectively of which $262,474,
$170,022 and $165,350 was voluntarily waived. The Fund's net assets at the close
of business on August 31, 1997 totaled $108,464,871. The Manager may waive its
rights to any portion of the management fee and may use any portion of the
Management fee for purposes of shareholder and administrative services and
distribution of the Fund's shares.
The Manager at its discretion may waive its rights to any portion of the
management fee or the administrative services fee and may use any portion of the
management fee for purposes of shareholder and administrative services and
distribution of the Fund's shares. There can be no assurance that such fees will
be waived in the future (See "Distribution and Service Plan" herein).
17
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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, 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. As a result of the recent passage of the National
Securities Markets Imporvement Act of 1996, all state expense limitations have
been eliminated at this time.
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, 42 - President and Trustee of the Fund has been, President of
the Mutual Funds division of the Manager since September 1994. Mr. Duff was
formerly Director of Mutual Fund Administration at NationsBank which he was
associated with from June 1981 to August 1994. Mr. Duff is President and a
Director of 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., Short Term Income Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc., 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, 65 - 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., Short Term Income
Fund, Inc. and Virginia Daily Municipal Income Fund, Inc. and a Trustee of
Institutional Daily Income Fund, Pennsylvania Daily Municipal Income Fund.
Robert Straniere, 55 - Trustee of the Fund, has been a member of the New York
State Assembly and a partner with the Straniere & 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,
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Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Life Cycle Funds,
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 Virginia Daily
Municipal Income Fund, Inc. and a Trustee of Institutional Daily Income Fund,
Pennsylvania Daily Municipal Income Fund.
Dr. Yung Wong, 57 - Trustee of the Fund, was Director of Shaw Investment
Management (UK) Limited from 1994 to October 1995 and formerly was a General
Partner of Abacus Limited Partnership (a general partner of a venture capital
investment firm) from 1984 to 1994. His address is 29 Alden Road, Greenwich,
Connecticut 06831. Dr. Wong is 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 Virginia
Daily Municipal Income Fund, Inc. and a Trustee of Institutional Daily Income
Fund, Pennsylvania Daily Municipal Income Fund.
Molly Flewharty, 45 - Vice President of the Fund has been, Vice President of the
Mutual Funds division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. which she was 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., Short
Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc.
Lesley M. Jones, 48 - Vice President of the Fund has been, 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., Short Term Income Fund,
Inc. and Virginia Daily Municipal Income Fund, Inc.
Dana E. Messina, 40 - Vice President of the Fund has been Executive Vice
President of the Mutual Funds division of the Manager since January 1995 and was
Vice President from September 1993 to January 1995. Ms. Messina was formerly
Vice President of Reich & Tang, Inc. 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 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., Tax Exempt Proceeds Fund, Inc.
and Virginia Daily Municipal Income Fund, Inc.
Bernadette N. Finn, 50 - Secretary of the Fund has been Vice President of the
Mutual Funds division of the Manager since September 1993. Ms. Finn was formerly
Vice President and Assistant Secretary of Reich & Tang, Inc. which she was
associated with from September 1970 to September 1993. Ms. Finn is also
Secretary of 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, 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 Delafield Fund, Inc., Reich & Tang Equity Fund, Inc., Short Term
Income Fund, Inc. and Virginia Daily Municipal Income Fund, Inc.
Richard De Sanctis, 40 - Treasurer of the Fund has been 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., Short
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Term Income Fund, Inc., Tax Exempt Proceeds Fund, Inc. and Virginia Daily
Municipal Income Fund, Inc. and is Vice President and Treasurer of Cortland
Trust, Inc.
The Fund paid an aggregate remuneration of $6000 to its Trustees with respect to
the period ended August 31, 1997, all of which Trustees' fees paid to the three
disinterested Trustees, pursuant to the terms of the Investment Management
Contract (See "Manager" herein.)
Trustees of the Fund not affiliated with the Manager receive from the Fund an
annual retainer of $1,000 and a fee of $250 for each Board of Trustees meeting
attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Trustees who are affiliated with the Manager do not
receive compensation from the Fund. See Compensation Table below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
COMPENSATION TABLE
(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 Paid
Position Fiscal Year Part of Fund Expenses Benefits upon Retirement to Trustees*
W. Giles Mellon, $2,000 0 0 $53,000 (15 Funds)
Director
Robert Straniere, $2,000 0 0 $53,000 (15 Funds)
Director
Yung Wong, $2,000 0 0 $53,000 (15 Funds)
Director
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ending August 31, 1997 (and, with respect to certain of the
funds in the Fund Complex, estimated to be paid during the fiscal year ending
August 31, 1997). The parenthetical number represents the number of investment
companies (including the Fund) from which such person receives compensation that
are considered part of the same Fund complex as the Fund, because, among other
things, they have a common investment advisor.
</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.
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, Inc. (the
"Distributor"), as distributor of the Fund's shares.
Under the Plan, the Fund and the Distributor will enter into a Shareholder
Servicing Agreement with respect to the 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.
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<PAGE>
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, 1997, the Fund paid shareholder
servicing fees of $176,861 to the Distributor. During this same period the
Manager and Distributor made payments under the Plan to or on behalf of
Participating Organizations of $217,411. 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. Of the total amount paid pursuant to the Plan, $14,034 was utilized for
compensation to sales personnel, $5,190 on Prospectus printing and $1,759 on
miscellaneous expenses.
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, 1998 and thereafter may continue in effect for successive
annual periods beginning each September 1st, provided it is approved by the
Class A shareholders or by the Board of Trustees, including a majority of
trustees who are not interested persons of the Fund and who have no direct or
indirect interest in the operation of the Plan or in the agreements related to
the Plan. The Plan further provides that it may not be amended to increase
materially the costs which may be spent by the Fund for distribution pursuant to
the Plan without Class A shareholder approval, and the other material amendments
must be approved by the trustees in the manner described in the preceding
sentence. The Plan may be terminated at any time by a vote of a majority of the
disinterested trustees of the Fund or the Fund's Class A shareholders.
DESCRIPTION OF SHARES
The Fund was established as a Massachusetts Business Trust under the laws of
Massachusetts by an Agreement and Declaration of Trust dated 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
21
<PAGE>
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, 1997 there were 100,936,977 shares of Class A common stock
outstanding and 10,925,575 shares of Class B common stock outstanding. As of
November 30, 1997, the amount of shares owned by all officers and Trustees of
the Fund as a group were 6.32% 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, 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
CLASS A
% of Nature of Name and Address Class Ownership Reich & Tang Services, Inc. 72%
Record
as Agent for Various
Beneficial Owners
600 Fifth Avenue
New York NY 10020-2302
Evergreen Investment Services 51% Record
230 Park Avenue
New York, NY 10169
Investors Fiduciary Trust Company 25% Record
210 W. 10th Street - 8th Floor
Kansas City, MO 64105-1814
CLASS B
% of Nature of
Name and Address Class Ownership
Neuberger & Berman 70% Record
11 Broadway Operations Control Dept.
New York, NY 10004-1303
Reich & Tang Services, Inc. 13% Record
as Agent for Various
Beneficial Owners
600 Fifth Avenue - 8th Floor
New York NY 10020-2302
</TABLE>
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
trustees can elect 100% of the trustees if the holders choose to do so, and, in
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 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.
22
<PAGE>
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 and its investment company taxable
income, if any) paid by the Fund that are attributable to interest on
obligations, the interest on which is exempt from regular Federal income tax,
and designated by the Fund as exempt-interest dividends in a written notice
mailed to the Fund's shareholders not later than 60 days after the close of its
taxable year. The percentage of the total dividends paid by the Fund during any
taxable year that qualifies as exempt-interest dividends will be the same for
all shareholders receiving dividends during the year.
Exempt-interest dividends are to be treated by the Fund's shareholders as items
of interest excludable from their gross income under Section 103(a) of the Code.
However, a shareholder is advised to consult his tax advisors with respect to
whether exempt-interest dividends retain the exclusion under Section 103 of the
Code if such shareholder 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 are
required to include as an item of tax preference for purposes of the Federal
alternative minimum tax all tax-exempt interest on "private activity" bonds
(generally, a bond issue in which more than 10% of the proceeds are used in a
non-governmental trade or business) (other than Section 501(c)(3) bonds) issued
after August 7, 1986. Thus, this provision will apply to the portion of the
exempt-interest dividends from the Fund's assets, that are attributable to such
post-August 7, 1986 private activity bonds, if any of such bonds are acquired by
the Fund. Corporations are required to increase their alternative minimum
taxable income for purposes of calculating their alternative minimum tax
liability by 75% of the amount by which the adjusted current earnings (which
will include tax-exempt interest) of the corporation exceeds the alternative
minimum taxable income (determined without this item). In addition, in certain
cases, Subchapter S corporations with accumulated earnings and profits from
Subchapter C years are subject to a minimum tax on excess "passive investment
income" which includes tax-exempt interest.
Although 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
23
<PAGE>
capital gains over capital losses). If the Fund does not distribute at least 98%
of its ordinary income and 98% of its capital gain net income for a taxable
year, the Fund will be subject to a nondeductible 4% excise tax on the excess of
such amounts over the amounts actually distributed.
If a shareholder fails to provide the Fund with a current taxpayer
identification number, the Fund generally is required to withhold 31% of taxable
interest, dividend payments, and proceeds from the redemption of shares of the
Fund.
Dividends and distributions to shareholders will be treated in the same manner
for Federal income tax purposes whether received in cash or reinvested in
additional shares of the Fund.
With respect to the variable rate demand instruments, including participation
certificates therein, the Fund has obtained and is relying on the opinion of
Battle Fowler LLP, counsel to the Fund, that it will be treated for Federal
income tax purposes as the owner 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.
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, 801 Pennsylvania Street, Kansas City,
Missouri 64105, is custodian for the Fund's cash and securities. Reich & Tang
Services, Inc., 600 Fifth Avenue, New York, NY 10020, is transfer agent and
dividend agent for the shares of the Fund. State Street Bank and Trust Company,
P.O. Box 9021, Boston, Massachusetts 02205-9827 is the registrar, transfer agent
and dividend disbursing agent for the Evergreen Shares of the Fund. The
custodian and transfer agents do not assist in, and are not responsible for,
investment decisions involving assets of the Fund.
24
<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 Ratings Services, a division of The McGraw-Hill
Companies 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 Ratings Services, a division of The McGraw-Hill
Companies 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.
25
<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.
- -----------------
* As described by the rating agencies.
26
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
CORPORATE TAXABLE EQUIVALENT YIELD TABLE
- ---------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
$50,001- $75,001- $100,001- $335,001- $10,000,001- $15,000,001- $18,333,334-
Corporate 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 and over
- ---------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- ---------------------------------------------------------------------------------------------------------------
Federal 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00%
Tax Rate
- ---------- ------------ ------------- ------------- ------------- --------------- -------------- --------------
State 5.50% 5.50% 5.50% 5.50% 5.50% 5.50% 5.50%
Tax Rate
- --------- ------------ ------------- ------------- ------------- --------------- -------------- --------------
Combined 29.13% 37.63% 42.36% 37.63% 38.58% 41.41% 38.58%
Tax Rate
- ---------------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
- ---------------------------------------------------------------------------------------------------------------
Tax Equivalent Taxable Investment Yield
Exempt Requires to Match Tax Exempt Yield
Yield
- ---------- ------------ ------------- ------------- ------------- --------------- -------------- --------------
2.00% 2.82% 3.21% 3.47% 3.21% 3.26% 3.41% 3.26%
- ---------- ------------ ------------- ------------- ------------- --------------- -------------- --------------
2.50% 3.53% 4.01% 4.34% 4.01% 4.07% 4.27% 4.07%
- ---------- ------------ ------------- ------------- ------------- --------------- -------------- --------------
3.00% 4.23% 4.81% 5.20% 4.81% 4.88% 5.12% 4.88%
- ---------- ------------ ------------- ------------- ------------- --------------- -------------- --------------
3.50% 4.94% 5.61% 6.07% 5.61% 5.70% 5.97% 5.70%
- ---------- ------------ ------------- ------------- ------------- --------------- -------------- --------------
4.00% 5.64% 6.41% 6.94% 6.41% 6.51% 6.83% 6.51%
- ---------- ------------ ------------- ------------- ------------- --------------- -------------- --------------
4.50% 6.35% 7.22% 7.81% 7.22% 7.33% 7.68% 7.33%
- ---------- ------------ ------------- ------------- ------------- --------------- -------------- --------------
5.00% 7.05% 8.02% 8.67% 8.02% 8.14% 8.53% 8.14%
- ---------- ------------ ------------- ------------- ------------- --------------- -------------- --------------
5.50% 7.76% 8.82% 9.54% 8.82% 8.95% 9.39% 8.95%
- ---------- ------------ ------------- ------------- ------------- --------------- -------------- --------------
6.00% 8.47% 9.62% 10.41% 9.62% 9.77% 10.24% 9.77%
- ---------- ------------ ------------- ------------- ------------- --------------- -------------- --------------
6.50% 9.17% 10.42% 11.28% 10.42% 10.58% 11.09% 10.58%
- ---------- ------------ ------------- ------------- ------------- --------------- -------------- --------------
7.00% 9.88% 11.22% 12.14% 11.22% 11.40% 11.95% 11.40%
- ---------- ------------ ------------- ------------- ------------- --------------- -------------- --------------
To use this chart, find the applicable level of taxable income based on your tax
filing status in section one. Then read
down to section two to determine your combined tax bracket and, in section
three, to see the equivalent taxable yields for each of the tax free income
yields given.
</TABLE>
27
<PAGE>
- --------------------------------------------------------------------------------
INDIVIDUAL TAXABLE EQUIVALENT YIELD TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1. If Your Taxable Income Bracket Is . . .
$0- $25,351- $60,001- $61,401- $128,101- $278,451-
Corporate 25,350 60,000 61,400 128,100 278,450 and over
- ------------------- ----------- ------------- -------------- ------------- ------------- -------------
Joint Return $0- $42,351- $100,001- $102,301- $155,951- $278,451-
42,350 100,000 102,300 155,950 278,450 and over
- ------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket Is . . .
- ------------------------------------------------------------------------------------------------------
Federal
Tax Rate 15.00% 28.00% 31.00% 31.00% 36.00% 39.60%
- ------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
- ------------------------------------------------------------------------------------------------------
Tax Exempt Equivalent Taxable Investment Yield
Yield Requires to Match Tax Exempt Yield
- ------------------- ----------------------------------------------------------------------------------
2.00% 2.35% 2.78% 2.90% 2.90% 3.13.% 3.31%
- ------------------- ----------- ------------- -------------- ------------- ------------- -------------
2.50% 2.94% 3.47% 3.62% 3.62% 3.91% 4.14%
- ------------------- ----------- ------------- -------------- ------------- ------------- -------------
3.00% 3.53% 4.17% 4.35% 4.35% 4.69% 4.97%
- ------------------- ----------- ------------- -------------- ------------- ------------- -------------
3.50% 4.12% 4.86% 5.07% 5.07% 5.47% 5.79%
- ------------------- ----------- ------------- -------------- ------------- ------------- -------------
4.00% 4.71% 5.56% 5.80% 5.80% 6.25% 6.62%
- ------------------- ----------- ------------- -------------- ------------- ------------- -------------
4.50% 5.29% 6.25% 6.52% 6.52% 7.03% 7.45%
- ------------------- ----------- ------------- -------------- ------------- ------------- -------------
5.00% 5.88% 6.94% 7.25% 7.25% 7.81% 8.28%
- ------------------- ----------- ------------- -------------- ------------- ------------- -------------
5.50% 6.47% 7.64% 7.97% 7.97% 8.59% 9.11%
- ------------------- ----------- ------------- -------------- ------------- ------------- -------------
6.00% 7.06% 8.33% 8.70% 9.38% 9.38% 9.93%
- ------------------- ----------- ------------- -------------- ------------- ------------- -------------
6.50% 7.65% 9.03% 9.42% 9.42% 10.16% 10.76%
- ------------------- ----------- ------------- -------------- ------------- ------------- -------------
7.00% 8.24% 9.72% 10.14% 10.14% 10.94% 11.59%
- ------------------- ----------- ------------- -------------- ------------- ------------- -------------
To use this chart, find the applicable level of taxable income based 10.14 on
your tax filing status in section one. Then read down to section two to
determine your combined tax bracket and, in section three, to see the equivalent
taxable yields for each of the tax free income yields given.
</TABLE>
28
<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, 1997 and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the two years in the period then ended and for the period from September
19, 1994 (Commencement of Operations) to August 31, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits 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 financial
highlights 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, 1997, 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Florida Daily Municipal Income Fund as of August 31, 1997, the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
September 30, 1997
29
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA DAILY MUNICIPAL INCOME FUND
STATEMENT OF NET ASSETS
AUGUST 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poors
------ ---- ----- ------ ------- ------
Other Tax Exempt Investments (10.16%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,000,000 Palm Beach County, FL School District TAN - Series 1996 09/26/97 3.85% $ 2,000,758 SP-1+
4,000,000 School District of Broward County, FL RAN - Series 1997A 04/22/98 3.85 4,014,687 MIG-1 SP-1+
5,000,000 The School District of Seminole County, FL RAN - Series 1997 02/17/98 3.52 5,006,762 SP-1+
------------ ------------
11,000,000 Total Other Tax Exempt Investments 11,022,207
------------ ------------
<CAPTION>
Other Variable Rate Demand Instruments (c) (74.58%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,000,000 Atlantic Beach, FL (Fleet Landing) - Series B
LOC Barnett Bank of Jacksonville 10/01/24 3.85% $ 1,000,000 VMIG-1
2,000,000 Birmingham, AL Medical Clinic Board
LOC Morgan Guaranty Trust Company 12/01/26 3.70 2,000,000 A1+
3,200,000 Broward County, FL HFA MHRB (Sanctuary Apartments Project)
LOC PNC Bank 02/01/09 3.50 3,200,000 VMIG-1
400,000 Broward County, FL IDRB (Allied Signal Incorporated) 03/01/99 3.50 400,000 A1
3,000,000 Chattanooga - Hamilton City Hospital Authority
(Erlanger Medical Center)
LOC Morgan Guaranty Trust Company 10/01/17 3.70 3,000,000 A1
2,100,000 Citrus Park Community Development District Capital
Improvement Bonds - Series 1996
LOC Dresdner Bank A.G. 11/01/16 3.30 2,100,000 VMIG-1 A1+
500,000 City of Tampa, Florida, Occupation License Tax Boards - Series 1996A
FGIC Insured 03/01/27 3.30 500,000 VMIG-1 A1+
505,000 Dade County, FL Aviation RB - Series V
LOC Suntrust 10/01/07 3.35 505,000 VMIG-1 A1
3,600,000 Dade County, FL HFA MHRB (Gables Point) - Series 1985
Fannie Mae Collateralized 05/15/05 3.30 3,600,000 A1+
2,600,000 Dade County, FL IDA RB (Florida Convalescent Association)
LOC Bank of Tokyo - Mitsubishi Bank, Ltd. 12/01/11 3.60 2,600,000 VMIG-1
3,515,000 Escambia County, FL IDRB (Gelman Sciences, Incorporation Project)
LOC First National Bank of Chicago 07/01/04 3.40 3,515,000 A1+
1,100,000 Florida HFA MHRB (Falls of Venice Project) (b)
LOC PNC Bank 12/01/11 3.55 1,100,000
1,000,000 Florida Housing Finance Agency (Heron Park Project) - Series - V
LOC Nations Bank 12/01/26 3.45 1,000,000 VMIG-1
3,000,000 Florida Housing Finance Agency MHRB
(Monterey Meadows Apartment Project) - Series 1985
LOC Citibank 12/01/07 3.30 3,000,000 A1+
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
30
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poors
------ ---- ----- ------ ------- ------
Other Variable Rate Demand Instruments (c) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 915,000 Gulf Breeze, FL RB - Series 1985B
FGIC Insured 12/01/15 3.30% $ 915,000 VMIG-1 A1+
1,270,000 Gulf Breeze, FL RB - Series 1985C
FGIC Insured 12/01/15 3.30 1,270,000 VMIG-1 A1
1,000,000 Highlands County, FL HFA RB
(Adventist Health System/Sunbolt Inc.) - Series 1996B
LOC Capital Markets Assurance Corp. 10/01/26 3.38 1,000,000 VMIG-1 A1+
2,500,000 Illinois HFA RB (Resurrection Hospital) 05/01/11 3.60 2,500,000 VMIG-1
1,100,000 Indian River County, FL IDRB (Florida Convention Centers Project)
LOC Toronto-Dominion Bank 01/01/11 3.95 1,100,000 P1
2,700,000 Jacksonville, FL HFFA HRB (Baptist Medical Center Project)
MBIA Insured 06/01/08 3.85 2,700,000 VMIG-1 A1+
2,700,000 Jacksonville, FL HRB (University Medical Center) - Series 1989
LOC Sumitomo Bank, Ltd. 02/01/19 3.55 2,700,000 VMIG-1
1,000,000 Jacksonville, FL IDRB
(University of Florida Health Science Center) - Series 1989
LOC Barnett Bank of Jacksonville 07/01/19 3.60 1,000,000 VMIG-1
710,000 Lee, FL IDRB (Christian & Missionary Alliance) - Series 1985
LOC Banque Paribas 04/01/10 3.48 710,000 A1
1,750,000 Marion County, FL IDA
(Hamilton Products, Incorporation Project) - Series 1995 (b)
LOC Comerica Bank 11/01/15 3.65 1,750,000
200,000 Monroe County,FL IDA (Beverly Enterprises) - Series 1985
LOC Morgan Guaranty Trust Company 06/01/10 3.30 200,000 VMIG-1
900,000 Ocean Highway & Port Authority RB - Series 1990
LOC ABN AMRO Bank N.V. 12/01/20 3.40 900,000 VMIG-1 A1+
900,000 Ocean Highway & Port Authority, FL RB
(Port, Airport & Marina Improvement)
LOC ABN AMRO Bank N.V. 12/01/20 3.40 900,000 VMIG-1 A1+
1,000,000 Orange County Health Facilities Authority RB
(Adventist Health System/Sunbelt Obligation)
LOC Rabobank Nederland 11/15/26 3.30 1,000,000 A1+
5,230,000 Orange County, FL HFFA
(Mayflower Retirement Company Project) - Series 1998
LOC Rabobank Nederland 03/01/18 3.45 5,230,000 A1+
2,100,000 Orange County, FL Health Facility - Adventist
Orange County Health Facility
LOC Suntrust 11/15/14 3.30 2,100,000 VMIG-1 A1
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
31
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA DAILY MUNICIPAL INCOME FUND
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1997
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poors
------ ---- ----- ------ ------- ------
Other Variable Rate Demand Instruments (c) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 950,000 Orange County, FL IDRB (Florida Convention Centers Project) - Series A
LOC Toronto-Dominion Bank 01/01/11 3.75% $ 950,000 P1
2,000,000 Palm Beach County, FL (Norton Gallery of Art Project) - Series 1995
LOC Northern Trust 05/01/25 3.35 2,000,000 A1+
600,000 Palm Beach County, FL IDRB
LOC Bank of Tokyo - Mitsubishi Bank, Ltd. 11/01/11 3.60 600,000 VMIG-1
1,000,000 Pinellas County, FL (Indian Country Project) (b)
LOC Wachovia Bank & Trust Co., N.A. 10/01/01 3.35 1,000,000
5,075,000 Pinellas County, FL HFFA (St. Mark Village Project) - Series 1987
LOC Nations Bank 03/01/17 3.35 5,075,000 A1
1,000,000 Pinellas County, FL Industry Council IDRB
(Genca Corporation Project) (b)
LOC PNC Bank 11/01/09 3.60 1,000,000
1,000,000 Polk County, FL IDA (Florida Convention Centers Project)
LOC Toronto-Dominion Bank 01/01/11 3.75 1,000,000 P1
7,600,000 Royal Oak, MI HFA HRB
(William Beaumont Hospital) - Series J 01/01/03 3.65 7,600,000 VMIG-1 A1+
2,300,000 St. Johns County, FL IDA Health Facility Revenue
(Coastal Health Care Investor)
LOC Kredietbank 12/01/16 3.60 2,300,000 VMIG-1
975,000 Suwannee County, FL - Series 1989 (Advent Christian Village Project)
LOC Barnett Bank of Jacksonville 10/01/19 3.45 975,000 VMIG-1
3,000,000 Tampa, FL Health Care Facilities (Lifelink Foundation Inc. Project) (b)
LOC Suntrust 08/01/22 3.40 3,000,000
1,900,000 University of North Florida
LOC First Union National Bank 11/01/24 3.35 1,900,000 VMIG-1
------------ ------------
80,895,000 Total Other Variable Rate Demand Instruments 80,895,000
------------ ------------
<CAPTION>
Put Bonds (d) (4.53%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,510,000 HFA of Escambia County, FL Single Family Mortgage RB
(Backed by GNMA & FNMA Collateral) 02/20/98 3.75% $ 1,510,000 VMIG-1
2,400,000 Putnam County, FL Development Authority
(Seminole Electric) - Series H-3
LOC National Rural Utilities 09/15/97 3.55 2,400,000 VMIG-1 A1+
1,000,000 Putnam County, FL Development Authority
(Seminole Electric) - Series 1984 D 12/15/97 3.60 1,000,000 VMIG-1 A1+
------------ ------------
4,910,000 Total Put Bonds 4,910,000
------------ ------------
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
32
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 1) Moody's & Poors
------ ---- ----- ------ ------- ------
Tax Exempt Commercial Paper (10.74%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,200,000 City of Gainesville, FL Utility System - Series C 10/08/97 3.65% $ 1,200,000 P1 A1+
990,000 Florida Municipal Power Agency
Initial Pooled Loan Project CP Notes - Series A
LOC First Union National Bank of North Carolina 10/22/97 3.60 990,000 P1 A1
1,000,000 Florida Municipal Power Agency Initial Pooled Loan Project RB - Series A
LOC First Union National Bank 09/30/97 3.75 1,000,000 VMIG-1 A1+
1,200,000 Florida Municipal Power Agency Initial Pooled Loan Project RB - Series A
LOC First Union National Bank 12/18/97 3.75 1,200,000 P1 A1
1,100,000 Orlando, FL Waste Water System Refunding RB - Series 1990 A 09/08/97 3.70 1,100,000 P1 A1+
1,660,000 Sarasota County Public Hospital District
(Sarasota Memorial Hospital Project) - Series A
LOC Suntrust 09/10/97 3.80 1,660,000 P1 A1+
1,500,000 St. Lucie County, Florida PCR Refunding Bonds
(Florida Power & Light Co.) 1994 09/30/97 3.70 1,500,000 VMIG-1 A1+
2,000,000 Sunshine State Government Finance Commission RB - Series 1986
LOC U.B. of Switz./Morgan Guaranty/National Westminster 10/22/97 3.60 2,000,000 VMIG-1
1,000,000 West Orange Memorial Tax District RB - Series 1991A
LOC Rabobank Nederland 11/25/97 3.70 1,000,000 VMIG-1
------------ ------------
11,650,000 Total Tax Exempt Commercial Paper 11,650,000
------------ ------------
Total Investments (100.01%)(Cost $108,477,207+) 108,477,207
Liabilities in Excess of Cash and Other Assets (-0.01%) ( 12,336)
-----------
Net Assets (100.00%) $108,464,871
============
Net Asset Value, offering and redemption price per share:
Class A Shares, 96,686,154 Shares Outstanding (Note 3) $ 1.00
============
Class B Shares, 11,782,614 Shares Outstanding (Note 3) $ 1.00
============
+ Aggregate cost for federal income tax purposes is identical.
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
33
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA DAILY MUNICIPAL INCOME FUND
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1997
===============================================================================
FOOTNOTES:
(a) The ratings noted for variable rate demand instruments are those of the
bank whose letter of credit secures such instruments or the guarantor of
the bond. 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, if indicated, 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.
(d) The maturity date indicated is the next put date.
<TABLE>
<CAPTION>
KEY:
<S> <C> <C> <C> <C> <C>
CP = Commercial Paper MHRB = Multi-family Housing Revenue Bond
HFA = Housing Finance Authority PCR = Pollution Control Revenue
HFFA = Health Facility Finance Authority RAN = Revenue Anticipation Note
HRB = Hospital Revenue Bond RB = Revenue Bond
IDA = Industrial Development Authority TAN = Tax Anticipation Note
IDRB = Industrial Development Revenue Bond
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
34
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA DAILY MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1997
===============================================================================
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Income:
Interest.................................................................... $ 3,078,825
------------
Expenses: (Note 2)
Investment management fee................................................... 342,844
Administration fee.......................................................... 179,993
Shareholder servicing fee................................................... 176,861
Custodian fee............................................................... 12,852
Shareholder servicing and related shareholder expenses...................... 52,061
Legal, compliance and filing fees........................................... 34,262
Audit and accounting........................................................ 61,550
Trustees' fees.............................................................. 6,222
Amortization of organization expenses....................................... 11,443
Other....................................................................... 4,382
------------
Total expenses........................................................... 882,470
Less: Expenses paid indirectly (Note 2).................................. ( 2,310)
Less: Fees waived and expenses reimbursed (Note 2)....................... ( 433,896)
------------
Net expenses............................................................. 446,264
------------
Net investment income........................................................... 2,632,561
<CAPTION>
REALIZED GAIN (LOSS) ON INVESTMENTS
<S> <C>
Net realized gain (loss) on investments......................................... -0-
------------
Increase in net assets from operations.......................................... $ 2,632,561
============
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
35
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA DAILY MUNICIPAL INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED AUGUST 31, 1997 AND 1996
===============================================================================
<TABLE>
<CAPTION>
1997 1996
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C>
Operations:
Net investment income...................................... $ 2,632,561 $ 1,341,397
Net realized gain (loss) on investments.................... -0- -0-
------------ -----------
Increase in net assets from operations.......................... 2,632,561 1,341,397
Dividends to shareholders from net investment income:
Class A.................................................... ( 2,143,306)* ( 821,675)*
Class B.................................................... ( 489,255)* ( 519,722)*
Transactions in shares of beneficial interest (Note 3):
Class A.................................................... 59,926,041 15,783,783
Class B.................................................... 2,169,867 ( 562,659)
------------ -----------
Total increase......................................... 62,095,908 15,221,124
Net assets:
Beginning of year.......................................... 46,368,963 31,147,839
------------ -----------
End of year................................................ $ 108,464,871 $ 46,368,963
============ ===========
* Designated as exempt-interest dividends for federal income tax purposes.
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
36
<PAGE>
- -------------------------------------------------------------------------------
FLORIDA DAILY MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. Summary of Accounting Policies.
Florida Daily Municipal Income Fund, a Massachusetts Business Trust, is a
no-load, non-diversified, open-end management investment company registered
under the Investment Company Act of 1940. The Fund is a short-term, tax exempt
money market fund. 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. Additionally, the Fund may allocate among its classes certain expenses, to
the extent allowable to specific classes, including transfer agent fees,
government registration fees, certain printing and postage costs, and
administrative and legal expenses. Class Specific expenses of the Fund were
limited to distribution fees and minor transfer agent expenses. 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) Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results
could differ from those estimates.
e) 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.
Pursuant to an Administrative Services Contract the Fund pays to the Manager an
annual fee of .21% of the Fund's average daily net assets.
- -------------------------------------------------------------------------------
37
<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 year ended August 31, 1997, the Manager voluntarily waived investment
management fees and administration fees of $262,474 and $171,422, respectively.
Included in the statement of operations under the caption "Shareholder servicing
and related shareholder expenses" are expense offsets of $2,310.
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 "Shareholder servicing
and related shareholder expenses" are fees of $42,846 paid to Reich & Tang
Services L.P., an affiliate of the Manager, as servicing agent for the Fund.
3.Transactions in Shares of Beneficial Interest.
At August 31, 1997, an unlimited number of shares of beneficial interest ($.01
par value) were authorized and capital paid in amounted to $108,468,768.
Transactions, all at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
Class A Year Ended Year Ended
August 31, 1997 August 31, 1996
---------------- ---------------
<S> <C> <C>
Sold............................................ 290,402,555 97,806,611
Issued on reinvestment of dividends............. 2,012,037 750,946
Redeemed........................................ ( 232,488,551) ( 82,773,774)
-------------- ---------------
Net increase ................................... 59,926,041 15,783,783
=============== ================
<CAPTION>
Class B Year Ended Year Ended
August 31, 1997 August 31, 1996
--------------- ---------------
<S> <C> <C>
Sold............................................ 92,064,894 141,842,014
Issued on reinvestment of dividends............. 461,971 477,971
Redeemed........................................ ( 90,356,998) ( 142,882,644)
-------------- --------------
Net increase.................................... 2,169,867 ( 562,659)
=============== ===============
</TABLE>
4. Sales of Securities.
Accumulated undistributed realized losses at August 31, 1997, amounted to
$3,897. Such amount represents tax basis capital losses which may be carried
forward to offset future capital gains. Such losses expire through August 31,
2004.
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 66% 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. Financial Highlights.
Reference is made to page 2 of the Prospectus under Financial Highlights.
- -------------------------------------------------------------------------------
38
