As filed with the Securities and Exchange Commission on January 28, 2000
Registration No. 33-90538
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 3 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 5 [X]
VIRGINIA DAILY MUNICIPAL INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
c/o Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 830-5200
BERNADETTE N. FINN
Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
(Name and Address of Agent for Service)
Copy to: MICHAEL R. ROSELLA, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective: (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[x] on (January 31, 2000) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] on (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
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VIRGINIA DAILY 600 FIFTH AVENUE
MUNICIPAL INCOME FUND, INC. NEW YORK, N.Y. 10020
Class A Shares; Class B Shares (212) 830-5220
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PROSPECTUS
February 1, 2000
A money market fund whose investment objectives are to seek as high a level of
current income exempt from regular Federal income tax and, to the extent
possible, from Virginia income tax, as is believed to be consistent with
preservation of capital, maintenance of liquidity and stability of principal.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
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TABLE OF CONTENTS
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2 Risk/Return Summary: Investments, Risks, 8 Management, Organization and Capital Structure
and Performance 8 Shareholder Information
4 Fee Table 15 Tax Consequences
5 Investment Objectives, Principal Investment 16 Distribution Arrangements
Strategies and Related Risks 18 Financial Highlights
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I. RISK/RETURN SUMMARY: INVESTMENTS,
RISKS, AND PERFORMANCE
Investment Objectives
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The Fund seeks as high a level of current income exempt from regular
Federal income tax and, to the extent possible, from Virginia income tax, 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.
Principal Investment Strategies
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The Fund intends to achieve its investment objectives by investing
principally in short-term, high quality, debt obligations of:
(i) Virginia, and its political subdivisions,
(ii) Puerto Rico and other United States Territories, and their political
subdivisions, and
(iii) other states.
These debt obligations are collectively referred to throughout this
Prospectus as Municipal Obligations.
The Fund is a money market fund and seeks to maintain an investment
portfolio with a dollar-weighted average maturity of 90 days or less, to
value its investment portfolio at amortized cost and to maintain a net
asset value of $1.00 per share.
The Fund intends to concentrate (i.e. 25% or more of the Fund's net assets)
in Virginia Municipal Obligations, including participation certificates
therein. Participation Certificates evidence ownership of an interest in
the underlying Municipal Obligations, purchased from banks, insurance
companies or other financial institutions.
Principal Risks
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o Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
o The value of the Fund's shares and the securities held by the Fund can each
decline in value.
o The amount of income the Fund generates will vary with changes in prevailing
interest rates.
o An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the FDIC or any other governmental agency.
o Because the Fund intends to concentrate in Virginia Municipal Obligations,
including Participation Certificates therein, investors should also consider
the greater risk of the portfolio's concentration versus the safety that
comes with a less concentrated investment portfolio.
o An investment in the Fund should be made with an understanding of the risks
which an investment in Virginia Municipal Obligations may entail. Payment of
interest and preservation of capital are dependent upon the continuing
ability of Virginia issuers and/or obligors of state, municipal and public
authority debt obligations to meet their payment obligations. Unfavorable
political and economic conditions within Virginia can affect the credit
quality of issues located in that state. Risk factors affecting the State of
Virginia are described in "Virginia Risk Factors" in the Statement of
Additional Information.
Risk/Return Bar Chart and Table
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The following bar chart and table may assist you in deciding whether to
invest in the Fund. The bar chart shows the change in the annual total returns
of the Fund's Class A shares for the last calendar year. The table shows the
average annual total returns of the Fund's Class A and Class B shares for the
last one year and since inception periods. While analyzing this information,
please note that the Funds' past performance is not an indicator of how the Fund
will perform in the future. The current 7-day yield of each of the Fund's
classes may be obtained by calling the Fund toll-free at 1-800-221-3079.
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Virginia Daily Municipal Income Fund, Inc. - Class A (1)(2)
[GRAPHIC OMITTED]
Calendar Year End % Total Return
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1999 2.43%
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(1) The Fund's highest quarterly return was 0.70% for the quarter ended
December 31, 1999; the lowest quarterly return was 0.51% for the quarter
ended March 31, 1999.
(2) Participating Organizations may charge a fee to investors for purchasing
and redeeming shares. Therefore, the net return to such investors may be
less than the net return by investing in the Fund directly.
Average Annual Total Returns -
Virginia Daily Municipal Income Fund, Inc.
Class A Class B
For the period ended December 31, 1999
One Year 2.43% N/A
Since Inception* 2.47% 2.75%
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* The inception date for the Class A shares was July 14, 1998 and for the Class
B shares was April 1, 1999.
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FEE TABLE
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This table describes the fees and expenses that you may pay if you buy and hold
shares in the Fund.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Class A Shares Class B Shares
Management Fees.......................... 0.40% 0.40%
Distribution and Service (12b-1) Fees.... 0.25% 0.00%
Other Expenses........................... 3.07% 3.07%
Administration Fees.................... 0.21% _____ 0.21% _______
Total Annual Fund Operating Expenses........... 3.72% 3.47%
The Manager has voluntarily waived the entire Management Fee and Administrative
Fee and reimbursed a portion of the Fund's Other Expenses with respect to both
Class A and B shares. The reimbursement of the Fund's Other Expenses, with
respect to both Class A and B shares, was 2.28%. After these waivers and
reimbursements the actual Total Annual Fund Operating Expenses are 0.83% for
Class A and 0.58% for Class B. This fee waiver and reimbursement arrangement may
be terminated at any time at the option of the Manager.
Example
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
Assume that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. Also assume that
your investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 Year 3 Years
Class A: $374 $1,138
Class B: $350 $1,065
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II. INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
Investment Objectives
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The Fund is a short-term, tax-exempt money market fund whose investment
objectives are to seek as high a level of current income exempt from Federal
income tax and, to the extent possible, from Virginia income tax, consistent
with preserving capital, maintaining liquidity and stabilizing principal.
The investment objectives of the Fund described in this section may only be
changed upon the approval of the holders of a majority of the outstanding shares
of the Fund that would be affected by such a change.
Principal Investment Strategies
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Generally
The Fund will invest primarily (i.e., at least 80%) in short-term, high
quality, debt obligations which include:
(i) Virginia Municipal Obligations issued by or on behalf of the Commonwealth
of Virginia or any Virginia local governments, or their instrumentalities,
authorities or districts;
(ii) Territorial Municipal Obligations issued by or on behalf of Puerto Rico and
the Virgin Islands or their instrumentalities, authorities, agencies and
political subdivisions; and
(iii)Municipal Obligations issued by or on behalf of other states, their
authorities, agencies, instrumentalities and political subdivisions.
The Fund will also invest in Participation Certificates in Municipal
Obligations. Participation Certificates represent the Fund's interest in a
Municipal Obligation that is held by another entity (i.e. banks, insurance
companies or other financial institutions). Instead of purchasing a Municipal
Obligation directly, the Fund purchases and holds an undivided interest in a
Municipal Obligation that is held by a third party. The Fund's interest in the
underlying Municipal Obligation is proportionate to the Fund's participation
interest. Ownership of the Participation Certificates cause the Fund to be
treated as the owner of the underlying Municipal Obligations for Federal income
tax purposes.
The Fund may invest more than 25% of its assets in Participation
Certificates in Virginia Municipal Obligations and other Virginia Municipal
Obligations.
Although the Fund will attempt to invest 100% of its total assets in
Municipal Obligations and Participation Certificates, the Fund reserves the
right to invest up to 20% of its total assets in taxable securities whose
interest income is subject to regular Federal, state and local income tax. The
kinds of taxable securities in which the Fund may invest are limited to
short-term, fixed income securities as more fully described in "Taxable
Securities" in the Statement of Additional Information.
The Fund may also purchase securities and participation certificates whose
interest income may be subject to the Federal alternative minimum tax. However,
these investments are included in the same 20% of total assets that may be
invested in taxable securities.
To the extent suitable Virginia Municipal Obligations and Territorial
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 investors receive will be designated by the
Fund as derived from interest income that will be, in the opinion of bond
counsel to the issuers at the day of issuance, exempt from regular Federal
income tax, but subject to the Virginia income tax.
The Fund will invest at least 65% of its total assets in Virginia Municipal
Obligations, although the exact amount may vary from time to time. As a
temporary defensive measure the Fund may, from time to time, invest in
securities that are inconsistent with its principal investment strategies in an
attempt to respond to adverse market, economic, political or other conditions as
determined by the Fund's investment adviser.
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Such a temporary defensive position may cause the Fund to not achieve its
investment objectives.
With respect to 75% of its total assets, the Fund shall invest not more
than 5% of its total assets in Municipal Obligations or Participation
Certificates issued by a single issuer. The Fund shall not invest more than 5%
of its total assets in Municipal Securities or Participation Certificates issued
by a single issuer unless the Municipal Obligations are of the highest quality.
With respect to 75% of its total assets, the Fund shall invest not more
than 10% of its total assets in Municipal Obligations or Participation
Certificates backed by a demand feature or guarantee from the same institution.
The Fund's investments may also include "when-issued" Municipal Obligations
and stand-by commitments.
The Fund's investment adviser considers the following factors when buying
and selling securities for the portfolio: (i) availability of cash, (ii)
redemption requests,(iii) yield management, and (iv) credit management.
In order to maintain a share price of $1.00, the Fund must comply with
certain industry regulations. The Fund will only invest in securities which are
denominated in United States dollars. Other requirements pertain to the maturity
and credit quality of the securities in which the Fund may invest. The Fund will
only invest in securities which have or are deemed to have a remaining maturity
of 397 days or less. Also, the average maturity for all securities contained in
the Fund, on a dollar-weighted basis, will be 90 days or less.
The Fund will only invest in either securities which have been rated (or
whose issuers have been rated) in the highest short-term rating category by
nationally recognized statistical rating organizations, or are unrated
securities but which have been determined by the Fund's Board of Directors to be
of comparable quality.
Subsequent to its purchase by the Fund, the quality of an investment may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. If this occurs, the Board of Directors of the Fund shall
reassess the security's credit risks and shall take such action as it determines
is in the best interest of the Fund and its shareholders. Reassessment is not
required, however, if the security is disposed of or matures within five
business days of the investment adviser becoming aware of the new rating and
provided further that the Board of Directors is subsequently notified of the
investment adviser's actions.
For a more detailed description of (i) the securities that the Fund will
invest in, (ii) fundamental investment restrictions, and (iii) industry
regulations governing credit quality and maturity, please refer to the Statement
of Additional Information.
Risks
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The Fund complies with industry-standard requirements on the quality,
maturity and diversification of its investments, which are designed to help
maintain a $1.00 share price. A significant change in interest rates or a
default on the Fund's investments could cause its share price (and the value of
your investment) to change.
By investing in liquid, short-term, high quality investments that have high
quality credit support from banks, insurance companies or other financial
institutions (i.e. Participation Certificates and other variable rate demand
instruments), the Fund's management believes that it can protect the Fund
against credit risks that may exist on long-term Municipal Obligations. The Fund
may still be exposed to the credit risk of the credit or liquidity support
provider. Changes in the credit quality of the provider could affect the value
of the security and your investment in the Fund.
The primary purpose of investing in a portfolio of Virginia Municipal
Obligations is the special tax treatment accorded Virginia resident individual
investors. Exempt-interest derived from Virginia Municipal Obligations will be
exempt from the Virginia Income Tax. Exempt-interest dividends derived from
Territorial Municipal Obligations also should be exempt from the Virginia Income
Tax provided the Fund complies with applicable
6
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Virginia law. Other distributions from the Fund may be subject to Virginia
Income tax. (See "Tax Consequences" herein.)
Because of the Fund's concentration in investments in Virginia Municipal
Obligations, the safety of an investment in the Fund will depend substantially
upon the financial strength of Virginia and its political subdivisions. Payment
of interest and preservation of principal are dependent upon the continuing
ability of the Virginia 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 Virginia issues with those of more diversified
portfolios, including out-of-state issues, before making an investment decision.
Because the Fund may concentrate in Participation Certificates 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. These
characteristics and risks 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). These factors 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.
With the arrival of the Year 2000, an issue remains as to how effectively
existing application software programs and operating systems will accommodate
this date value. Failure to adequately address this issue could have potentially
serious repercussions. The investment adviser is in the process of working with
the Fund's service providers to prepare for any problems which may arise due to
the Year 2000 issue. Based on information currently available, the investment
adviser does not believe that the Fund has incurred or will incur material costs
to be Year 2000 compliant. Although the investment adviser does not anticipate
that the Year 2000 issue will have a material impact on the Fund's ability to
provide service at current levels, there can be no assurance that steps taken in
preparation for the Year 2000 will be sufficient to avoid an adverse impact on
the Fund. The Year 2000 problem may also adversely affect issuers of the
securities contained in the Fund, to varying degrees based upon various factors,
and thus may have a corresponding adverse effect on the Fund's performance. The
investment adviser is unable to predict what effect, if any, the Year 2000
problem will have on such issuers. At this time, it is generally believed that
municipal issuers may be more vulnerable to Year 2000 issues or problems than
other issuers.
III. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Fund's investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"). The Manager's principal business office is located at 600 Fifth
Avenue, New York, NY 10020. As of December 31, 1999, the Manager was the
investment manager, advisor or supervisor with respect to assets aggregating in
excess of $14.7 billion. The Manager has been an investment adviser since 1970
and currently is manager of eighteen other registered investment companies and
also advises pension trusts, profit-sharing trusts and endowments.
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
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Directors of the Fund. Pursuant to the Investment Management Contract, the Fund
pays the Manager a fee equal to .40% per annum of the Fund's average daily net
assets for managing the Fund's investment portfolio and performing related
services.
Pursuant to the Administrative Services Contract, the Manager performs
clerical, accounting supervision and office service functions for the Fund. The
Manager provides the Fund with the personnel to perform all other clerical and
accounting type functions not performed by the Manager. For its services under
the Administrative Services Contract, the Fund pays the Manager a fee equal to
.21% per annum of the Fund's average daily net assets. The Manager, at its
discretion, may voluntarily waive all or a portion of the investment management
fee and the administrative services fee. Any portion of the total fees received
by the Manager may be used to provide shareholder services and for distribution
of Fund shares.
In addition, Reich & Tang Distributors, Inc., the Distributor, receives a
servicing fee equal to .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 shares of the Fund, will be
allocated daily to each Class of shares based on the percentage of shares
outstanding for each Class at the end of the day.
IV. SHAREHOLDER INFORMATION
The Fund sells and redeems its shares on a continuing basis at their net
asset value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Fund's transfer agent, who
accepts orders for purchases and redemptions from Participating Organizations
and from investors directly.
Pricing of Fund Shares
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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. Fund Business Day means
weekdays (Monday through Friday) except days on which the New York Stock
Exchange is closed for trading (i.e. national holidays). The net asset value of
a Class is computed by dividing the value of the Fund's net assets for such
Class (i.e., the value of its securities and other assets less its liabilities,
including expenses payable or accrued, but excluding capital stock and surplus)
by the total number of shares outstanding for such Class. The Fund intends to
maintain a stable net asset value at $1.00 per share, although there can be no
assurance that this will be achieved.
The Fund's portfolio securities are valued at their amortized cost in
compliance with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost
valuation involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium. If fluctuating
interest rates cause the market value of the Fund's portfolio to deviate more
than 1/2 of 1% from the value determined on the basis of amortized cost, the
Board of Directors will consider whether any action should be initiated.
Although the amortized cost method provides certainty in valuation, it may
result in periods during which the value of an instrument is higher or lower
than the price an investment company would receive if the instrument were sold.
Shares are issued as of the first determination of the Fund's net asset
value per share for each Class made after receipt and acceptance of the
investor's purchase order. 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 the immediate settlement in funds
of Federal Reserve member banks on deposit at a Federal Reserve Bank (commonly
known as "Federal Funds"). Fund shares begin accruing income on the day the
shares are issued to an investor. The Fund reserves the right to reject any
purchase order for its shares. Certificates for Fund shares will not be issued
to an investor.
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Purchase of Fund Shares
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The Fund does not accept a purchase order until an investor's payment has
been converted into Federal Funds and is received by the Fund's transfer agent.
Orders accompanied by Federal Funds and received after 12 noon, New York City
time, on a Fund Business Day will result in the issuance of shares on the
following Fund Business Day.
Investors purchasing shares through a Participating Organization with which
they have an account ("Participant Investors") become Class A shareholders.
"Participating Organizations" are securities brokers, banks and financial
institutions or other industry professionals or organizations which have entered
into shareholder servicing agreements with the Distributor with respect to
investment of their customer accounts in the Fund. All other investors, and
investors who have accounts with Participating Organizations but do not wish to
invest in the Fund through them, may invest in the Fund directly as Class B
shareholders of the Fund. Class B shareholders do not receive the benefit of the
servicing functions performed by a Participating Organization. Class B shares
may also be offered to investors who purchase their shares through Participating
Organizations who, because they may not be legally permitted to receive such as
fiduciaries, do not receive compensation from the Distributor or the Manager.
The minimum initial investment in the Fund for both classes of shares is
(i) $1,000 for purchases through Participating Organizations - this may be
satisfied by initial investments aggregating $1,000 by a Participating
Organization on behalf of their customers whose initial investments are less
than $1,000, (ii) $1,000 for securities brokers, financial institutions and
other industry professionals that are not Participating Organizations, and (iii)
$5,000 for all other investors. 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.
Each shareholder, except certain Participant Investors, will receive from
the Fund a personalized monthly statement listing (i) the total number of Fund
shares owned as of the statement closing date, (ii) purchase and redemptions of
Fund shares, and (iii) the dividends paid on Fund shares (including dividends
paid in cash or reinvested in additional Fund shares).
Investments Through Participating Organizations - Purchase of Class A Shares
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Participant Investors may, if they wish, invest in the Fund through the
Participating Organizations with which they have accounts. When instructed by
its customer to purchase or redeem Fund shares, the Participating Organization,
on behalf of the customer, transmits to the Fund's transfer agent a purchase or
redemption order, and in the case of a purchase order, payment for the shares
being purchased.
Participating Organizations may confirm to their customers who are
shareholders in the Fund each purchase and redemption of Fund shares for the
customers' accounts. Also, Participating Organizations may send their customers
periodic account statements showing the total number of Fund shares owned by
each customer as of the statement closing date, purchases and redemptions of
Fund shares by each customer during the period covered by the statement and the
income earned by Fund shares of each customer during the statement period
(including dividends paid in cash or reinvested in additional Fund shares).
Participant Investors whose Participating Organizations have not undertaken to
provide such statements will receive them from the Fund directly.
Participating Organizations may charge Participant Investors a fee in
connection with their use of specialized purchase and redemption procedures. 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
9
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directly. Accordingly, the net yield to investors who invest through
Participating Organizations may be less than the net yield that could be
achieved by investing in the Fund directly. A Participant Investor should read
this Prospectus in conjunction with the materials provided by the Participating
Organization describing the procedures under which Fund shares may be purchased
and redeemed through the Participating Organization.
In the case of qualified Participating Organizations, orders received by
the Fund's transfer agent before 12 noon, New York City time, on a Fund Business
Day, without accompanying Federal Funds will result in the issuance of shares on
that day only if the Federal Funds required in connection with the orders are
received by the Fund's transfer agent before 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 result in share issuance the following Fund Business Day.
Participating Organizations are responsible for instituting procedures to insure
that purchase orders by their respective clients are processed expeditiously.
Initial Direct Purchases of Class B Shares
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Investors who wish to invest in the Fund directly may obtain a current
Prospectus and the subscription order form necessary to open an account by
telephoning the Fund at the following numbers:
Within New York 212-830-5220
Outside New York (TOLL FREE) 800-221-3079
Mail
Investors may send a check made payable to "Virginia Daily Municipal Income
Fund, Inc." along with a completed subscription order form to:
Virginia Daily Municipal Income Fund, Inc.
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
will normally be converted into Federal Funds within two business days after
receipt of the check. Checks drawn on a non-member bank may take substantially
longer to convert into Federal Funds. An investor's purchase order will not be
accepted until the Fund receives Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of
money among banks, investors should first obtain a new account number by
telephoning the Fund at 212-830-5220 (within New York) or at 800-221-3079
(outside New York) and then instruct a member commercial bank to wire money
immediately to:
State Street Kansas City
ABA # 101003621
Reich & Tang Funds
DDA # 890752-954-6
For Virginia Daily Municipal
Income Fund, Inc.
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 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, New York City time, on a
Fund Business Day will be treated as a Federal Funds payment received on that
day.
Personal Delivery
Deliver a check made payable to "Virginia Daily Municipal Income Fund,
Inc." along with a completed subscription order form to:
Reich & Tang Mutual Funds
600 Fifth Avenue - 8th Floor
New York, New York 10020
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Electronic Funds Transfers (EFT),
Pre-authorized Credit and Direct
Deposit Privilege
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You may purchase shares of the Fund (minimum of $100) by having salary,
dividend payments, interest payments or any other payments designated by you,
Federal salary, social security, or certain veteran's, military or other
payments from the Federal government, automatically deposited into your Fund
account. You can also have money debited from your checking account. To enroll
in any one of these programs, you must file with the Fund a completed EFT
Application, Pre-authorized Credit Application, or a Direct Deposit Sign-Up Form
for each type of payment that you desire to include in the Privilege. The
appropriate form may be obtained from your broker or the Fund. You may elect at
any time to terminate your participation by notifying in writing the appropriate
depositing entity and/or Federal agency. Death or legal incapacity will
automatically terminate your participation in the Privilege. Further, the Fund
may terminate your participation upon 30 days' notice to you.
Subsequent Purchases of Shares
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Subsequent purchases can be made by bank wire, as indicated above, or by
mailing a check to:
Virginia Daily Municipal Income Fund, Inc.
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.
A shareholder may reopen an account without filing a new subscription order
form at any time during the year the shareholder's account is closed or during
the following calendar year, provided that the information on the subscription
form on file with the Fund is still applicable.
Redemption of Shares
- --------------------------------------------------------------------------------
A redemption is effected immediately following, and at a price determined
in accordance with, the next determination of net asset value per share of each
Class upon 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 paid out unless the check
(including a certified or cashier's check) used for investment has been cleared
for payment by the investor's bank, which could take up to 15 days after
investment. Shares redeemed are not entitled to participate in dividends
declared on the day a redemption becomes effective.
A shareholder's original subscription order form permits the shareholder to
redeem by written request and to elect one or more of the additional redemption
procedures described below. A shareholder may only change the instructions
indicated on his original subscription order form by transmitting a written
direction to the Fund's transfer agent. Requests to institute or change any of
the additional redemption procedures will require a signature guarantee.
When a signature guarantee is called for, the shareholder should have
"Signature Guaranteed" stamped under his signature. It should be signed and
guaranteed by an eligible guarantor institution which includes a domestic bank,
a domestic savings and loan institution, a domestic credit union, a member bank
of the Federal Reserve system or a member firm of a national securities
exchange, pursuant to the Fund's transfer agent's standards and procedures.
Written Requests
Shareholders may make a redemption in any amount by sending a written
request to the Fund addressed to:
Virginia Daily Municipal Income Fund, Inc.
c/o Reich & Tang Funds
600 Fifth Avenue-8th Floor
New York, New York 10020
All previously issued certificates submitted for redemption must be
endorsed by the shareholder
11
<PAGE>
and all written requests for redemption must be signed by the shareholder, in
each case with signature guaranteed.
Normally, the redemption proceeds are paid by check and mailed to the
shareholder of record.
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 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 until the check has
cleared, which can take 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 Directors 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, a check written for an account
below the minimum of $250 and/or 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.
Corporations and other entities electing the checking option are required
to furnish a certified resolution or other evidence of authorization in
accordance with the Fund's normal practices. Individuals and joint tenants are
not required to furnish any supporting documentation. 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.
Telephone
The Fund accepts telephone requests for redemption from shareholders who
elect this option on their subscription order form. The proceeds of a telephone
redemption 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 reasonable procedures to confirm that telephone
redemption instructions are genuine, and will require that shareholders electing
such option provide a form of personal identification. Failure by the Fund to
employ such reasonable procedures may cause the Fund to be liable for the losses
incurred by investors due to unauthorized or fraudulent telephone redemptions.
12
<PAGE>
A shareholder making a telephone withdrawal should call the Fund at
212-830-5220; outside New York at 800-221-3079, and state: (i) the name of the
shareholder appearing on the Fund's records; (ii) the shareholder's account
number with the Fund; (iii) the amount to be withdrawn; (iv) whether such amount
is to be forwarded to the shareholder's designated bank account or address; and
(v) the name of the person requesting the redemption. Usually the proceeds are
sent to the designated bank account or address on the same Fund Business Day the
redemption is effected, provided the redemption request is received before 12
noon, New York City time. Proceeds are sent 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.
Generally
There is no redemption charge, no minimum period of investment, no minimum
amount for a redemption, and no restriction on frequency of withdrawals.
Proceeds of redemptions are paid by check. Unless other instructions are given
in proper form to the Fund's transfer agent, a check for the proceeds of a
redemption will be sent to the shareholder's address of record. If a shareholder
elects to redeem all the shares of the Fund 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. Additional exceptions
include any period during which an emergency (as determined by the SEC) exists
as a result of which disposal by the Fund of its portfolio securities is not
reasonably practicable or as a result of which it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or for such other
period as the SEC may by order permit for the protection of the shareholders of
the Fund.
The Fund has reserved the right to redeem the shares of any shareholder if
the net asset value of all the remaining shares in the shareholder's or 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 made to the
appropriate Participating Organization only. The Participating Organization will
be responsible for notifying Participant Investors of a proposed mandatory
redemption. Shareholders may avoid mandatory redemption by purchasing sufficient
additional shares to increase their total net asset value to the minimum amount
during the notice period.
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 or quarterly
basis. The monthly or quarterly withdrawal payments of the specified amount are
made by the Fund on the 23rd day of the 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
13
<PAGE>
subscription by so indicating on the subscription order
form. The election may also be made, changed or terminated at any later time by
sending a signature guaranteed written request to the transfer agent. 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 realized capital gains.
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 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, at no charge, in additional Fund shares of the same Class of shares
immediately upon payment thereof unless a shareholder has elected by written
notice to the Fund to receive either of such distributions in cash.
Because Class A shares bear the service fee under the Fund's 12b-1 Plan,
the net income of and the dividends payable to the Class A shares will be lower
than the net income of and dividends payable to the Class B shares of the Fund.
Dividends paid to each Class of shares of the Fund will, however, be declared
and paid on the same days at the same times and, except as noted with respect to
the service fees payable under the Plan, will be determined in the same manner
and paid in the same amounts.
Exchange Privilege
- --------------------------------------------------------------------------------
Shareholders of the Fund are entitled to exchange some or all of their
Class of shares in the Fund for shares of the same Class 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. If only one Class of shares is available in a particular exchange
fund, the shareholder of the Fund is entitled to exchange their shares for the
shares available in that exchange 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., Florida Daily Municipal Income Fund, Georgia Daily
Municipal Income Fund, Inc., Michigan Daily Tax Free Income Fund, Inc., New
Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., North Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily
Municipal Income Fund, Reich & Tang Equity Fund, Inc. 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. However, 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. Each Class of shares is exchanged at its
respective net asset value.
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
14
<PAGE>
into which the exchange is to be made. An exchange is a taxable event.
Instructions for exchanges may be made by sending a signature guaranteed
written request to:
Virginia Daily Municipal Income Fund, Inc.
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) or 800-221-3079 (outside New York). The Fund
reserves the right to reject any exchange request and may modify or terminate
the exchange privilege at any time.
Tax Consequences
- --------------------------------------------------------------------------------
The purchase of Fund shares will be the purchase of an asset. Dividends
paid by the Fund that are designated by the Fund and derived from Municipal
Obligations and Participation Certificates, will be exempt from regular Federal
income tax, provided the Fund complies with Section 852(b)(5) of the Internal
Revenue Code, but may be subject to Federal alternative minimum tax. These
dividends are referred to as exempt interest dividends. Income exempt from
Federal income tax may be subject to state and local income tax.
The Fund may invest a portion of its assets in taxable securities the
interest income on which is subject to Federal, state and local income tax.
Dividends paid from taxable income, if any, and distributions of any realized
short-term capital gains (from tax-exempt or taxable obligations) are taxable to
shareholders as ordinary income, whether received in cash or reinvested in
additional 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 to determine the amount of Social Security benefits includible in gross
income.
Interest on certain personal private activity bonds will constitute an item
of tax preference subject to the individual alternative minimum tax.
Corporations will be required to include in alternative minimum taxable income
75% of the amount by which their adjusted current earnings (including tax-exempt
interest) exceed 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
tax-exempt interest.
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. 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.
The sale, exchange or redemption of shares will generally be the taxable
disposition of an asset that may result in a taxable gain or loss for the
shareholder if the shareholder receives more or less than it paid for its
shares. An exchange pursuant to the exchange privilege is treated as a sale on
which the shareholder may realize a taxable gain or loss.
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 of an interest in the underlying Municipal Obligations and that the
interest thereon will be exempt from regular Federal income taxes to the Fund to
the same extent as the interest on the underlying Municipal Obligations. Battle
Fowler LLP has pointed out that the Internal Revenue Service has announced 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.
The United States Supreme Court has held that there is no constitutional
prohibition against the Federal government's taxing the interest earned on state
or other municipal bonds. The decision does not, however, affect the current
15
<PAGE>
exemption from taxation of the interest earned on the Municipal Obligations.
Virginia Income Taxes
The designation of all or a portion of a dividend paid by the Fund as an
"exempt-interest dividend" under the Code does not necessarily result in the
exemption of such amount from tax under the laws of any state or local taxing
authority. However, assuming that the Fund is a regulated investment company
within the meaning of Section 851 of the Code, and has complied with certain
other requirements, exempt interest dividends received from the Fund need not be
included in Virginia taxable income by shareholders of the Fund subject to
Virginia taxation to the extent such dividends represent interest from
obligations issued by Virginia and political subdivisions of Virginia.
Exempt-interest dividends correctly identified by the Fund as derived from
obligations of Puerto Rico and the Virgin Islands as well as other types of
obligations that Virginia is prohibited from taxing under the Constitution or
the laws of the United States of America or the constitution or laws of Virginia
("Territorial Municipal Obligations") should be exempt from Virginia income
taxation provided the Fund complies with the Virginia law. Exempt-Interest
dividends with respect to obligations from states other than Virginia and its
political subdivisions are required to be added to Federal taxable income in
calculating Virginia taxable income. The portion of distributions from the Fund
that represents capital gain is included in Virginia taxable income.
Shareholders are urged to consult their tax advisers with respect to the
treatment of distributions from the Fund and ownership of shares of the Fund in
their own states and localities.
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.
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.
V. DISTRIBUTION ARRANGEMENTS
Rule 12b-1 Fees
- --------------------------------------------------------------------------------
Investors do not pay a sales charge to purchase shares of the Fund.
However, the Fund pays fees in connection with the distribution of shares and
for services provided to the Class A shareholders. The Fund pays these fees from
its assets on an ongoing basis and therefore, over time, the payment of these
fees will increase the cost of your investment and may cost you more than paying
other types of sales charges.
The Fund's Board of Directors has adopted a Rule 12b-1 distribution and
service plan (the "Plan") and, pursuant to the Plan, the Fund and Reich & Tang
Distributors, Inc. (the "Distributor") have entered into a Distribution
Agreement and a Shareholder Servicing Agreement (with respect to the Class A
shares of the Fund only).
Under the Distribution Agreement, the Distributor serves as distributor of
the Fund's shares. For nominal consideration (i.e., $1.00) and as agent for the
Fund, the Distributor solicits 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
Class A shares' average daily net assets (the "Shareholder Servicing Fee") for
providing personal shareholder services and for the maintenance of shareholder
accounts. The fee is accrued daily and paid monthly. Any portion of the fee may
be deemed to be used by the Distributor for payments to Participating
Organizations with respect to their provision of such services to their clients
or customers who are shareholders of the Class A shares of the Fund. The Class B
shareholders will not receive the benefit of such services from Participating
Organizations and, therefore, will not be assessed a Shareholder Servicing Fee.
The Plan and the Shareholder Servicing Agreement provide that, in addition
to the Shareholder Servicing Fee, the Fund will pay for
16
<PAGE>
(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 and the Shareholder Servicing Agreement provide that the Manager
may make payments from time to time from its own resources, which may include
the management fee and past profits for the following purposes: (i) to defray
costs, and to compensate others, including Participating Organizations with whom
the Distributor has entered into written agreements, for performing shareholder
servicing on behalf of the Class A shares of the Fund; (ii) to compensate
certain Participating Organizations for providing assistance in distributing the
Class A shares of the Fund; and (iii) to pay the costs of printing and
distributing the Fund's prospectus to prospective investors, and to defray the
cost of the preparation and printing of brochures and other promotional
materials, mailings to prospective shareholders, advertising, and other
promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's Class A shares. The
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 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.
17
<PAGE>
VI. FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance since inception. Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned [or lost] on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, for the fiscal year ended September
30, 1999, and by other auditors for the period July 14, 1998 through September
30, 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
Year July 14, 1998
Class A Ended (Commencement of Sales) through
September 30, 1999 September 30, 1998
------------------ ------------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period....................... $ 1.00 $ 1.00
------------- ---------
Income from investment operations:
Net investment income...................................... 0.023 0.006
Less distributions:
Dividends from net investment income....................... ( 0.023) ( 0.006 )
---------- -----------
Net asset value, end of period............................. $ 1.00 $ 1.00
============= =========
Total Return............................................... 2.33% 2.70%*
Ratios/Supplemental Data
Net assets, end of period (000)............................ $ 3,259 $ 3,114
Ratios to average net assets:
Expenses (net of fees waived and expenses reimbursed)+..... 0.83% 1.05%*
Net investment income (net of fees waived and expenses reimbursed) 2.31% 2.67%*
Management and administration fees waived.................. 0.61% 0.61%*
Expenses reimbursed........................................ 2.28% 10.13%*
Expense offsets............................................ 0.08% 0.30%*
</TABLE>
* Annualized
+ Includes expense offsets
18
<PAGE>
VI. FINANCIAL HIGHLIGHTS (Continued)
This financial highlights table is intended to help you understand the Fund's
financial performance since inception. Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned [or lost] on an investment in the Fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP.
April 1, 1999
Class B (Commencement of Sales) through
September 30, 1999
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period...................... $ 1.00
---------
Income from investment operations:
Net investment income..................................... 0.013
Less distributions:
Dividends from net investment income...................... ( 0.013)
---------
Net asset value, end of period............................ $ 1.00
=========
Total Return.............................................. 2.59%*
Ratios/Supplemental Data
Net assets, end of period (000)........................... $ 23
Ratios to average net assets:
Expenses (net of fees waived and expenses reimbursed)+ 0.58%*
Net investment income (net of fees waived and expenses reimbursed) 2.51%*
Management and administration fees waived............ 0.61%*
Expenses reimbursed.................................. 2.28%*
Expense offsets...................................... 0.08%*
* Annualized
+ Includes expense offsets
19
<PAGE>
A Statement of Additional Information (SAI) dated February 1, 2000, and the
Fund's Annual and Semi-Annual Reports include additional information about the
Fund and its investments and are incorporated by reference into this prospectus.
You may obtain the SAI, the Annual and Semi-Annual Reports and material
incorporated by reference without charge by calling the Fund at 1-800-221-3079.
To request other information, please call your financial intermediary or the
Fund.
=====================================================
======================================================
A current SAI has been filed with the Securities and Exchange Commission.
You may visit the Securities and Exchange Commission's Internet website
(www.sec.gov) to view the SAI, material incorporated by reference and other
information. These materials can also be reviewed and copied at the Commission's
Public Reference Room in Washington D.C. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. In addition, copies of these materials may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009.
811-3522
VA1/00P
================================================================================
VIRGINIA
DAILY
MUNICIPAL
INCOME
FUND, INC.
PROSPECTUS
February 1, 2000
Reich & Tang Distributors, Inc.
600 Fifth Avenue
New York, NY 10020
(212) 830-5220
<PAGE>
================================================================================
VIRGINIA
DAILY MUNICIPAL
INCOME FUND, INC. 600 Fifth Avenue, New York, NY 10020
(212) 830-5220
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
February 1, 2000
RELATING TO THE VIRGINIA DAILY MUNICIPAL INCOME FUND, INC.
PROSPECTUS DATED FEBRUARY 1, 2000
This Statement of Additional Information (SAI) is not a Prospectus. The SAI
expands upon and supplements the information contained in the current Prospectus
of Virginia Daily Municipal Income Fund, Inc. (the "Fund"), dated February 1,
2000 and should be read in conjunction with the Fund's Prospectus.
A Prospectus may be obtained from any Participating Organization or by writing
or calling the Fund toll-free at (800) 221-3079. The audited Financial
Statements of the Fund have been incorporated by reference into the SAI from the
Fund's Annual Report. The Annual Report is available, without charge, upon
request by calling the toll-free number provided.
The material relating to Purchase Redemption and Pricing of Shares has been
incorporated by reference to the Prospectus.
This Statement of Additional Information is incorporated by reference into the
respective Prospectus in its entirety.
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Fund History........................................ 2 Capital Stock and Other Securities......................17
Description of the Fund and Its Investments and Purchase, Redemption and Pricing of Shares..............18
Risks............................................. 2 Taxation of the Fund....................................19
Management of the Fund..............................11 Underwriters............................................21
Control Persons and Principal Holders of Calculation of Performance Data.........................21
Securities........................................13 Financial Statements....................................22
Investment Advisory and Other Services..............13 Description of Ratings..................................23
Brokerage Allocation and Other Practices............17 Taxable Equivalent Yield Tables.........................24
</TABLE>
<PAGE>
I. FUND HISTORY
The Fund was incorporated on March 20, 1995 in the state of Maryland.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
The Fund is an open-end, management investment company that is a short-term,
tax-exempt money market fund. The Fund's investment objectives are to seek a
high level of current income exempt from regular Federal tax and Virginia income
tax consistent with preserving capital, maintaining liquidity and stabilizing
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 (i) high quality debt
obligations issued by or on behalf of the Commonwealth of Virginia, 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 (ii) 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 ("Participation Certificates"). Dividends paid by the Fund are
"exempt-interest dividends" by virtue of being properly designated by the Fund
as derived from Municipal Obligations and Participation Certificates. They 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"). However, such interest, including "exempt-interest
dividends" may be subject to the Federal alternative minimum tax.
Exempt-interest dividends paid by the Fund that are correctly identified by the
Fund as derived from obligations issued by or on behalf of the Commonwealth of
Virginia or any Virginia local governments, or their instrumentalities,
authorities or districts ("Virginia Municipal Obligations") will be exempt from
the Virginia Income Tax. Exempt-interest dividends correctly identified by the
Fund as derived from obligations of Puerto Rico and the Virgin Islands, as well
as any other types of obligations that Virginia is prohibited from taxing under
the Constitution, the laws of the United States of America or the Virginia
Constitution ("Territorial Municipal Obligations"), also should be exempt from
Virginia Income Tax provided the Fund complies with applicable Virginia laws.
(See "Virginia Income Taxes" herein.) To the extent that suitable Virginia
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 these 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 but
will be subject to the Virginia 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 Virginia 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 $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, 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 and other Virginia Municipal
Obligations. In view of this "concentration" in bank Participation Certificates
in Virginia Municipal Obligations, which may be secured by bank letters of
credit or guarantees, 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.
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The Fund may only purchase United States dollar-denominated securities that have
been determined by the Fund's Board of Directors to present minimal credit risks
and that are Eligible Securities at the time of acquisition. The term Eligible
Securities means: (i) securities which have or are deemed to have 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") or (ii) unrated securities
determined by the Fund's Board of Directors to be of comparable quality. In
addition, securities which have or are deemed to have 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) are deemed unrated and may be
purchased if such had received a long-term rating from the Requisite NRSROs in
one of the three highest rating categories. Provided, however, that such may not
be purchased if it (i) does not satisfy the rating requirements set forth in the
preceding sentence and (ii) has received a long-term rating from any NRSRO that
is not within the three highest long-term rating categories. A determination of
comparability by the Board of Directors is made on the basis of its credit
evaluation of the issuer, which may include an evaluation of a letter of credit,
guarantee, insurance or other credit facility issued in support of the
securities. While there are several organizations that currently qualify as
NRSROs, two examples of NRSROs are Standard & Poor's Rating Services, a division
of The McGraw-Hill Companies, ("S&P") and Moody's Investors Service, Inc.
("Moody's"). The two highest ratings by S&P and Moody's are "AAA" and "AA" by
S&P in the case of long-term bonds and notes or "Aaa" and "Aa" by Moody's in the
case of bonds; "SP-1" and "SP-2" by S&P or "MIG-1" and "MIG-2" by Moody's in the
case of notes; "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2" by Moody's in
the case of tax-exempt commercial paper. The highest rating in the case of
variable and floating demand notes is "VMIG-1" by Moody's or "SP-1/AA" by S&P.
Such instruments may produce a lower yield than would be available from less
highly rated instruments.
Subsequent to its purchase by the Fund, a rated security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Fund. If this occurs, the Board of Directors of the Fund shall promptly reassess
whether the security presents minimal credit risks and shall cause the Fund to
take such action as the Board of Directors 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
Directors is subsequently notified of the Manager's actions.
In addition, in the event that a security (i) is in default, (ii) ceases to be
an Eligible Security under Rule 2a-7 of the 1940 Act, or (iii) is determined to
no longer present minimal credit risks, or an event of insolvency occurs with
respect to the issues of a portfolio security or the provider of any Demand
Feature or Guarantee, the Fund will dispose of the security absent a
determination by the Fund's Board of Directors that disposal of the security
would not be in the best interests of the Fund. Disposal of the security shall
occur as soon as practicable consistent with achieving an orderly disposition by
sale, exercise of any demand feature or otherwise. In the event of a default
with respect to a security which immediately before default accounted for 1/2 of
1% or more of the Fund's total assets, the Fund shall promptly notify the SEC of
such fact and of the actions that the Fund intends to take in response to the
situation.
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 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, regulated investment company
securities and other securities. The other securities must be limited in respect
of any one issuer to not more than 5% in value of the total assets of the Fund
and to not more than 10% of the outstanding voting securities of such issuer. In
addition, at the close of each quarter of its taxable year, not more than 25% in
value of the Fund's total assets may be invested in securities of one issuer
other than government securities or regulated investment company 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".
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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"). They
generally have a maturity at the time of issue of one year or more and 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 IRBs is generally exempt, with certain exceptions, from regular
Federal income tax pursuant to Section 103(a) of the Code, provided the
issuer and corporate obligor thereof continue to meet certain conditions.
(See "Federal Income Taxes" herein.) IRBs are, in most cases, revenue bonds
and do not generally constitute the pledge of the credit of the issuer of
such bonds. The payment of the principal and interest on IRBs usually depends
solely on the ability of the user of the facilities financed by the bonds or
other guarantor to meet its financial obligations and, in certain instances,
the pledge of real and personal property as security for payment. If there is
no established secondary market for the IRBs, the IRBs or the Participation
Certificates in IRBs purchased by the Fund will be supported by letters of
credit, guarantees or insurance that meet the definition of Eligible
Securities at the time of acquisition and provide the demand feature which
may be exercised by the Fund at any time to provide liquidity. Shareholders
should note that the Fund may invest in IRBs acquired in transactions
involving a Participating Organization. In accordance with Investment
Restriction 6 herein, the Fund is permitted to invest up to 10% of the
portfolio in high quality, short-term Municipal Obligations (including IRBs)
meeting the definition of Eligible Securities at the time of acquisition that
may not be readily marketable or have a liquidity feature.
2. Municipal Notes with remaining maturities of 397 days or less that are
Eligible Securities at the time of acquisition. The principal kinds of
Municipal Notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes and project notes. Notes sold in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuing municipality or agency. Project notes are
issued by local agencies and are guaranteed by the United States Department
of Housing and Urban Development. Project notes are also secured by the full
faith and credit of the United States. The Fund's investments may be
concentrated in Municipal Notes of Virginia 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. They 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, 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. These clauses 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 Directors may adopt guidelines
and delegate to
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<PAGE>
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. The Fund has no intention
to invest in Municipal Leases in the foreseeable future and will amend this
Statement of Additional Information in the event that such an intention
should develop in the future.
5. Any other Federal tax-exempt, and to the extent possible, Virginia Income
tax-exempt obligations issued by or on behalf of states and municipal
governments and their authorities, agencies, instrumentalities and political
subdivisions, whose inclusion in the Fund would be consistent with the Fund's
objectives policies and risks, as set forth herein, 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 Directors of the Fund shall promptly
reassess whether the Municipal Obligation presents minimal credit risks and
shall cause the Fund to take such action as the Board of Directors 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 Directors is subsequently notified of the Manager's
actions.
In addition, in the event that a Municipal Obligation (i) is in default, (ii)
ceases to be an Eligible Security under Rule 2a-7 of the 1940 Act, or (iii) is
determined to no longer present minimal credit risks, or an event of insolvency
occurs with respect to the issues of a portfolio security or the provider of any
Demand Feature or Guarantee, the Fund will dispose of the security absent a
determination by the Fund's Board of Directors that disposal of the security
would not be in the best interests of the Fund. Disposal of the security shall
occur as soon as practicable consistent with achieving an orderly disposition by
sale, exercise of any demand feature or otherwise. In the event of a default
with respect to a security which immediately before default accounted for 1/2 of
1% or more of the Fund's total assets, the Fund shall promptly notify the SEC of
such fact and of the actions that the Fund intends to take in response to the
situation.
Variable Rate Demand Instruments and Participation Certificates
Variable rate demand instruments that the Fund will purchase are tax-exempt
Municipal Obligations. They 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 can not be disposed of
properly 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. 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 decides
which variable rate demand instruments it will purchase in accordance with
procedures prescribed by its Board of Directors 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 Directors. The Fund's Board of Directors 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 prime rate is generally the rate charged by the bank to its most
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 nay occur with great
frequency and generally become effective on the date announced.
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<PAGE>
The variable rate demand instruments that the Fund may invest in include
Participation Certificates purchased by the Fund from banks, insurance companies
or other financial institutions in fixed or variable rate, tax-exempt Municipal
Obligations (expected to be concentrated in IRBs) owned by such institutions or
affiliated organizations. The Fund will not purchase Participation Certificates
in fixed rate tax-exempt Municipal Obligations without obtaining an opinion of
counsel that the Fund will be treated as the owner thereof for Federal income
tax purposes. A Participation Certificate gives the Fund an undivided interest
in the Municipal Obligation in the proportion that the Fund's participation
interest bears to the total principal amount of the Municipal Obligation and
provides the demand repurchase feature described below. Where the institution
issuing the participation does not meet the Fund's eligibility criteria, the
participation is backed by an irrevocable letter of credit or guaranty of a bank
(which may be the bank issuing the Participation Certificate, a bank issuing a
confirming letter of credit to that of the issuing bank, or a bank serving as
agent of the issuing bank with respect to the possible repurchase of the
certificate of participation) or insurance policy of an insurance company that
the Board of Directors 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. Where applicable, the Fund can 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 (i) upon a default under the terms of the
bond documents, (ii) as needed to provide liquidity to the Fund in order to make
redemptions of Fund shares, or (iii) 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 bears
the cost of the insurance. However, the Fund retains the option to purchase
insurance of 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 Directors to continually
monitor the pricing, quality and liquidity if the variable rate 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).
Because the Fund may concentrate in Participation Certificates in Virginia
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. This
includes, 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,
which limit the degree to which interest on such variable rate demand
instruments may fluctuate; to the extent state law contains such limits,
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
increase so that the variable rate exceeds the fixed rate on the Municipal
Obligations, the Municipal Obligations can 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
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<PAGE>
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 (i) the period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (ii) the period remaining until the instrument's next interest
rate adjustment. The maturity of a variable rate demand instrument will be
determined in the same manner for purposes of computing the Fund's
dollar-weighted average portfolio maturity. If a variable rate demand instrument
ceases to be an Eligible Security it will be sold in the market or through
exercise of the repurchase demand feature to the issuer.
When-Issued Securities
New issues of certain Municipal Obligations frequently are offered on a
when-issued basis. The payment obligation and the interest rate that will be
received on these Municipal Obligations are each fixed at the time the buyer
enters into the commitment although delivery and payment of the Municipal
Obligations normally take place within 45 days after the date of the Fund's
commitment to purchase. Although the Fund will only make commitments to purchase
when-issued Municipal Obligations with the intention of actually acquiring them,
the Fund may sell these securities before the settlement date if deemed
advisable by the Manager.
Municipal Obligations purchased on a when-issued basis and the securities held
in the Fund's portfolio are subject to changes in value (both generally changing
in the same way; that is, both experiencing appreciation when interest rates
decline and depreciation when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Purchasing Municipal Obligations on
a when-issued basis can involve a risk that the yields available in the market
when the delivery takes place may actually be higher or lower than those
obtained in the transaction itself. A separate account of the Fund consisting of
cash or liquid debt securities equal to the amount of the when-issued
commitments will be established at the Fund's custodian bank. For the purpose of
determining the adequacy of the securities in the account, the deposited
securities will be valued at market value. If the market or fair value of such
securities declines, additional cash or highly liquid securities will be placed
in the account daily so that the value of the account will equal the amount of
such commitments by the Fund. On the settlement date of the when-issued
securities, the Fund will meet its obligations from then-available cash flow,
sale of securities held in the separate account, sale of other securities or,
although it would not normally expect to do so, from sale of the when-issued
securities themselves (which may have a value greater or lesser than the Fund's
payment obligations). Sale of securities to meet such obligations may result in
the realization of capital gains or losses, which are not exempt from Federal
income tax.
Stand-by Commitments
When the Fund purchases Municipal Obligations, it may also acquire stand-by
commitments from banks and other financial institutions. Under a stand-by
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
stand-by 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 stand-by commitment
normally would be (i) 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 (ii) 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 stand-by commitment is exercisable would be substantially the same as the
market value of the underlying Municipal Obligation.
The Fund's right to exercise a stand-by commitment would be unconditional and
unqualified. A stand-by 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 stand-by commitments to generally be available without the
payment of any direct or indirect consideration. However, if necessary and
advisable, the Fund may pay for stand-by commitments either separately
7
<PAGE>
in cash or by paying a higher price for portfolio securities which are acquired
subject to such a commitment (thus reducing the yield to maturity otherwise
available for the same securities). The total amount paid in either manner for
outstanding stand-by commitments held in the Fund's portfolio will not exceed
1/2 of 1% of the value of the Fund's total assets calculated immediately after
the acquisition of each stand-by commitment.
The Fund will enter into stand-by commitments only with banks and other
financial institutions that, in the Manager's opinion, present minimal credit
risks. If the issuer of the Municipal Obligation does not meet the eligibility
criteria, the issuer of the stand-by commitment will have received a rating
which meets the eligibility criteria or, if not rated, will present a minimal
risk of default as determined by the Board of Directors. The Fund's reliance
upon the credit of these banks and broker-dealers will be supported by the value
of the underlying Municipal Obligations held by the Fund that were subject to
the commitment.
The Fund intends to acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The purpose of this practice is to permit the Fund to be fully
invested in securities the interest on which is exempt from Federal income tax
while preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions and to purchase at a later date
securities other than those subject to the stand-by commitment. The acquisition
of a stand-by commitment would not affect the valuation or assumed maturity of
the underlying Municipal Obligations which will continue to be valued in
accordance with the amortized cost method. Stand-by commitments acquired by the
Fund will be valued at zero in determining net asset value. In those cases in
which the Fund pays directly or indirectly for a stand-by commitment, its cost
will be reflected as unrealized depreciation for the period during which the
commitment is held by the Fund. Stand-by commitments will not affect the
dollar-weighted average maturity of the Fund's portfolio. The maturity of a
security subject to a stand-by commitment is longer than the stand-by repurchase
date.
The stand-by commitments the Fund may enter into are subject to certain risks.
These 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 stand-by 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 stand-by 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 from such
securities is subject to regular Federal or Virginia income tax, under any one
or more of the following circumstances: (i) pending investment of proceeds of
sales of Fund shares or of portfolio securities; (ii) pending settlement of
purchases of portfolio securities; and (iii) 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): (i) obligations of the United States Government or its agencies,
instrumentalities or authorities; (ii) commercial paper meeting the definition
of Eligible Securities at the time of acquisition; (iii) certificates of deposit
of domestic banks with assets of $1 billion or more; and (iv) repurchase
agreements with respect to any Municipal Obligations or other securities which
the Fund is permitted to own.
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 will 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.
Additionally, 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
8
<PAGE>
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, exceeds 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
stand-by commitments.
Virginia Risk Factors
Because of the Fund's concentration in investments in Virginia Municipal
Obligations, the safety of an investment in the Fund will depend substantially
upon the financial strength of Virginia and its political subdivisions. Bonds in
the Fund may include primarily debt obligations of the subdivisions of the
Commonwealth of Virginia issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, bridges, highways, schools, streets and water and sewer works. Other
purposes for which bonds may be issued include the obtaining of funds to lend to
public or private institutions for the construction of facilities such as
educational, hospital, housing, and solid waste disposal facilities. The latter
are generally payable from private sources which, in varying degrees, may depend
on local economic conditions, but are not necessarily affected by the ability of
the Commonwealth of Virginia and its political subdivisions to pay their debts.
Therefore, the general risk factors as to the credit of the State or its
political subdivision discussed herein may not be relevant to the Fund.
To the extent bonds of the Commonwealth of Virginia are included in the Fund,
information on the financial condition of the Commonwealth is noted. The
Constitution of Virginia limits the ability of the Commonwealth to create debt.
The Constitution requires a balanced budget. The Commonwealth has maintained a
high level of fiscal stability for many years due in large part to conservative
financial operations and diverse sources of revenue. The economy of the
Commonwealth of Virginia is based primarily on manufacturing, the government
sector (including defense), agriculture, mining and tourism. The Commonwealth
ended the fiscal year on June 30, 1999 with general fund revenues exceeding
budget projections by $178.8 million. The audited results at the end of such
fiscal year show a general fund balance of $1.174 billion. The balance grew by
$157 million as a result of greater than expected revenues and transfers.
The 2000-2002 Budget Bill presented by Governor Gilmore provides about $3.2
billion in new revenue, based on projected overall growth rates of 6.6% for
fiscal 2001 and 6.8% for fiscal 2002 and no downturns in the economy or the
stock market. The revenue forecast also incorporates a portion of Virginia's
allocation of the Tobacco Master Settlement Agreement. An additional $123
million of budget savings, based principally on a reduction to agency budgets
for fiscal 2002, is also projected, resulting in total projected new resources
of approximately $3.3 billion. The Budget Bill proposes non-discretionary
spending increases of about $2.3 billion, most of which are accounted for by
continuing elimination of the tax on personally owned motor vehicles, fully
funding the state share of the Standards of Quality, deposits to the revenue
stabilization fund and Medicaid services to mandated client groups. Proposed
increases in discretionary spending totaling $974 million include $423.5
million for transportation, $157.1 million for education and $127.8 million
for employee compensation and related expenses.
The Commonwealth currently has a Standard & Poor's rating of AAA, a Moody's
rating of Aaa, and a Fitch IBCA rating of AAA on its general obligation bonds.
There can be no assurance that the economic conditions on which these ratings
are based will continue or that particular bond issues may not be adversely
affected by changes in economic or political conditions. Further, the credit of
the Commonwealth is not material to the ability of political subdivisions and
private entities to make payments on the obligations described below.
General obligations of cities, towns and counties in Virginia are payable from
the general revenues of the entity, including ad valorem tax revenues on
property within the jurisdiction. The obligation to levy taxes could be enforced
by mandamus, but such a remedy may be impracticable and difficult to enforce.
Under section 15.2-2659 of the Code of Virginia of 1950, as amended, a holder of
any general obligation bond in default may file an affidavit setting forth such
default with the Governor. If, after investigating, the Governor determines that
such default exists, he is directed to order the State Comptroller to withhold
State funds appropriated and payable to the entity and apply the amount so
withheld to unpaid principal and interest. The Commonwealth, however, has no
obligation to provide any additional funds necessary to pay such principal and
interest.
Revenue bonds issued by Virginia political subdivisions include (i) revenue
bonds payable exclusively from revenue producing governmental enterprises and
(ii) industrial revenue bonds, college and hospital revenue bonds and other
"private activity bonds" which are non-governmental debt issues and which are
payable exclusively by private
9
<PAGE>
entities such as non-profit organizations and business concerns of all sizes.
State and local governments have no obligation to provide for payment of such
private activity bonds and in many cases would be legally prohibited from doing
so. The value of such private activity bonds may be affected by a wide variety
of factors relevant to particular localities or industries, including economic
developments outside of Virginia.
Virginia municipal securities that are lease obligations are customarily subject
to "non-appropriation" clauses which allow the municipality, or other public
entity, to terminate its lease obligations if moneys to make the lease payments
are not appropriated for that purpose. Legal principles may restrict the
enforcement of provisions in lease financing limiting the municipal issuer's
ability to utilize property similar to that leased in the event that debt
service is not appropriated.
Recent amendments to Chapter 9 of the United States Bankruptcy Code, which
applies to bankruptcies by political subdivisions, limit the filing under that
chapter to political subdivisions that have been specifically authorized to do
so under applicable state law. The Sponsors are not aware of any statute in
Virginia that gives any such authorization to political subdivisions in
Virginia. Bonds payable exclusively by private entities may be subject to the
provisions of the United States Bankruptcy Code other than Chapter 9.
Virginia municipal issuers are subject to Rule 15c2-12 of the Securities and
Exchange Commission that requires continuing disclosure, including annual
audited financial statements, with respect to those obligations, unless exempted
by the Rule.
Although revenue obligations of the Commonwealth or its political subdivisions
may be payable from a specific project or source, including lease rentals, there
can be no assurance that future economic difficulties and the resulting impact
on Commonwealth and local government finances will not adversely affect the
market value of the portfolio of the Fund or the ability of the respective
obligors to make timely payments of principal and interest on such obligations.
The information summarized above describes some of the more significant events
relating to the Fund. Sources of such information are the official statements of
the issuers located in the Commonwealth of Virginia, as well as other publicly
available documents and information. While the Manager has not independently
verified such information, it has no reason to believe it is not correct in all
material respects.
Investment Restrictions
The Fund has adopted the following fundamental investment restrictions which
apply to all portfolios. They may not be changed unless approved by a majority
of the outstanding shares "of each series of the Fund's shares that would be
affected by such a change." The term "majority of the outstanding shares" of the
Fund means the vote of the lesser of (i) 67% or more of the shares of the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Fund. The Fund may not:
1. Make portfolio investments other than as described under "Description of
the Fund and Its Investments and Risks" herein. Any other form of Federal
tax-exempt investment must meet the Fund's high quality criteria, as
determined by the Board of Directors, and be 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. This includes the meeting
of redemption requests that might otherwise require the untimely
disposition of securities, in an amount up to 15% of the value of the
Fund's total assets (including the amount borrowed) valued at market less
liabilities (not including the amount borrowed) at the time the borrowing
was made. While borrowings exceed 5% of the value of the Fund's total
assets, the Fund will not make any investments. Interest paid on borrowings
will reduce net income.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except in
an amount up to 15% of the value of its total assets and only to secure
borrowings for temporary or emergency purposes.
4. Sell securities short or purchase securities on margin, or engage in the
purchase and sale of put, call, straddle or spread options or in writing
such options. However, securities subject to a demand obligation and
stand-by commitments may be purchased as set forth under "Description of
the Fund and Its Investments 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.
10
<PAGE>
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. 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 "Description of the
Fund and Its Investments 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. The Fund may invest more than 25% of its assets in
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-government user,
then such non-government 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. Immediately after the
acquisition of any securities subject to a Demand Feature or Guarantee (as
such terms are defined in Rule 2a-7 of the 1940 Act), with respect to 75%
of the total assets of the Fund, not more than 10% of the Fund's assets may
be invested in securities that are subject to a Guarantee or Demand Feature
from the same institution. However, the Fund may only invest more than 10%
of its assets in securities subject to a Guarantee or Demand Feature issued
by a Non-Controlled Person (as such term is defined in Rule 2a-7 of the
1940 Act).
11. Invest in securities of other investment companies. 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 a 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.
III. MANAGEMENT OF THE FUND
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, has employed the Manager to serve as investment
manager of the Fund. The Manager provides persons satisfactory to the Fund's
Board of Directors to serve as officers of the Fund. Such officers, as well as
certain other employees and directors of the Fund, may be directors or officers
of Reich & Tang Asset Management, Inc., the sole general partner of the Manager
or employees of the Manager or its affiliates. Due to the services performed by
the Manager, the Fund currently has no employees and its officers are not
required to devote their full-time to the affairs of the Fund.
The Directors and Officers of the Fund and their principal occupations during
the past five years are set forth below. Unless otherwise specified, the address
of each of the following persons is 600 Fifth Avenue, New York, New York 10020.
Mr. Duff may be deemed an "interested person" of the Fund, as defined in the
1940 Act, on the basis of his affiliation with Reich & Tang Asset Management
L.P.
Steven W. Duff, 46 - President and Director of the Fund, has been President of
the Mutual Funds Division of the Manager since September 1994. Mr. Duff is also
President and a Director/Trustee of 13 other funds in the Reich & Tang Fund
Complex, President of Back Bay Funds, Inc., Director of Pax World Money Market
Fund, Inc., Executive Vice President of Reich & Tang Equity Fund, Inc., and
President and Chief Executive Officer of Tax Exempt Proceeds Fund, Inc.
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<PAGE>
Dr. W. Giles Mellon, 69 - Director of the Fund, is Professor of Business
Administration and Area Chairman of Economics in the Graduate School of
Management, Rutgers University which he has been associated with since 1966. His
address is Rutgers University Graduate School of Management, 92 New Street,
Newark, New Jersey 07102. Dr. Mellon is also a Director/Trustee of 15 other
funds in the Reich & Tang Fund Complex.
Robert Straniere, 58 - Director of the Fund, has been a member of the New York
State Assembly and a partner with the Straniere Law Firm since 1981. His address
is 182 Rose Avenue, Staten Island, New York 10306. Mr. Straniere is also a
Director/Trustee of 15 other funds in the Reich & Tang Fund Complex, and
Director of Life Cycle Mutual Funds, Inc.
Dr. Yung Wong, 61 - Director of the Fund, was Director of Shaw Investment
Management (UK) Limited from 1994 to October 1995 and formerly General Partner
of Abacus Partners Limited Partnership (a general partner of a venture capital
investment firm) from 1984 to 1994. His address is 29 Alden Road, Greenwich,
Connecticut 06831. Dr. Wong is also a Director/Trustee of 15 other funds in the
Reich & Tang Fund Complex, Dr. Wong is also a Trustee of Eclipse Financial Asset
Trust.
Molly Flewharty, 48 - 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 18
other funds in the Reich & Tang Fund Complex.
Lesley M. Jones, 51 - Vice President of the Fund, has been Senior Vice President
of the Mutual Funds Division of the Manager since September 1993. Ms. Jones was
formerly Senior Vice President of Reich & Tang, Inc. which she was associated
with from April 1973 to September 1993. Ms. Jones is also a Vice President of 14
other funds in the Reich & Tang Fund Complex.
Dana E. Messina, 43 - Vice President of the Fund, has been Executive Vice
President of the Mutual Funds Division of the Manager since January 1995 and was
Vice President from September 1993 to January 1995. Ms. Messina was formerly
Vice President of Reich & Tang, Inc. with which she was associated with from
December 1980 to September 1993. Ms. Messina is also Vice President of 15 other
funds in the Reich & Tang Fund Complex.
Bernadette N. Finn, 52 - Secretary of the Fund, has been Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Finn 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 13 other funds in the Reich & Tang Fund Complex, and a Vice
President and Secretary of 5 funds in the Reich & Tang Fund Complex.
Richard De Sanctis, 43 - Treasurer of the Fund, has been Treasurer of the
Manager since September 1993. Mr. De Sanctis is also Treasurer of 17 other funds
in the Reich & Tang Fund Complex, and is Vice President and Treasurer of
Cortland Trust, Inc.
Rosanne Holtzer, 35 - Assistant Treasurer of the Fund, has been Vice President
of the Mutual Funds division of the Manager since December 1997. Ms. Holtzer was
formerly Manager of Fund Accounting for the Manager with which she was
associated with from June 1986. Ms. Holtzer is also Assistant Treasurer of 18
other funds in the Reich & Tang Fund Complex.
The Fund paid an aggregate remuneration of $6,000 to its directors with respect
to the period ended September 30, 1999, all of which consisted of directors'
fees paid to the three disinterested directors, pursuant to the terms of the
Investment Management Contract (see "Manager" herein).
Directors 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 Directors meeting
attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Directors who are affiliated with the Manager do
not receive compensation from the Fund. See Compensation Table.
12
<PAGE>
Compensation Table
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Total Compensation
Aggregate Pension or Retirement Estimated Annual from Fund and Fund
Compensation From the Benefits Accrued as Part Benefits Upon Complex Paid to
Fund of Fund Expenses Retirement Directors*
Name of Person,
Position
Dr. W. Giles Mellon, $2,000 0 0 $59,500 (16 Funds)
Director
Robert Straniere, $2,000 0 0 $59,500 (16 Funds)
Director
Dr. Yung Wong, $2,000 0 0 $59,500 (16 Funds)
Director
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex
for the fiscal year ending September 30, 1999. The total number of Funds
in the same Fund complex from which the directors receive compensation is
listed in parenthesis. A fund is considered to be in the same complex if,
among other things, it shares a common investment advisor with the Fund.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On December 31, 1999 there were 3,270,350 Class A shares of the Fund outstanding
and 259,837 Class B shares outstanding. As of December 31, 1999, the amount of
shares owned by all officers and directors of the Fund, as a group, was less
than 1% of the outstanding shares. Set forth below is certain information as to
persons who owned 5% or more of the Fund's outstanding shares as of December 31,
1999:
Nature of
Name and address % of Class Ownership
Class A Shares
Reich & Tang Services 98.27% Record
600 5th Ave.
New York, NY
Class B Shares
Lewco Securities Corp. 77.33% Record
34 Exchange Place
Jersey City, NJ 07311
Lewco Securities Corp. 19.28% Record
34 Exchange Place
Jersey City, NJ 07311
V. INVESTMENT ADVISORY AND OTHER SERVICES
The Investment Manager for the Fund is Reich & Tang Asset Management L.P., a
Delaware limited partnership with principal offices at 600 Fifth Avenue, New
York, New York 10020. The Manager was as of December 31, 1999, investment
manager, adviser, or supervisor with respect to assets aggregating in excess of
$14.7 billion. In addition to the Fund, the Manager acts as investment manager
and administrator of eighteen other investment companies and also advises
pension trusts, profit-sharing trusts and endowments.
Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") was the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager due to a restructuring by New England Investment
Companies, Inc. ("NEIC"). Subsequently, effective March 31, 1998, Nvest
Companies, L.P. ("Nvest Companies") due to a change in name of NEICOP, replaces
NEICOP as the limited partner and owner of a 99.5% interest in the Manager.
13
<PAGE>
Reich & Tang Asset Management, Inc. (an indirect wholly-owned subsidiary of
Nvest Companies) is the sole general partner and owner of the remaining 0.5%
interest of the Manager. Nvest Corporation, a Massachusetts Corporation
formerly known as New England Investment Companies, Inc.), serves as the
managing general partner of Nvest Companies.
Reich & Tang Asset Management, Inc. is an indirect subsidiary of Metropolitan
Life Insurance Company ("MetLife"). MetLife directly and indirectly owns
approximately 47% of the outstanding partnership interests of Nvest Companies
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc.
owns, directly and indirectly, approximately 13% of the outstanding partnership
interests of Nvest Companies.
MetLife is a mutual life insurance company and is the second largest life
insurance company in the United States in terms of total assets. MetLife
provides a wide range of insurance and investment products and services to
individuals and groups and is the leader among United States life insurance
companies in terms of total life insurance in force. MetLife and its affiliates
provide insurance or other financial services to approximately 36 million people
worldwide.
Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through thirteen subsidiaries, divisions
and affiliates offering a wide array of investment styles and products to
institutional clients. Its business units, in addition to the manager, include
AEW Capital Management, L.P.; Back Bay Advisors, L.P.; Capital Growth Management
Limited Partnerships; Greystone Partners, L.P.; Harris Associates, L.P.; Jurika
& Voyles, L.P.; Kobrick Funds, LLC; Loomis, Sayles & Company, L.P.; New England
Funds, L.P.; Nvest Associates, Inc.; Snyder Capital Management, L.P.; Vaughan,
Nelson, Scarborough & McCullough, L.P.; and Westpeak Investment Advisors, L.P.
These affiliates in the aggregate are investment advisors or managers to 80
other registered investment companies.
On July 8, 1999, the Board of Directors, including a majority of the directors
who are not interested persons (as defined in the 1940 Act) of the Fund or the
Manager, approved the annual continuance of the Investment Management Contract
and extended the term of the contract to September 30, 2000. It is continued in
force thereafter for successive twelve-month periods beginning each October 1,
provided that such majority vote of the Fund's outstanding voting securities or
by a majority of the directors who are not parties to the Investment Management
Contract or interested persons of any such party, by votes cast in person at a
meeting called for the purpose of voting on such matter.
Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund.
The Manager provides persons satisfactory to the Board of Directors of the Fund
to serve as officers of the Fund. Such officers, as well as certain other
employees and directors of the Fund, may be directors or officers of NEIC, the
sole general partner of the Manager, or employees of the Manager or its
affiliates.
The Investment Management Contract is terminable without penalty by the Fund on
sixty days' written notice when authorized either by majority vote of its
outstanding voting shares or by a vote of a majority of its Board of Directors,
or by the Manager on sixty days written notice, and will automatically terminate
in the event of its assignment. The Investment Management Contract provides that
in the absence of willful misfeasance, bad faith or gross negligence on the part
of the Manager, or of reckless disregard of its obligations thereunder, the
Manager shall not be liable for any action or failure to act in accordance with
its duties thereunder.
Under the Investment Management Contract, the Manager receives from the Fund a
fee equal to .40% per annum of the Fund's average daily net assets. The fees are
accrued daily and paid monthly. The Manager at its discretion may voluntarily
waive all or a portion of the management fee.
Pursuant to 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. For its services under the Administrative Services Contract, the
Manager receives from the Fund a fee equal to .21% per annum of the Fund's
average daily net assets. For the Fund's fiscal years ended September 30, 1999
and 1998, the Manager received a fee of $6,790 and $1,411 respectively, all of
which was voluntarily waived.
14
<PAGE>
For the Fund's fiscal years ended September 30, 1999 and 1998, the fee paid to
the Manager under the Investment Management Contract was $12,932 and $2,689,
respectively, all of which was voluntarily waived. The Fund's net assets at the
close of business on September 30, 1999 totaled $3,282,808. 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).
Investment management fees and operating expenses which are attributable to both
Classes of the Fund will be allocated daily to each Class based on the
percentage of outstanding shares at the end of the day. Additional shareholder
services provided by Participating Organizations to Class A shareholders
pursuant to the Plan shall be compensated by the Distributor from its
shareholder servicing fee, the Manager from its management fee and the Fund
itself. Expenses incurred in the distribution of Class B shares and the
servicing of Class B shares shall be paid by the Manager.
Expense Limitation
The Manager has agreed, pursuant to the Investment Management Contract (see
"Distribution and Service Plan" herein) to reimburse the Fund for its expenses
(exclusive of interest, taxes, brokerage and extraordinary expenses) which in
any year exceed the limits on investment company expenses prescribed by any
state in which the Fund's shares are qualified for sale. For the purpose of this
obligation to reimburse expenses, the Fund's annual expenses are estimated and
accrued daily, and any appropriate estimated payments are made to it on a
monthly basis. Subject to the obligations of the Manager to reimburse the Fund
for its excess expenses as described above, the Fund has, under the Investment
Management Contract, confirmed its obligation for payment of all its other
expenses. This includes all operating expenses, taxes, brokerage fees and
commissions, commitment fees, certain insurance premiums, interest charges and
expenses of the custodian, transfer agent and dividend disbursing agent's fees,
telecommunications expenses, auditing and legal expenses, bookkeeping agent
fees, costs of forming the corporation and maintaining corporate existence,
compensation of directors, officers and employees of the Fund and costs of other
personnel performing services for the Fund who are not officers of the Manager
or its affiliates, costs of investor services, shareholders' reports and
corporate meetings, SEC registration fees and expenses, state securities laws
registration fees and expenses, expenses of preparing and printing the Fund's
prospectus for delivery to existing shareholders and of printing application
forms for shareholder accounts, and the fees and reimbursements payable to the
Manager under the Investment Management Contract and the Distributor under the
Shareholder Servicing Agreement.
The Fund may from time to time hire its own employees or contract to have
management services performed by third parties (including Participating
Organizations) as discussed herein. The management of the Fund intends to do so
whenever it appears advantageous to the Fund. The Fund's expenses for employees
and for such services are among the expenses subject to the expense limitation
described above.
Distribution And Service Plan
The Fund's distributor is Reich & Tang Distributors, Inc., a Delaware
corporation with principal officers at 600 Fifth Avenue, New York, New York
10020. Pursuant to Rule 12b-1 under the 1940 Act, the SEC has required that an
investment company which bears any direct or indirect expense of distributing
its shares must do so only in accordance with a plan permitted by the Rule. The
Fund's Board of Directors 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.
Effective July 14, 1998, a majority of the Fund's Board of Directors, including
independent directors, approved the creation of a second class of shares of the
Fund's outstanding common stock. In furtherance of this action, the Board of
Directors has reclassified the common stock of the Fund into Class A and Class B
shares. The Class A shares will be offered to investors who desire certain
additional shareholder services from Participating Organizations that are
compensated by the Fund's Manager and Distributor for such services. For its
services under the Shareholder Servicing Agreement (with respect to the Class A
shares only), the Distributor receives from the Fund a 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"). The fee is accrued daily and paid monthly and
any portion of the fee may be deemed to be used by the Distributor for purposes
of distribution of the Fund's Class A shares and for payments to
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Participating Organizations with respect to servicing their clients or customers
who are Class A shareholders of the Fund. The Class B shareholders will not
receive the benefit of such services from Participating Organizations and,
therefore, will not be assessed a Shareholder Servicing Fee.
The following information applies only to the Class A shares of the Fund.For the
Fund's fiscal year ended September 30, 1999, the Fund paid shareholder
servicing and administration fees of $1,680 to the Distributor. During this same
period the Manager and Distributor made payments under the plan to or on behalf
of Participating Organizations of $0. 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, $0 was utilized for compensation to
sales personnel, $0 on Travel & Entertainment for sales personnel, $0 on
Prospectus printing and $0 on Miscellaneous expenses. For the Fund's fiscal year
ended September 30, 1998, the Fund paid shareholder servicing and administration
fees of $7,914 to the Distributor. During this same period the Manager and
Distributor made payments under the plan to or on behalf of Participating
Organizations of $642. 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, $433 was utilized for compensation to sales
personnel, $0 on Travel & Entertainment for sales personnel, $3,908 on
Prospectus printing and $0 on Miscellaneous expenses.
Under the Distribution Agreement, the Distributor, for nominal consideration
(i.e., $1.00) and as agent for the Fund, will solicit orders for the purchase of
the Fund's shares, provided that any subscriptions and orders will not be
binding on the Fund until accepted by the Fund as principal.
The Plan and the Shareholder Servicing Agreement provide that, 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
their own resources, which may include the management fee, and past profits for
the following purposes: (i) to defray the costs of, and to compensate others,
including Participating Organizations with whom the Distributor has entered into
written agreements for performing shareholder servicing and related
administrative functions on behalf of the Class A shares of the Fund; (ii) to
compensate certain Participating Organizations for providing assistance in
distributing the Fund's shares; and (iii) to pay the costs of printing and
distributing the Fund's prospectus to prospective investors, and to defray the
cost of the preparation and printing of brochures and other promotional
materials, mailings to prospective shareholders, advertising, and other
promotional activities, including the salaries and/or commissions of sales
personnel in connection with the distribution of the Fund's shares. The
Distributor may also make payments from time to time from its own resources,
which may include the Shareholder Servicing Fee with respect to Class A shares
and past profits for the purpose enumerated in (i) above. The Distributor will
determine the amount of such payments made pursuant to the Plan, provided that
such payments will not increase the amount which the Fund is required to pay to
the Manager or 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 Directors. In addition, the Plan requires
the Fund and the Distributor to prepare, at least quarterly, written reports
setting forth all amounts expended for distribution purposes by the Fund and the
Distributor pursuant to the Plan and identifying the distribution activities for
which those expenditures were made.
The Plan provides that it may continue in effect for successive annual periods
provided it is approved by the Class A shareholders or by the Board of
Directors, including a majority of directors who are not interested persons of
the Fund and who have no direct or indirect interest in the operation of the
Plan or in the agreements related to the Plan. The Plan was approved by a
majority of the shareholders on January 1, 1998. The continuance of the Plan was
most recently approved by the Board of Directors on July 8, 1999 and shall
continue in effect until September 30, 2000. 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 directors in the
manner described in the preceding sentence. The Plan may be terminated at any
time by a vote of a majority of the disinterested directors of the Fund or the
Fund's Class A shareholders.
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Custodian And Transfer Agent
State Street Kansas City, 801 Pennsylvania, Kansas City, Missouri 64105, is
custodian for the Fund's cash and securities. Reich & Tang Services, Inc., an
affiliate of the Fund's Manager, located at 600 Fifth Avenue, New York, NY
10020, is transfer agent and dividend agent for the shares of the Fund. The
custodian and transfer agents do not assist in, and are not responsible for,
investment decisions involving assets of the Fund.
Counsel and Independent Accountants
Legal matters in connection with the issuance of shares of stock of the Fund are
passed upon by Battle Fowler LLP, 75 East 55th Street, New York, New York 10022.
Matters in connection with Virginia law are passed upon by Hunton & Williams,
951 East Byrd Street, Richmond, Virginia 23219.
PricewaterhouseCoopers, LLP, 1177 Avenue of the Americas, New York, New York
10036, independent certified public accountants, have been selected as
Independent Accountants for the Fund.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
The Fund's purchases and sales of portfolio securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Thus, the Fund will select a broker
for such a transaction based upon which broker can effect the trade at the best
price and execution available. Purchases from underwriters of portfolio
securities include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price. The Fund purchases Participation
Certificates in variable rate Municipal Obligations with a demand feature from
banks or other financial institutions at a negotiated yield to the Fund based on
the applicable interest rate adjustment index for the security. The interest
received by the Fund is net of a fee charged by the issuing institution for
servicing the underlying obligation and issuing the Participation Certificate,
letter of credit, guarantee or insurance and providing the demand repurchase
feature.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed in the
best interest of shareholders of the Fund rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price. No preference in purchasing portfolio securities will
be given to banks or dealers that are Participating Organizations.
Investment decisions for the Fund will be made independently from those for any
other investment companies or accounts that may be or become managed by the
Manager or its affiliates. If, however, the Fund and other investment companies
or accounts managed by the Manager are simultaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In some cases, this policy might adversely
affect the price paid or received by the Fund or the size of the position
obtainable for the Fund. In addition, when purchases or sales of the same
security for the Fund and for other investment companies managed by the Manager
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantage available to large denomination purchasers or
sellers.
No portfolio transactions are executed with the Manager or its affiliates acting
as principal. In addition, the Fund will not buy bankers' acceptances,
certificates of deposit or commercial paper from the Manager or its affiliates.
VII. CAPITAL STOCK AND OTHER SECURITIES
The authorized capital stock of the Fund consists of twenty billion shares of
stock having a par value of one tenth of one cent ($.001) per share. The Fund's
Board of Directors is authorized to divide the shares into separate series of
stock, one for each of the portfolios that may be created. Each share of any
series of shares when issued will have equal dividend, distribution and
liquidation rights within the series for which it was issued and each fractional
share has those rights in proportion to the percentage that the fractional share
represents of a whole share. Shares of all series have identical voting rights,
except where, by law, certain matters must be approved by a majority of the
shares of the unaffected series. Shares will be voted in the aggregate. There
are no conversion or preemptive rights in connection with any shares of the
Fund. All shares, when issued in accordance with the terms of the offering, will
be fully paid and nonassessable. Shares are redeemable at net asset value, at
the option of the shareholder. The Fund is subdivided into two classes of common
stock, 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,
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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 Class A shares' average daily net assets; (iii) only the holders of the
Class A shares will be entitled to vote on matters pertaining to the Plan and
any related agreements in accordance with provisions of Rule 12b-1; and (iv) the
exchange privilege will permit stockholders to exchange their shares only for
shares of the same class of an investment company that participates on an
exchange privilege program with the Fund. Payments that are made under the Plan
will be calculated and charged daily to the appropriate class prior to
determining daily net asset value per share and dividends/distributions.
Under its amended Articles of Incorporation, the Fund has the right to redeem
for cash shares of stock owned by any shareholder to the extent and at such
times as the Fund's Board of Directors determines to be necessary or appropriate
to prevent an undue concentration of stock ownership which would cause the Fund
to become a "personal holding company" for Federal income tax purposes. In this
regard, the Fund may also exercise its right to reject purchase orders.
The shares of the Fund have non-cumulative voting rights, which means that the
holders of more than 50% of the shares outstanding voting for the election of
directors can elect 100% of the directors if the holders choose to do so. In
that event, the holders of the remaining shares will not be able to elect any
person or persons to the Board of Directors. Unless specifically requested by an
investor, the Fund will not issue certificates evidencing Fund shares.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
or special meetings only (i) for the election (or re-election) of directors,
(ii) for approval of the revised investment advisory contracts with respect to a
particular class or series of stock, (iii) for approval of the Fund's
distribution agreement with respect to a particular class or series of stock,
and (iv) upon the written request of shareholders entitled to cast not less than
25% of all the votes entitled to be cast at such meeting. Annual and other
meetings may be required with respect to such additional matters relating to the
Fund as may be required by the 1940 Act, including the removal of Fund
director(s) and communication among shareholders, any registration of the Fund
with the SEC or any state, or as the Directors may consider necessary or
desirable. Each Director serves until his successor is elected or qualified, or
until such Director sooner dies, resigns, retires or is removed by the vote of
the shareholders.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
Pricing of Fund Shares
The material relating to the purchase, redemption, and pricing of shares for
each Class of shares is located in the Shareholder Information section of the
Prospectus and is hereby incorporated by reference.
Net Asset Value
The Fund does not determine net asset value per share of each Class on any day
in which the New York Stock Exchange is closed for trading. Those days include:
New Year's Day, Martin Luther King Jr. Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
The net asset value of the Fund's shares is determined as of 12 noon, New York
City time, on each Fund Business Day. The net asset value of a Class is computed
by dividing the value of the Fund's net assets for such Class (i.e., the value
of its securities and other assets less its liabilities, including expenses
payable or accrued but excluding capital stock and surplus) by the total number
of shares outstanding for such Class.
The Fund's portfolio securities are valued at their amortized cost in compliance
with the provisions of Rule 2a-7 under the 1940 Act. Amortized cost valuation
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium. If fluctuating interest
rates cause the market value of the Fund's portfolio to deviate more than 1/2 of
1% from the value determined on the basis of amortized cost, the Board of
Directors 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 Directors 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
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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 Directors 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 "Description of the Fund and its
Investments and Risks" herein.)
IX. TAXATION OF THE FUND
Federal Income Taxes
The Fund has elected to qualify under the Code, and under Virginia law as a
"regulated investment company" that distributes "exempt-interest dividends". The
Fund intends to continue to qualify for regulated investment company status so
long as such qualification is in the best interests of its shareholders. Such
qualification relieves the Fund of liability for Federal income taxes to the
extent its earnings are distributed in accordance with the applicable provisions
of the Code.
The Fund's policy is to distribute as dividends each year 100% and in no event
less than 90% of its tax-exempt interest income, net of certain deductions.
Exempt-interest dividends, as defined in the Code, are dividends or any part
thereof (other than capital gain dividends) paid by the Fund that are
attributable to interest on obligations, the interest on which is exempt from
regular Federal income tax, and designated by the Fund as exempt-interest
dividends in a written notice mailed to the Fund's shareholders not later than
60 days after the 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.
Although 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. The amount of such interest received will have to be disclosed on the
shareholders' Federal income tax returns. 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 includible in gross income. 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
tax on net 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. Capital gains realized by corporations are generally
taxed at the
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same rate as ordinary income. Generally, capital gains are taxable at a maximum
rate of 20% to non-corporate shareholders who have a holding period of more than
12 months. Corresponding maximum rate and holding period rules apply with
respect to capital gains distributed by the Fund without regard to the length of
time shares have been held by the holder.
The Fund intends to distribute at least 90% of its investment company taxable
income (taxable income subject to certain adjustments exclusive of the excess of
its net long-term capital gain over its net short-term capital loss) for each
taxable year. The Fund will be subject to Federal income tax on any
undistributed investment company taxable income. To the extent such income is
distributed it will be taxable to shareholders as ordinary income. Expenses paid
or incurred by the Fund will be allocated between tax-exempt and taxable income
in the same proportion as the amount of the Fund's tax-exempt income bears to
the total of such exempt income and its gross income (excluding from gross
income the excess of capital gains over capital losses). If the Fund does not
distribute at least 98% of its ordinary income and 98% of its capital gain net
income for a taxable year, the Fund will be subject to a nondeductible 4% excise
tax on the excess of such amounts over the amounts actually distributed.
If a shareholder fails to provide the Fund with a current taxpayer
identification number, the Fund generally is required to withhold 31% of taxable
interest, dividend payments, and proceeds from the redemption of shares of the
Fund.
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 of the underlying Municipal Obligations and the
interest thereon will be exempt from regular Federal income taxes to the Fund to
the same extent as interest on the underlying Municipal Obligation. 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 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 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 Municipal Obligations and to tax such bonds
in the future. The decision does not, however, affect the current exemption from
regular income taxation of the interest earned on the Municipal Obligations in
accordance with Section 103 of the Code.
Virginia Income Taxes
The designation of all or a portion of a dividend paid by the Fund as an
"exempt-interest dividend" under the Code does not necessarily result in the
exemption of such amount from tax under the laws of any state or local taxing
authority. However, assuming that the Fund is a regulated investment company
within the meaning of Section 851 of the Code, and has complied with certain
other requirements, exempt interest dividends received from the Fund need not be
included in Virginia taxable income by shareholders of the Fund subject to
Virginia taxation to the extent such dividends represent interest from
obligations issued by Virginia and political subdivisions of Virginia.
Exempt-interest dividends correctly identified by the Fund as derived from
obligations of Puerto Rico and the Virgin Islands, as well as other types of
obligations that Virginia is prohibited from taxing under the Constitution or
the laws of the United States of America or the constitution or laws of Virginia
("Territorial Municipal Obligations") should be exempt from Virginia income
taxation provided the Fund complies with the Virginia law. Exempt-Interest
dividends with respect to obligations from states other than Virginia and its
political subdivisions are required to be added to Federal taxable income in
calculating Virginia taxable income. The portion of distributions from the Fund
that represents capital gain is included in Virginia taxable income.
Shareholders are urged to consult their tax advisers with respect to the
treatment of distributions from the Fund and ownership of shares of the Fund in
their own states and localities.
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X. UNDERWRITERS
The Fund sells and redeems its shares on a continuing basis at their net asset
value and does not impose a sales charge. The Distributor does not receive an
underwriting commission. In effecting sales of Fund shares under the
Distribution Agreement, the Distributor, for nominal consideration (i.e., $1.00)
and as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
The Glass-Steagall Act and other applicable laws and regulations prohibit banks
and other depository institutions from engaging in the business of underwriting,
selling or distributing most types of securities. On November 16, 1999,
President Clinton signed the Gramm-Leach-Bliley Act, repealing certain
provisions of the Glass-Steagall Act which have restricted affiliation between
banks and securities firms and amending the Bank Holding Company Act thereby
removing restrictions on banks and insurance companies. The new legislation
grants banks new authority to conduct certain authorized activity though
financial subsidiaries. In the opinion of the Manager, however, based on the
advice of counsel, these laws and regulations do not prohibit such depository
institutions from providing other services for investment companies such as the
shareholder servicing and related administrative functions referred to above.
The Fund's Board of Directors will consider appropriate modifications to the
Fund's operations, including discontinuance of any payments then being made
under the Plan to banks and other depository institutions, in the event of any
future change in such laws or regulations which may affect the ability of such
institutions to provide the above-mentioned services. It is not anticipated that
the discontinuance of payments to such an institution would result in loss to
shareholders or change in the Fund's net asset value. In addition, state
securities laws on this issue may differ from the interpretations of Federal law
expressed herein and banks and financial institutions may be required to
register ad dealers pursuant to state law.
XI. CALCULATION OF PERFORMANCE DATA
The Fund calculates a seven-day yield quotation using a standard method
prescribed by the rules of the SEC. Under that method, the Fund's yield figure,
which is based on a chosen seven-day period, is computed as follows: the Fund's
return for the seven-day period is obtained by dividing the net change in the
value of a hypothetical account having a balance of one share at the beginning
of the period by the value of such account at the beginning of the period
(expected to always be $1.00). This is multiplied by (365/7) with the resulting
annualized figure carried to the nearest hundredth of one percent. For purposes
of the foregoing computation, the determination of the net change in account
value during the seven-day period reflects (i) dividends declared on the
original share and on any additional shares, including the value of any
additional shares purchased with dividends paid on the original share, and (ii)
fees charged to all shareholder accounts. Realized capital gains or losses and
unrealized appreciation or depreciation of the Fund's portfolio securities are
not included in the computation. Therefore annualized yields may be different
from effective yields quoted for the same period.
The Fund's "effective yield" for each Class 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 current yield. The
tax equivalent yield for each Class is computed based upon a 30-day (or one
month) period ended on the date of the most recent balance sheet included in
this Statement of Additional Information. It is computed by dividing that
portion of the yield of the Fund (as computed pursuant to the formulae
previously discussed) which is tax exempt by one minus a stated income tax rate
and adding the quotient to that portion, if any, of the yield of the Fund that
is not tax exempt. The tax equivalent yield for the Fund may also fluctuate
daily and does not provide a basis for determining future yields.
The Fund may from time to time advertise a tax equivalent effective yield table
which shows the yield that an investor would need to receive from a taxable
investment in order to equal a tax-free yield from the Fund. This is calculated
by dividing that portion of the Fund's effective yield that is tax-exempt by 1
minus a stated income tax rate and adding the quotient to that portion, if any,
of the Fund's effective yield that is not tax-exempt. See "Taxable Equivalent
Yield Table" herein.
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The Fund's Class A shares' yield for the seven day period ended December 31,
1999 was 3.58% which is equivalent to an effective yield of 3.64%. The Fund's
Class B shares' yield for the seven day period ended December 31, 1999 was 3.83%
which is equivalent to an effective yield of 3.90%.
XII. FINANCIAL STATEMENTS
The audited financial statements for the Fund for the fiscal year ended
September 30, 1999 and the report therein of PricewaterCoopers LLP, are herein
incorporated by reference to the Fund's Annual Report. The Annual Report is
available upon request and without charge.
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DESCRIPTION OFRATINGS*
Description of Moody's Investors Service, Inc.'s Two Highest Municipal Bond
Ratings:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Con. ( c ) Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These are bonds
secured by (i) earnings of projects under construction, (ii) earnings of
projects unseasoned in operating experience, (iii) rentals which begin when
facilities are completed, or (iv) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Description of Moody's Investors Service, Inc.'s Two Highest Ratings of State
and Municipal Notes and Other Short-Term Loans:
Moody's ratings for state and municipal notes and other short-term loans will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used will be as follows:
MIG-1: Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2: Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
Description of Standard & Poor's Rating Services Two Highest Debt Ratings:
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only to a small degree.
Plus ( + ) or Minus ( - ): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
Provisional Ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
Standard & Poor's does not provide ratings for state and municipal notes.
Description of Standard & Poor's Rating Services Two Highest Commercial Paper
Ratings:
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Description of Moody's Investors Service, Inc.'s Two Highest Commercial Paper
Ratings:
Moody's employs the following designations, both judged to be investment grade,
to indicate the relative repayment capacity of rated issues: Prime-1, highest
quality; Prime-2, higher quality.
_____________________________________
* As described by the rating agencies
23
<PAGE>
CORPORATE TAXABLE EQUIVALENT YIELD TABLE
(Based on Estimated Tax Rates Effective Until December 31, 2000)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket Is . . .
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
Corporate $0- $50,001- $75,001- $100,001- $335,001- $10,000,001- $15,000,001- $18,333,334
Return 50,000 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
Tax Rate 15.00% 25.00% 34.00% 39.00% 34.00% 35.00% 38.00% 35.00%
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
State
Tax Rate 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00%
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
Combined
Marginal
Tax Rate 20.10% 29.50% 37.96% 42.66% 37.96% 38.90% 41.72% 38.90%
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------------
3. Now Compare Your Tax Free Income Yields With Taxable Income Yields
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------- -------------------------------------------------------------------------------------------------------------------
Tax Exempt
Yield Equivalent Taxable Investment Yield
Requires to Match Tax Exempt Yield
- ---------------- -------------------------------------------------------------------------------------------------------------------
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
2.00% 2.50% 2.84% 3.22% 3.49% 3.22% 3.27% 3.43% 3.27%
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
2.50% 3.13% 3.55% 4.03% 4.36% 4.03% 4.09% 4.29% 4.09%
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
3.00% 3.75% 4.26% 4.84% 5.23% 4.84% 4.91% 5.15% 4.91%
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
3.50% 4.38% 4.96% 5.64% 6.10% 5.64% 5.73% 6.01% 5.73%
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
4.00% 5.01% 5.67% 6.45% 6.98% 6.45% 6.55% 6.86% 6.55%
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
4.50% 5.63% 6.38% 7.25% 7.85% 7.25% 7.36% 7.72% 7.36%
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
5.00% 6.26% 7.09% 8.06% 8.72% 8.06% 8.18% 8.58% 8.18%
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
5.50% 6.88% 7.80% 8.87% 9.59% 8.87% 9.00% 9.44% 9.00%
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
6.00% 7.51% 8.51% 9.67% 10.46% 9.67% 9.82% 10.30% 9.82%
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
6.50% 8.14% 9.22% 10.48% 11.34% 10.48% 10.64% 11.15% 10.64%
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
7.00% 8.76% 9.93% 11.28% 12.21% 11.28% 11.46% 12.01% 11.46%
- ---------------- ------------- ------------ ------------- ------------- -------------- --------------- --------------- -------------
</TABLE>
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.
24
<PAGE>
INDIVIDUAL TAXABLE EQUIVALENT YIELD TABLE
(Based on Estimated Tax Rates Effective Until December 31, 2000)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
1. If Your Taxable Income Bracket is. . .
- --------------------------------------------------------------------------------------------------------------
Single $0 - $25,251 - $63,551 - $132,601 - $288,351 -
Return 26,250 63,550 132,600 288,350 and over
- --------------------------------------------------------------------------------------------------------------
Joint $0 - $43,851 - $105,951 - $161,451 - $288,351 -
Return 43,850 105,950 161,450 288,350 And over
- --------------------------------------------------------------------------------------------------------------
2. Then Your Combined Income Tax Bracket is. . .
- --------------------------------------------------------------------------------------------------------------
Federal Tax
Rate 15.00% 28.00% 31.00% 36.00% 39.60%
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
State Tax Rate
5.75% 5.75% 5.75% 5.75% 5.75%
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Combined
Marginal Tax
Rate 19.89% 32.14% 34.97% 39.68% 43.07%
- --------------------------------------------------------------------------------------------------------------
3. Now Compare Tax Free Income Yields With Taxable Income Yields. . .
- --------------------------------------------------------------------------------------------------------------
Tax Exempt Equivalent Taxable Investment Yield
Yield Required to Match Tax Exempt Yield
- --------------------------------------------------------------------------------------------------------------
2.00% 2.50% 2.95% 3.08% 3.32% 3.51%
- --------------------------------------------------------------------------------------------------------------
2.50% 3.12% 3.68% 3.84% 4.14% 4.39%
- --------------------------------------------------------------------------------------------------------------
3.00% 3.74% 4.42% 4.61% 4.97% 5.27%
- --------------------------------------------------------------------------------------------------------------
3.50% 4.37% 5.16% 5.38% 5.80% 6.15%
- --------------------------------------------------------------------------------------------------------------
4.00% 4.99% 5.89% 6.15% 6.63% 7.03%
- --------------------------------------------------------------------------------------------------------------
4.50% 5.62% 6.63% 6.92% 7.46% 7.90%
- --------------------------------------------------------------------------------------------------------------
5.00% 6.24% 7.37% 7.69% 8.29% 8.78%
- --------------------------------------------------------------------------------------------------------------
5.50% 6.87% 8.10% 8.46% 9.12% 9.66%
- --------------------------------------------------------------------------------------------------------------
6.00% 7.49% 8.84% 9.23% 9.95% 10.54%
- --------------------------------------------------------------------------------------------------------------
6.50% 8.11% 9.58% 10.00% 10.78% 11.42%
- --------------------------------------------------------------------------------------------------------------
7.00% 8.74% 10.32% 10.76% 11.60% 12.30%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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.
25
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
* (a) Articles of Incorporation of the Registrant.
* (b) By-Laws of the Registrant.
* (c) Form of certificate for shares of common stock, par value
$.001 per share, of the registrant.
* (d) Form of Investment Management Contract between the Registrant
and Reich & Tang Asset Management L.P.
* (e) Form of Distribution Agreement between the Registrant and
Reich & Tang Distributors, Inc.
(f) Not applicable.
* (g) Form of Custody Agreement between the Registrant and
Investors Fiduciary Trust Company.
* (h) Administrative Services Agreement between the Registrant and
Reich & Tang Asset Management L.P.
* (i) Consent Opinion of Messrs. Battle Fowler LLP as to the use
of their name under the headings "Federal Income Taxes" in
the Prospectus and "Counsel and Auditors" in the Statement
of Additional Information.
* (i.1) Opinion of Hunton & Williams as to Virginia law, including
their consent to the filing thereof and to the use of their
name under the heading "Virginia Income Taxes" in the
Prospectus and "Counsel and Auditors" in the Statement of
Additional Information.
(j) Consent of Independent Accountants.
(j.1) Consent of Independent Accountants.
(k) Audited Financial Statements (incorporated by reference to
the Fund's Annual Report).
* (l) Form of Written assurance of Reich & Tang Asset Management
L.P. that its purchase of shares of the Registrant was for
investment purposes without any present intention of
redeeming or reselling.
* (m) Form of Distribution and Service Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940.
* (m.1) Form of Distribution Agreement between the Registrant and
Reich & Tang Distributors Inc.
* (m.2) Form of Shareholder Servicing Agreement between the
Registrant and Reich & Tang Distributors Inc.
(n) Not Applicable.
* (o) 18f-3 Multi-Class Plan.
* (p) Powers of Attorney.
---------------------
* Filed with Pre-Effective Amendment No. 2 to said Registration Statement
filed on November 5, 1997 and incorporated herein by reference.
C-1
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
None.
Item 25. Indemnification.
Registrant incorporates by reference the response to Item 27 of
Part II of the Registrants Registration Statement on Form N-1A
filed with the Commission on July 11, 1997.
Item 26. Business and Other Connections of Investment Adviser.
The description of Reich & Tang Asset Management L.P. ("RTAMLP") under
the caption "Management, Organization and Capital Structure" in the Prospectus
and "Investment Advisory and Other Services" and "Management of the Fund" in the
Statement of Additional Information constituting parts A and B, respectively, of
this Post-Effective Amendment to the Registration Statement are incorporated
herein by reference.
Registrant's investment advisor, RTAMLP, is a registered investment
advisor. Nvest Companies, L.P. (Nvest) is the limited partner and owner of a
99.5% interest in RTAMLP. Reich & Tang Asset Management, Inc. ("RTAM")(an
indirect wholly-owned subsidiary of Nvest) is the sole general partner and owner
of the remaining .05% interest in RTAMLP. RTAMLP's investment advisory clients
include more than twenty-one registered investment companies which invest in
money market instruments, equity securities and debt securities. In addition,
RTAMLP is the sole general partner of ten investment partnerships organized as
limited partnerships.
Peter S. Voss, President, has been Chief Executive Officer and a
Director of Nvest Corporation (formerly New England Investment Companies, Inc.)
since October 1992, Chairman of the Board of Nvest Corporation since December
1992, Director of The New England since March 1993, Chairman of the Board of
Directors of NEIC's subsidiaries other than Loomis, Sayles & Company, L.P.
("Loomis") and Back Bay Advisors, L.P. ("Back Bay"), where he serves as a
Director, and Chairman of the Board of Trustees of all of the mutual funds in
the TNE Fund Group and the Zenith Funds. G. Neil Ryland, Executive Vice
President, Treasurer and Chief Financial Officer Nvest Corporation since July
1993. Edward N. Wadsworth, Executive Vice President, General Counsel, Clerk and
Secretary of Nvest Corporation since December 1989, and Secretary of Westpeak
and Draycott and the Treasurer of Nvest Corporation. Lorraine C. Hysler,
Executive Vice President since January 2000, has been Secretary of RTAM since
July 1994, Assistant Secretary of NEIC since September 1993, and Vice President
of Reich & Tang Mutual Funds since July 1994. Richard E. Smith, III has been a
Director of RTAM since July 1994, and President and Director of RTAM since July
1994, President and Chief Operating Officer of the Reich & Tang Capital
Management Group since July 1994. Steven W. Duff has been a Director of RTAM
since October 1994, and President and Chief Executive Officer of Reich & Tang
Mutual Funds since August 1994. Mr. Duff is President and a Director/Trustee of
14 funds in the Reich & Tang Fund Complex, President of Back Bay Funds, Inc.,
Director of Pax World Money Market Fund, Inc., President and Chief Executive
Officer of Tax Exempt Proceeds Fund, Inc., and Executive Vice President of Reich
& Tang Equity Fund, Inc. Bernadette N. Finn has been Vice President/Compliance
of RTAM since July 1994, and Vice President of Reich & Tang Mutual Funds since
July 1994. Ms. Finn is also Secretary of 14 funds in the Reich & Tang Complex
and a Vice President and Secretary of 5 funds in the Reich & Tang Fund Complex.
Richard DeSanctis, Executive Vice President since January 2000, has been
Treasurer of RTAM since July 1994, Assistant Treasurer of NEIC since September
1993, Treasurer of the Reich & Tang Mutual Funds since July 1994. Mr. DeSanctis
is also Treasurer of 18 funds in the Reich & Tang Fund Complex and is Vice
President and Treasurer of Cortland Trust, Inc. Richard I. Weiner has been Vice
President of RTAM since July 1994, Vice President of NEIC since September 1993,
and Vice President of Reich & Tang Asset Management L.P. Capital Management
Group since July 1994. Mr. Weiner has served as a Vice President of Reich &
Tang, Inc. since September 1982. Rosanne Holtzer has been Vice President of the
Mutual Funds division of the Manager since December 1997. Ms. Holtzer was
formerly Manager of Fund Accounting for the Manager with which she was
associated with from June 1986. In addition she is also Assistant Treasurer of
19 funds in the Reich & Tang Fund Complex.
Item 27 Principal Underwriters.
(a) Reich & Tang Distributors Inc., is also distributor for Back Bay
Funds, Inc., California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax
Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc., Florida Daily Municipal Income Fund, Georgia Daily
Municipal Income Fund, Inc., 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, Inc.,
Pax World Money Market Fund, Inc.,
C-2
<PAGE>
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc.
(b) The following are the directors and officers of Reich & Tang
Distributors Inc. The principal business address of Messrs. Voss, Ryland, and
Wadsworth is 399 Boylston Street, Boston, Massachusetts 02116. For all other
persons the principal address is 600 Fifth Avenue, New York, New York 10020.
Positions and Offices Positions and Offices
Name of the Distributor With Registrant
Peter S. Voss Director None
G. Neal Ryland Director None
Edward N. Wadsworth Executive Officer None
Richard E. Smith III President & Director None
Steven W. Duff Director President and Director
Bernadette N. Finn Vice President Secretary
Lorraine C. Hysler Executive V. P. & Secretary None
Richard De Sanctis Executive V. P. & Treasurer Treasurer
Richard I. Weiner Vice President None
(c) Not applicable
Item 28. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained in the physical possession of Registrant at Reich &
Tang Asset Management L.P., 600 Fifth Avenue, New York, New York 10020 the
Registrant's Manager; Reich & Tang Services, Inc., 600 Fifth Avenue, New York,
New York 10020, the Registrant's transfer agent and dividend distributing agent;
and at State Street Kansas City, 801 Pennsylvania, Kansas City, Missouri 64105,
the Registrant's custodian.
Item 29. Management Services.
Not Applicable.
Item 30. Undertakings.
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement under Rule 485(b) of the Securities Act of 1933 and has
duly caused this Post-Effective Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, and State of New York, on the 28th day of January, 2000.
VIRGINIA DAILY MUNICIPAL INCOME FUND, INC.
By:
/s/Bernadette N. Finn, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated below.
Signature Title Date
(1) Principal Executive Officer
By:
/s/Steven W. Duff Chairman and President 1/28/00
(2) Principal Financial and
Accounting Officer
By: /s/Richard De Sanctis Treasurer 1/28/00
(3) Majority of Directors
Steven W. Duff Director 1/28/00
Yung Wong Director
W. Giles Mellon Director
Robert Straniere Director
By:
/s/Bernadette N. Finn
Attorney-in-Fact*
_____________________
* Powers of Attorney, filed as Exhibit (16) with Pre-Effective Amendment No. 2
to Registration Statement filed on November 5, 1997 and incorporated herein
by reference.
EXHIBIT j
McGLADREY & PULLEN, L.L.P.
Certified Public Accountants & Consultants
CONSENT OF INDEPENDENT AUDITOR
We consent to the inclusion of our report dated October 16, 1998, on the
referred to therein, in Post-Effective Amendment No. 3 to the Registration
Statement on Form N-1A, File No. 33-90538 of Virginia Daily Municipal Income
Fund as filed with the Securities and Exchange Commission.
McGladrey & Pullen, LLP
New York, New York
January 24, 2000
EXHIBIT j.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our report dated November 1, 1999, relating to the
financial statements and financial highlights which appears in the September 30,
1999 Annual Report to Shareholders of Virginia Daily Municipal Income Fund, Inc.
which is also incorporated by reference into the Registration Statement. We
also consent to the references to us under the headings "Financial Highlights",
"Counsel and Auditors" and "Financial Statements" in such Registration
Statement.
PricewaterhouseCoopers LLP
New York, New York
January 25, 2000
