Rule 497(e)
Registration No. 333-43587
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PAX WORLD MONEY 600 Fifth Avenue, New York, NY 10020
MARKET FUND, INC. (212) 830-5200
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STATEMENT OF ADDITIONAL INFORMATION
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May 30, 2000
AS SUPPLEMENTED ON OCTOBER 31, 2OOO
Relating to the Prospectuses for the Institutional Class and Broker Service
Class Shares, the Individual Investor Class Shares, and the MMA Praxis Class
Shares of the Pax World Money Market Fund, Inc. dated May 30, 2000.
This Statement of Additional Information (SAI) is not a prospectus. This SAI
expands upon and supplements the information contained in the current
Prospectuses of the Institutional Class Shares and Broker Service Class Shares,
the Individual Investor Class Shares and the MMA Praxis Class Shares of Pax
World Money Market Fund, Inc. and should be read in conjunction with each
respective Prospectus.
A Prospectus for each Class of Fund shares may be obtained from any
Participating Organization or by writing or calling the Fund toll-free at
1-800-767-1729.
The 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 the purchase, redemption and pricing of shares has been incorporated
by reference to the Prospectuses for each Class of shares.
This Statement of Additional Information is incorporated by reference into the
respective Prospectuses in its entirety.
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Table of Contents
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Fund History................................................2 Purchase, Redemption and Pricing of Shares............17
Description of the Fund and its Investments and Risks.......2 Taxation of the Fund..................................17
Management of the Fund......................................9 Underwriters..........................................18
Control Persons and Principal Holders of Securities........11 Calculation of Performance Data.......................18
Investment Advisory and Other Services.....................11 Financial Statements .................................19
Brokerage Allocation and Other Practices...................15 Description of Ratings................................20
Capital Stock and Other Securities.........................16
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I. FUND HISTORY
The Fund was incorporated on November 26, 1997 in the state of Maryland.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
The Fund is an open-end, diversified management investment company. The Fund's
investment objectives are to seek as high a level of current income to the
extent consistent with preserving capital and maintaining liquidity. 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 for each Class of shares.
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; and "A-1" and "A-2" by S&P or "Prime-1" and "Prime-2" by Moody's
in the case of tax-exempt commercial paper. The highest rating in the case of
variable and floating demand notes is "VMIG-1" by Moody's or "SP-1/AA" by S&P.
Such instruments may produce a lower yield than would be available from less
highly rated instruments.
All investments by the Fund will mature or will be deemed to mature within 397
days or less from the date of acquisition and the average maturity of the Fund
portfolio (on a dollar-weighted basis) will be 90 days or less. The maturities
of variable rate demand instruments held in the Fund's portfolio will be deemed
to be the longer of the period required before the Fund is entitled to receive
payment of the principal amount of the instrument through demand, or the period
remaining until the next interest rate adjustment, although the stated
maturities may be in excess of 397 days.
Subsequent to its purchase by the Fund, a rated security may cease to be rated
or its rating may be reduced below the minimum required for purchase by the
Fund. If this occurs, the Board of 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 investment
adviser and sub-adviser becoming aware of the new rating and provided further
that the Board of Directors is subsequently notified of the investment adviser's
and sub-adviser'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 Investment Company Act of 1940 (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.
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The Fund shall not invest more than 5% of the total market value of any
Portfolio's assets (determined at the time of the proposed investment and giving
effect thereto) in the securities of any one issuer other than the United States
Government, its agencies or instrumentalities.
The Fund intends to continue to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code (the "Code"). For the Fund to
qualify, at the close of each quarter of the taxable year, at least 50% of the
value of its total assets must consist of cash, government securities,
investment company securities and other securities. They 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 (however, this restriction does not apply to the Fund's investing in
Government securities). The limitations described in this paragraph regarding
qualification as a "regulated investment company" are not fundamental policies
and may be revised if applicable Federal income tax requirements are revised.
(See "Federal Income Taxes" herein.)
Description of Investments
The following discussion expands upon the description of the Fund's primary
investments and also outlines other types of securities and transactions which,
although not primary investments, the Fund is permitted to invest in.
Repurchase Agreements
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When the Fund purchases securities, it may enter into a repurchase agreement
with the seller wherein the seller agrees, at the time of sale, to repurchase
the security at a mutually agreed upon time and price. The Fund may enter into
repurchase agreements with member banks of the Federal Reserve System and with
broker-dealers who are recognized as primary dealers in United States government
securities by the Federal Reserve Bank of New York. Although the securities
subject to a repurchase agreement might bear maturities exceeding one year,
settlement for the repurchase will never be more than 397 days after the Fund's
acquisition of the securities and normally will be within a shorter period of
time. The resale price will be in excess of the purchase price, reflecting an
agreed upon market rate effective for the period of time the Fund's money will
be invested in the security, and will not be related to the coupon rate of the
purchased security. At the time the Fund enters into a repurchase agreement, the
value of the underlying security, including accrued interest, will be equal to
or exceed the value of the repurchase agreement, and, in the case of a
repurchase agreement exceeding one day, the seller will agree that the value of
the underlying security, including accrued interest, will at all times be equal
to or exceed the value of the repurchase agreement. The Fund may engage in a
repurchase agreement with respect to any security in which the Fund is
authorized to invest, even though the underlying security may mature in more
than one year. The collateral securing the seller's obligation must be of a
credit quality at least equal to the Fund's investment criteria for the Fund
securities and will be held by the Fund custodian or in the Federal Reserve Book
Entry System.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
the Fund to the seller subject to the repurchase agreement and is, therefore,
subject to the Fund's investment restrictions applicable to loans. It is not
clear whether a court would consider the securities purchased by the Fund
subject to a repurchase agreement as being owned by the Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the securities before repurchase of the security under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may result in the loss of interest or the decline in
the price of the security. If the court characterized the transaction as a loan
and the Fund has not perfected a security interest in the security, the Fund may
be required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt obligation purchased for the Fund, the
Sub-Adviser seeks to minimize the risk of loss through repurchase agreements by
analyzing the creditworthiness of the obligor, in this case the seller. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the security, in which case the Fund may
incur a loss if the proceeds to the Fund of the sale to a third party are less
than the repurchase price. However, if the market value of the securities
subject to the repurchase agreement becomes less than the repurchase price
(including interest), the Fund involved will direct the seller of the security
to deliver additional securities so that the market value of all securities
subject to the repurchase agreement will equal or exceed the repurchase price.
It is possible that the Fund will be unsuccessful in seeking to impose on the
seller a contractual obligation to deliver additional securities.
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Commercial Paper and Certain Debt Obligations
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The Fund may purchase commercial paper or short-term debt obligations that have
been determined by the Fund's Board of Directors to present minimal credit risks
and that are First Tier Eligible Securities (as defined below) at the time of
acquisition, so that the Fund is able to employ the amortized cost method of
valuation. Commercial paper generally consists of short-term unsecured
promissory notes issued by corporations, banks or other borrowers.
Domestic and Foreign Bank Obligations
-------------------------------------
The Fund may purchase certificates of deposit, time deposits, commercial paper,
bankers' acceptances issued by domestic banks, foreign branches of domestic
banks, foreign subsidiaries of domestic banks, and domestic and foreign branches
of foreign banks and corporate instruments supported by bank letters of credit.
(See "Risk Factors and Additional Investment Information" herein.) Certificates
of deposit are certificates representing the obligation of a bank to repay funds
deposited with it for a specified period of time. Time deposits are
non-negotiable deposits maintained in a bank for a specified period of time (in
no event longer than seven days) at a stated interest rate. Time deposits and
certificates of deposit which may be held by the Fund will not benefit from
insurance from the Federal Deposit Insurance Corporation (the "FDIC"). Bankers'
acceptances are credit instruments evidencing the obligation of a bank to pay a
draft drawn on it by a customer. These instruments reflect the obligation both
of the bank and of the drawer to pay the face amount of the instrument upon
maturity. The Fund limits its investments in obligations of domestic banks,
foreign branches of domestic banks and foreign subsidiaries of domestic banks to
banks having total assets in excess of $1 billion or the equivalent in other
currencies. The Fund limits its investments in obligations of domestic and
foreign branches of foreign banks to dollar-denominated obligations of such
banks which at the time of investment have more than $5 billion, or the
equivalent in other currencies, in total assets and which are considered by the
Fund's Board of Directors to be First Tier Eligible Securities (as defined
below) at the time of acquisition. The Fund generally limits investments in bank
instruments to (a) those which are fully insured as to principal by the FDIC or
(b) those issued by banks which at the date of their latest public reporting
have total assets in excess of $1.5 billion. However, the total assets of a bank
will not be the sole factor determining the Fund's investment decisions and the
Fund may invest in bank instruments issued by institutions which the Fund's
Board of Directors believes present minimal credit risks.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
or foreign branches of foreign banks ("Eurodollar" obligations) and domestic
branches of foreign banks ("Yankee dollar" obligations)
--------------------------------------------------------------------------------
The Fund will limit its aggregate investments in foreign bank obligations,
including Eurodollar obligations and Yankee dollar obligations, to 25% of its
total assets at the time of purchase, provided that there is no limitation on
the Fund's investments in (a) Eurodollar obligations, if the domestic parent of
the foreign branch issuing the obligations is unconditionally liable in the
event that the foreign branch fails to pay on the Eurodollar obligation for any
reason; and (b) Yankee dollar obligations, if the U.S. branch of the foreign
bank is subject to the same regulation as U.S. banks. Eurodollar, Yankee dollar
and other foreign bank obligations include time deposits, which are
non-negotiable deposits maintained in a bank for a specified period of time at a
stated interest rate. The Fund will limit its purchases of time deposits to
those which mature in seven days or less, and will limit its purchases of time
deposits maturing in two to seven days to 10% of the Fund's total assets at the
time of purchase.
Eurodollar and other foreign obligations involve special investment risks,
including the possibility that liquidity could be impaired because of future
political and economic developments, that the obligations may be less marketable
than comparable domestic obligations of domestic issuers, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that deposits may be seized or nationalized, that foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on those obligations,
that the selection of foreign obligations may be more difficult because there
may be less information publicly available concerning foreign issuers, that
there may be difficulties in enforcing a judgment against a foreign issuer or
that the accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign issuers may differ from those applicable to
domestic issuers. In addition, foreign banks are not subject to examination by
United States Government agencies or instrumentalities.
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Since the Fund may contain Eurodollar and other foreign obligations issued by
foreign governments, foreign and domestic banks and other foreign issuers, the
Fund may be subject to additional investment risks with respect to those
securities that are different in some respects from those incurred by a fund
which invests only in debt obligations of the United States and domestic
issuers, although such obligations may be higher yielding when compared to the
securities of the United States and domestic issuers. In making foreign
investments, therefore, the Fund will give appropriate consideration to the
following factors, among others.
Foreign securities markets generally are not as developed or efficient as those
in the United States. Securities of some foreign issuers are less liquid and
more volatile than securities of comparable United States issuers. Similarly,
volume and liquidity in most foreign securities markets are less than in the
United States and, at times, volatility of price can be greater than in the
United States. The issuers of some of these securities, such as bank
obligations, may be subject to less stringent or different regulations than are
United States issuers. In addition, there may be less publicly available
information about a non-United States issuer and non-United States issuers
generally are not subject to uniform accounting and financial reporting
standards, practices and requirements comparable to those applicable to United
States issuers.
Because evidences of ownership of such securities usually are held outside the
United States, the Fund will be subject to additional risks which include
possible adverse political and economic developments, possible seizure or
nationalization of foreign deposits and possible adoption of governmental
restrictions which might adversely affect the payment of principal and interest
on the foreign securities or might restrict the payment of principal and
interest to the issuer, whether from currency blockage or otherwise.
Furthermore, some of these securities may be subject to stamp or other excise
taxes levied by foreign governments, which have the effect of increasing the
cost of such securities and reducing the realized gain or increasing the
realized loss on such securities at the time of sale. Income earned or received
by the Fund from sources within foreign countries may be reduced by withholding
and other taxes imposed by such countries. Tax conventions between certain
countries and the United States, however, may reduce or eliminate such taxes.
Pax World Management Corp. (the "Adviser") and Reich & Tang Asset Management
L.P. (the "Sub-Adviser") will attempt to minimize such taxes by timing of
transactions and other strategies, but there can be no assurance that such
efforts will be successful. All such taxes paid by the Fund will reduce its net
income available for distribution to shareholders. The Adviser and Sub-Adviser
will consider available yields, net of any required taxes, in selecting foreign
securities.
United States Government Securities
-----------------------------------
The Fund may purchase short-term obligations issued or guaranteed by agencies or
instrumentalities of the United States Government the proceeds of which are
earmarked for a specific purpose which complies with the investment objectives
and policies of the Fund. These include issues of agencies and instrumentalities
established under the authority of an act of Congress. These securities are not
supported by the full faith and credit of the United States Treasury, some are
supported by the right of the issuer to borrow from the Treasury, and still
others are supported only by the credit of the agency or instrumentality.
Although obligations of federal agencies and instrumentalities are not debts of
the United States Treasury, in some cases payment of interest and principal on
such obligations is guaranteed by the United States Government, e.g.,
obligations of the Federal Housing Administration, the Export-Import Bank of the
United States, the Small Business Administration, the Government National
Mortgage Association, the General Services Administration and the Maritime
Administration; in other cases payment of interest and principal is not
guaranteed, e.g., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank.
Variable Rate Demand Instruments
--------------------------------
The Fund may purchase variable rate demand instruments. Variable rate demand
instruments that the Fund will purchase are tax exempt Municipal Securities or
taxable debt obligations (variable amount master demand notes) that provide for
a periodic adjustment in the interest rate paid on the instrument and permit the
holder to demand payment of the unpaid principal balance plus accrued interest
at specified intervals upon a specified number of days' notice either from the
issuer or by drawing on a bank letter of credit, a guarantee, insurance or other
credit facility issued with respect to such instrument.
The variable rate demand instruments in which the Fund may invest are payable on
not more than thirty calendar days' notice either on demand or at specified
intervals not exceeding one year depending upon the terms of the instrument. The
terms of the instruments provide that interest rates are adjustable at intervals
ranging from daily to up to one year and their adjustments are based upon the
prime rate of a bank or other appropriate interest rate adjustment index as
provided in the respective instruments. The Fund will decide
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which variable rate demand instruments it will purchase in accordance with
procedures prescribed by its Board of Directors to minimize credit risks.
Utilizing the amortized cost method of valuation, the Fund may only purchase
variable rate demand instruments if (i) the instrument is subject to an
unconditional demand feature, exercisable by the Fund in the event of default in
the payment of principal or interest on the underlying securities, which itself
qualifies as a First Tier Eligible Security or (ii) the instrument is not
subject to an unconditional demand feature but does qualify as a First Tier
Eligible Security and has a long-term rating by the Requisite NRSROs in one of
the two highest rating categories or, if unrated, is determined to be of
comparable quality by the Fund's Board of Directors. If an instrument is ever
deemed to be of less than high quality, the Fund either will sell it in the
market or exercise the demand feature.
The variable rate demand instruments in which the Fund may invest include
participation certificates purchased by the Fund from banks, insurance companies
or other financial institutions in fixed or variable rate, tax-exempt Municipal
Securities (expected to be concentrated in industrial revenue bonds) or taxable
debt obligations (variable amount master demand notes) owned by such
institutions or affiliated organizations. A participation certificate would give
the Fund an undivided interest in the obligation in the proportion that the
Fund's participation interest bears to the total principal amount of the
obligation and provides the demand repurchase feature described below. Where the
institution issuing the participation certificate does not meet the Fund's high
quality standards, the participation certificate is backed by an irrevocable
letter of credit or guaranty of a bank (which may be a bank issuing a confirming
letter of credit, or a bank serving as agent of the issuing bank with respect to
the possible repurchase of the participation certificate or a bank serving as
agent of the issuer with respect to the possible repurchase of the issue) or
insurance policy of an insurance company that the Board of 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 and,
where applicable, draw on the letter of credit, guarantee or insurance after no
more than 30 days' notice either on demand or at specified intervals not
exceeding 397 days (depending on the terms of the participation), for all or any
part of the full principal amount of the Fund's participation interest in the
security, plus accrued interest. The Fund intends to exercise a demand only (1)
upon a default under the terms of the bond documents, (2) as needed to provide
liquidity to the Fund in order to make redemptions of the Fund shares, or (3) to
maintain a high quality investment portfolio. The institutions issuing the
participation certificates may 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 participation certificates were purchased by the Fund. The
total fees generally range from 5% to 15% of the applicable "prime rate"1 or
other interest rate index. With respect to insurance, the Fund will attempt to
have the issuer of the participation certificate bear the cost of the insurance,
although the Fund retains the option to purchase insurance if necessary, in
which case the cost of insurance will be an expense of the Fund subject to the
expense limitation on investment company expenses prescribed by any state in
which the Fund's shares are qualified for sale. The Sub-Adviser has been
instructed by the Fund's Board of Directors to continually monitor the pricing,
quality and liquidity of the variable rate demand instruments held by the Fund,
including the participation certificates, on the basis of published financial
information and reports of the rating agencies and other bank analytical
services to which the Fund may subscribe. Although these instruments may be sold
by the Fund, the Fund intends to hold them until maturity, except under the
circumstances stated above (see "Dividends and Distributions" and "Tax
Consequences" in the Prospectuses).
While the value of the underlying variable rate demand instruments may change
with changes in interest rates generally, the variable rate nature of the
underlying variable rate demand instruments should minimize changes in value of
the instruments. Accordingly, as interest rates decrease or securities increase,
the potential for capital appreciation and the risk of potential capital
depreciation is less than would be the case with a portfolio of fixed income
securities. The Fund may contain variable rate demand instruments on which
stated minimum or maximum rates, or maximum rates set by state law, limit the
degree to which interest on such variable rate demand instruments may fluctuate;
to the extent it does, increases or decreases in value may be somewhat greater
than would be the case without such limits. Additionally, the Fund may contain
variable rate demand participation certificates in fixed rate Municipal
Securities and taxable debt obligations (the Fund will not acquire a variable
note demand participation certificate in fixed
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1 The "prime rate" is generally the rate charged by a bank to its creditworthy
customers for short-term loans. The prime rate of a particular bank may
differ from other banks and will be the rate announced by each bank on a
particular day. Changes in the prime rate may occur with great frequency and
generally become effective on the date announced.
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rate municipal securities without an opinion of counsel). The fixed rate of
interest on these obligations will be a ceiling on the variable rate of the
participation certificate. In the event that interest rates increased so that
the variable rate exceeded the fixed rate on the obligations, the obligations
could no longer be valued at par and this may cause the Fund to take corrective
action, including the elimination of the instruments. Because the adjustment of
interest rates on the variable rate demand instruments is made in relation to
movements of the applicable banks' prime rate, or other interest rate adjustment
index, the variable rate demand instruments are not comparable to long-term
fixed rate securities. Accordingly, interest rates on the variable rate demand
instruments may be higher or lower than current market rates for fixed rate
obligations or obligations of comparable quality with similar maturities.
For purposes of determining whether a variable rate demand instrument held by
the Fund matures within 397 days from the date of its acquisition, the maturity
of the instrument will be deemed to be the longer of (1) the period required
before the Fund is entitled to receive payment of the principal amount of the
instrument or (2) the period remaining until the instrument's next interest rate
adjustment. The maturity of a variable rate demand instrument will be determined
in the same manner for purposes of computing the Fund's dollar-weighted average
portfolio maturity. If a variable rate demand instrument ceases to meet the
investment criteria of the Fund, it will be sold in the market or through
exercise of the repurchase demand.
When-Issued Securities
----------------------
The Fund may purchase debt obligations offered on a "when-issued" or "delayed
delivery" basis. When so offered, the price, which is generally expressed in
yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued securities takes place at a later date.
Normally, the settlement date occurs within one month of the purchase of debt
obligations; during the period between purchase and settlement, no payment is
made by the purchaser to the issuer and no interest accrues to the purchaser. To
the extent that assets of the Fund are not invested prior to the settlement of a
purchase of securities, the Fund will earn no income; however, it is intended
that the Fund will be fully invested to the extent practicable and subject to
the policies stated above. While when-issued securities may be sold prior to the
settlement date, it is intended that the Fund will purchase such securities with
the purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Fund makes the commitment to purchase a debt
obligation on a when-issued basis, it will record the transaction and reflect
the value of the security in determining its net asset value. The Fund does not
believe that the net asset value or income of the Fund's securities portfolios
will be adversely affected by their purchase of debt obligations on a
when-issued basis. The Fund will establish a segregated account in which it will
maintain cash and marketable securities equal in value to commitments for
when-issued securities. Such segregated securities either will mature or, if
necessary, be sold on or before the settlement date.
Participation Interests
-----------------------
The Fund may purchase from banks participation interests in all or part of
specific holdings of Municipal or other debt obligations (including corporate
loans). Where the institution issuing the participation does not meet the Fund's
quality standards, the participation may be backed by an irrevocable letter of
credit or guarantee that the Board of Directors has determined meets the
prescribed quality standards of the Fund. Thus, even if the credit of the
selling bank does not meet the quality standards of the Fund, the credit of the
entity issuing the credit enhancement will meet such prescribed quality
standards. The Fund will have the right to sell the participation interest back
to the bank for the full principal amount of the Fund's interest in the
Municipal or debt obligation plus accrued interest, but only (1) as required to
provide liquidity to the Fund, (2) to maintain the quality standards of the
Fund's investment portfolio or (3) upon a default under the terms of the debt
obligation. The selling bank may receive a fee from the Fund in connection with
the arrangement. When purchasing bank participation interests, the Fund will
treat both the bank and the underlying borrower as the issuer of the instrument
for the purpose of complying with the diversification requirement of the
investment restrictions discussed below.
Privately Placed Securities
---------------------------
The Fund may invest in securities issued as part of privately negotiated
transactions between an issuer and one or more purchasers. Except with respect
to certain commercial paper issued in reliance on the exemption from regulations
in Section 4(2) of the Securities Act of 1933 (the "Securities Act") and
securities subject to Rule 144A of the Securities Act which are discussed below,
these securities are typically not readily marketable, and therefore are
considered illiquid securities. The price the Fund pays for
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illiquid securities, and any price received upon resale, may be lower than the
price paid or received for similar securities with a more liquid market.
Accordingly, the valuation of privately placed securities by the Fund will
reflect any limitations on their liquidity. As a matter of policy, the Fund will
not invest more than 10% of the market value of the total assets of the Fund in
repurchase agreements maturing in over seven days and other illiquid
investments. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act, but can be offered and sold
to "qualified institutional buyers" under Rule 144A of the Securities Act. The
Fund may also purchase certain commercial paper issued in reliance on the
exemption from regulations in Section 4(2) of the Securities Act ("4(2) Paper").
However, the Fund will not invest more than 10% of its net assets in illiquid
investments, which include securities for which there is no ready market,
securities subject to contractual restriction on resale, certain investments in
asset-backed and receivable-backed securities and restricted securities (unless,
with respect to these securities and 4(2) Paper, the Fund's Directors
continuously determine, based on the trading markets for the specific restricted
security, that it is liquid). The Directors may adopt guidelines and delegate to
the Sub-Adviser the daily function of determining and monitoring liquidity of
restricted securities and 4(2) Paper. The Directors, however, will retain
sufficient oversight and be ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how this market for
restricted securities sold and offered under Rule 144A will develop, the
Directors will carefully monitor the Fund investments in these securities,
focusing on such factors, among others, as valuation, liquidity and availability
of information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities.
Investment Restrictions
The Fund has adopted the following fundamental investment restrictions. They may
not be changed without the approval by a majority vote of the Fund's outstanding
shares. The term "majority vote of the Fund's outstanding shares" means the vote
of the lesser of (i) 67% or more of the shares of the Fund present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The Fund may not:
(a) invest in securities of companies that have conducted operations for less
than three years, including the operations of predecessors;
(b) invest in or hold securities of any issuer if, to the knowledge of the
Fund, any officer or director of the Fund, the Adviser or the Sub-Adviser,
individually owning beneficially more than 1/2 of 1% of the securities of
the issuer, in the aggregate own more than 5% of the issuer's securities;
(c) (1) make investments for the purpose of exercising control over any issuer
or other person; (2) purchase securities having voting rights at the time
of purchase; (3) purchase securities of other investment companies, except
in connection with a merger, acquisition, consolidation, reorganization or
acquisition of assets; (4) invest in real estate, including real estate
limited partnerships (other than debt obligations secured by real estate or
interests therein or debt obligations issued by companies which invest in
real estate or interests therein); (5) invest in commodities, commodity
contracts, commodity options, interests and leases in oil, gas or other
mineral exploration or development programs (the Fund may, however,
purchase and sell securities of companies engaged in the exploration,
development, production, refining, transportation and marketing of oil, gas
or minerals); (6) purchase restricted securities or purchase securities on
margin; (7) make short sales of securities or intentionally maintain a
short position in any security or write, purchase or sell puts, calls,
straddles, spreads or any combination thereof; (8) act as an underwriter of
securities or (9) issue senior securities, except insofar as the Fund may
be deemed to have issued a senior security in connection with any permitted
borrowing;
(d) invest more than 25% of the value of the Fund's total assets in securities
of companies in the same industry (excluding U.S. Government securities);
(e) invest more than 5% of the total market value of the Fund's assets
(determined at the time of the proposed investment and giving effect
thereto) in the securities of any one issuer other than the United States
Government, its agencies or instrumentalities;
(f) invest more than 25% of the value of the Fund's total assets in securities
of companies in the same industry (excluding United States government
securities and certificates of deposit and bankers' acceptances of domestic
banks) if the purchase would cause more than 25% of the value of the Fund's
total assets to be invested in companies in the same industry (for the
purpose of this restriction wholly-
-8-
<PAGE>
owned finance companies are considered to be in the industry of their
parents if their activities are similarly related to financing the
activities of their parents);
(g) acquire securities that are not readily marketable or repurchase agreements
calling for resale within more than seven days if, as a result thereof,
more than 10% of the value of its net assets would be invested in such
illiquid securities;
(h) invest more than 5% of the Fund's assets in securities that are subject to
underlying puts from the same institution, and no single bank shall issue
its letter of credit and no single financial institution shall issue a
credit enhancement covering more than 5% of the total assets of the Fund.
However, if the puts are exercisable by the Fund in the event of default on
payment of principal and interest on the underlying security, then the Fund
may invest up to 10% of its assets in securities underlying puts issued or
guaranteed by the same institution; additionally, a single bank can issue
its letter of credit or a single financial institution can issue a credit
enhancement covering up to 10% of the Fund's assets, where the puts offer
the Fund such default protection;
(i) make loans, except that the Fund may purchase the debt securities described
above under "Description of the Fund and its Investments and Risks" and may
enter into repurchase agreements as therein described;
(j) borrow money, unless (i) the borrowing does not exceed 10% of the total
market value of the assets of the Fund with respect to which the borrowing
is made (determined at the time of borrowing but without giving effect
thereto) and (ii) the money is borrowed from one or more banks as a
temporary measure for extraordinary or emergency purposes or to meet
unexpectedly heavy redemption requests; in addition the Fund will not make
additional investments when borrowings exceed 5% of the Fund's net assets;
and
(k) pledge, mortgage, assign or encumber any of the Fund's assets except to the
extent necessary to secure a borrowing permitted by the foregoing clause
made with respect to the Fund.
If a percentage restriction is adhered to at the time of an investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or in the amount of a Fund's portfolio's assets will not
constitute a violation of such restriction.
III. MANAGEMENT OF THE FUND
The Fund's Board of Directors, which is responsible for the overall management
and supervision of the Fund, employs Pax World Management Corp. to serve as
Adviser to the Fund. Reich & Tang Asset Management L.P. will serve as the
Sub-Adviser of the Fund under a Sub-Advisory Agreement entered into between the
Adviser and Sub-Adviser. Due to the services performed by the Sub-Adviser, the
Fund currently has no employees and its officers are not required to devote
full-time to the affairs of the Fund.
The Directors and Officers of the Fund, and their principal occupations for the
past five years, are listed below. Unless otherwise indicated, the address of
each such person, is 600 Fifth Avenue, New York, New York 10020. Mr. Steven W.
Duff, Director of the Fund, may be deemed an "interested person" of the Fund, as
defined in the 1940 Act, on the basis of his affiliation with the Sub-Adviser.
Steven W. Duff, 46 - Director of the Fund, has been President of the Mutual
Funds division of the Sub-Adviser since September 1994. Mr. Duff was formerly
Director of Mutual Fund Administration at NationsBank with which he was
associated from June 1981 to August 1994. Mr. Duff is President and
Director/Trustee of 14 funds in the Reich & Tang Fund Complex, President of Back
Bay Funds, Inc., Executive Vice President of Reich & Tang Equity Fund, Inc., and
President and Chief Executive Officer of Tax Exempt Proceeds Fund, Inc.
Dr. W. Giles Mellon, 69 - Director of the Fund, is Professor of Business
Administration in the Graduate School of Management, Rutgers University, with
which he has been associated since 1966. His address is Rutgers University
Graduate School of Management, 92 New Street, Newark, New Jersey 07102. Dr.
Mellon is Director/Trustee of 15 other funds in the Reich & Tang Fund Complex.
Robert Straniere, 59 - Director of the Fund, has been a member of the New York
State Assembly and a partner with Straniere & 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 a
Director of Life Cycle Mutual Funds, Inc.
-9-
<PAGE>
Dr. Yung Wong, 61 - Director of the Fund, was Director of Shaw Investment
Management (U.K.) Limited from 1994 to October 1995 and formerly was a General
Partner of Abacus Partners Limited Partnership (a general partner of a venture
capital investment firm) from 1984 to 1994. His address is 29 Alden Road,
Greenwich, Connecticut 06831. Dr. Wong is also a Director/Trustee of 15 other
funds in the Reich & Tang Fund Complex, and is also a Trustee of Eclipse
Financial Asset Trust.
Thomas W. Grant, 59 - President of the Fund, has been President of the Adviser
since 1996 and President of H.G. Wellington & Co., Inc. since 1991. His address
is 14 Wall Street, New York, New York 10005. Mr. Grant is also Vice Chairman of
the Board and President of Pax World Fund, Inc. and the President and a Director
of Pax World Growth Fund, Inc. and Pax World High Yield Fund, Inc.
Laurence A. Shadek, 50 - Executive Vice-President of the Fund, has been Chairman
of the Board of the Adviser since 1996 and Executive Vice-President of H.G.
Wellington & Co., Inc. since 1986. His address is 14 Wall Street, New York, New
York 10005. Mr. Shadek is also Chairman of the Board of Pax World Fund, Inc.,
Pax World Growth Fund, Inc. and Pax World High Yield Fund, Inc.
Bernadette N. Finn, 52 - Secretary of the Fund, has been Vice President of the
Mutual Funds division of the Sub-Adviser since September 1993. Ms. Finn was
formerly Vice President and Assistant Secretary of Reich & Tang, Inc. with which
she was associated from September 1970 to September 1993. Ms. Finn is Secretary
of 13 other funds in Reich & Tang Fund Complex, and a Vice President and
Secretary of 5 funds in the Reich & Tang Fund Complex.
Molly Flewharty, 49 - Vice President of the Fund, has been Vice President of the
Mutual Funds division of the Sub-Adviser since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. with which she was associated from
December 1977 to September 1993. Ms. Flewharty is Vice President of 18 other
funds in the Reich & Tang Fund Complex.
Richard De Sanctis, 43 - Treasurer of the Fund, has been Vice President and
Treasurer of the Sub-Adviser since September 1993. Mr. De Sanctis was formerly
Controller of Reich & Tang, Inc. from January 1991 to September 1993 and Vice
President and Treasurer of Cortland Financial Group, Inc. and Vice President of
Cortland Distributors, Inc. from 1989 to December 1990. Mr. De Sanctis is
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 Sub-Adviser since December 1997. Ms. Holtzer
was formerly Manager of Fund Accounting for the Sub-Adviser with which she was
associated from June 1986. She is Assistant Treasurer of 18 other funds in the
Reich & Tang Fund Complex.
Directors of the Fund not affiliated with the Sub-Adviser receive from the Fund
an annual retainer of $1,000 and a fee of $250 for each meeting of the Board of
Directors attended and are reimbursed for all out-of-pocket expenses relating to
attendance at such meetings. Directors who are affiliated with the Sub-Adviser
do not receive compensation from the Fund.
COMPENSATION TABLE
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Name of Person, Estimated Aggregate Pension or Retirement Estimated Annual Total Compensation
Position Compensation From Benefits Accrued as Part Benefits Upon from Fund and Fund
Registrant for Fiscal Year of Fund Expenses Retirement Complex Paid to
Directors*
W. Giles Mellon,
Director $2,000 0 0 $59,500 (16 Funds)
Robert Straniere,
Director $2,000 0 0 $59,500 (16 Funds)
Yung Wong,
Director $2,000 0 0 $59,500 (16 Funds)
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ended January 31, 2000. The parenthetical number represents the
number of investment companies (including the Fund) from which such person
receives compensation that are considered part of the same Fund Complex as the
Fund, because, among other things, they have a common investment adviser or
sub-adviser.
-10-
<PAGE>
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On April 30, 2000, there were 123,551,901 Institutional Class shares
outstanding, 1,729,435 Broker Service Class shares outstanding, 13,067,760
Individual Investor Class shares outstanding and 4,302,175 MMA Praxis Class
shares outstanding. As of April 30, 2000, 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 April 30, 2000:
Name and Address % of Class Nature of Ownership
---------------- ---------- -------------------
Institutional Class
Pax World Fund, Incorporated
222 State Street
Portsmouth, NH 03801 67.04% Beneficial
Fifth Third Bank
Fifth Third Center
MD #1090 F2
Cincinnati, OH 45263 26.85% Record
Broker Service Class
H.G. Wellington & Co., Inc.
for the Benefit of Pax World
Money Market Fund Customers
14 Wall Street
New York, NY 10005 100.00% Record
Individual Investor Class
Pax World Money Market Fund
P.O Box 8950
Wilmington, DE 19899
Attn: Ray Werkmeister 100.00% Beneficial
MMA Praxis Class
Bisys Funds Services Ohio Inc.
3435 Stelzer Road
Attn: MMA Praxis Operations
Columbus, OH 43219-3035 100.00% Record
V. INVESTMENT ADVISORY AND OTHER SERVICES
The Investment Adviser for the Fund is Pax World Management Corp., a Delaware
corporation incorporated in 1970 with principal offices at 222 State Street,
Portsmouth, New Hampshire 03801-3853. As of April 30, 2000, the Adviser had over
$1.23 billion in assets under management by virtue of serving as Adviser to the
Pax World Fund, Incorporated, the Pax World Growth Fund, Inc. and the Pax World
High Yield Fund, Inc. The Adviser has no other clients other than the Fund, the
Pax World Fund, the Pax World Growth Fund and the Pax World High Yield Fund, but
it may undertake to advise other clients in the future.
The Sub-Adviser is a Delaware limited partnership with principal offices at 600
Fifth Avenue, New York, New York 10020. The Sub-Adviser, as of April 30, 2000,
was investment manager, adviser or supervisor with respect to assets aggregating
approximately $15.3 billion. In addition to the Fund, the Sub-Adviser acts as
investment manager and administrator of eighteen other investment companies and
also advises pension trusts, profit sharing trusts and endowments.
Nvest Companies, L.P. ("Nvest Companies") is the limited partner and owner of a
99.5% interest in the Sub-Adviser. Reich & Tang Asset Management, Inc. ("RTAM")
is the sole general partner and owner of the remaining 0.5% interest of the
Sub-Adviser, as well as being an indirect wholly-owned subsidiary of Nvest
Companies. Nvest
-11-
<PAGE>
Companies is a publicly traded company of which approximately 13% of its
outstanding partnership interests is owned, directly and indirectly, by Reich &
Tang, Inc. CDC Asset Management ("CDC AM"), the investment management arm of
France's Caisse des Depots Group has completed its acquisition of Nvest, L.P.
and Nvest Companies. As a result, CDC AM owns, directly or indirectly, a
controlling interest in the Sub-Adviser. CDC AM is 60% owned by CDC Finance, a
wholly-owned subsidiary of Caisse des depots et Consignations ("CDC"). Founded
in 1816, CDC is a major diversified financial institution. In addition to its
60% ownership of CDC AM through CDC Finance, CDC owns 40% of CNP Assurances, the
leading French insurance company, which itself owns 20% of CDC AM. CDC also owns
35% of Caisse National des Caisses d'Epargne, which also owns 20% of CDC AM. CDC
is 100% owned by the French state.
Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through seventeen subsidiaries,
divisions and affiliates offering a wide array of investment styles and products
to institutional clients. Its business units, in addition to the Manager,
include AEW Capital Management, L.P., Back Bay Advisors, L.P.; Capital Growth
Management Limited Partnerships; Greystone Partners, L.P.; Harris Associates,
L.P.; Jurika & Voyles, L.P.; Kobrick Funds, LLP, Loomis, Sayles & Company, L.P.;
New England Funds, L.P.; Nvest Associates, Inc.; Snyder Capital Management,
L.P.; Vaughan, Nelson, Scarborough & McCullough, L.P.; and Westpeak Investment
Advisors, L.P. These affiliates in the aggregate are investment advisors or
managers to more than 80 other registered investment companies.
The Nvest-CDC AM transaction involved a change of ownership of Nvest Companies,
which may be deemed to have caused a "change of control" of the Sub-Adviser,
even though the Sub-Adviser's operations did not change as a result. As required
by the 1940 Act the Fund's shareholders approved a new Sub-Advisory Agreement
with the Sub-Adviser on October 10, 2000, which is effective as of October 30,
2000.
On January 27, 2000 and on July 25, 2000 respectively, the Board of
Directors, including a majority of the directors who are not interested persons
(as defined in the 1940 Act) of the Fund, the Adviser or the Sub-Adviser,
approved the Investment Advisory Agreement and Sub-Advisory Agreement. The
Investment Advisory Agreement has a term that extends until March 31, 2001 and
may be continued in force thereafter for successive twelve-month periods
beginning each April 1, provided that such continuance is specifically approved
annually by majority vote of the Fund's outstanding voting securities or by a
majority of the Directors who are not parties to the Investment Advisory
Agreement or interested persons of any such party, by votes cast in person at a
meeting called for the purpose of voting on such matter. The Sub-Advisory
Agreement has an initial term that extends until January 31,2002. After this
initial term, this agreement may be continued in force for successive
twelve-month periods beginning each February 1, provided that such continuance
is specifically approved annually by majority vote of the Fund's outstanding
voting securities or by a majority of the Directors who are not parties to the
Sub-Advisory Agreement 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 terms of an Advisory Agreement entered into between the Fund and
the Adviser (the "Advisory Agreement"), the Adviser, subject to the supervision
of the Board of Directors of the Fund, is responsible for determining whether
contemplated investments satisfy the social responsibility criteria applied to
the Fund and overseeing the performance of the Sub-Adviser. Under the Advisory
Agreement, the Fund will pay the Adviser an annual advisory fee of .15% of the
Fund's average daily net assets. For the Fund's fiscal year ended January 31,
2000, the Adviser received an Advisory fee totaling $187,076, of which $93,538
was waived.
Pursuant to the Sub-Advisory Agreement, the Sub-Adviser 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 and the determination of the Adviser that the contemplated investments
satisfy the social responsibility criteria applied to the Fund.
The Sub-Advisory Agreement 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 who are not
interested parties, or by the Sub-Adviser on sixty days written notice, and will
automatically terminate in the event of its assignment. The Sub-Advisory
Agreement provides that in the absence of willful misfeasance, bad faith or
gross negligence on the part of the Sub-Adviser, or of reckless disregard of its
obligations thereunder, the Sub-Adviser shall not be liable for any action or
failure to act in accordance with its duties thereunder.
For its services under the Sub-Advisory Agreement, the Sub-Adviser receives from
the Adviser a fee equal to .075% per annum of the Fund's average daily net
assets from its advisory fee. The fees are accrued daily and paid monthly.
Investment management fees and operating expenses which are attributable to each
Class 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 Institutional Class shareholders
pursuant to the distribution and service plan shall be compensated by Reich &
Tang Distributors, Inc. (the "Distributor") from its shareholder servicing fee,
the Sub-Adviser from its management fee and the Fund itself. Expenses incurred
in the distribution of Institutional Class shares and the servicing of
Institutional Class shares shall be paid by the Sub-Adviser. For the Fund's
fiscal year ended January 31, 2000, the Sub-Adviser received Sub-Advisory fees
totaling $93,538, none of which was waived.
-12-
<PAGE>
Pursuant to the Administrative Services Agreement with the Fund, the Sub-Adviser
also performs clerical, accounting supervision, office service and related
functions for the Fund and provides the Fund with personnel to (i) supervise the
performance of bookkeeping and related services by State Street Kansas City, 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 Sub-Adviser. The personnel rendering such
services may be employees of the Sub-Adviser, its affiliates or other
organizations. The Fund pays the Sub-Adviser for such personnel and for
rendering such services at rates which must be agreed upon by the Fund and the
Sub-Adviser, provided that the Fund does not pay for services performed by any
such persons who are also officers of the general partner of the Sub-Adviser. It
is intended that such rates will be the actual costs of the Sub-Adviser. The
Fund also reimburses the Sub-Adviser for all of the Fund's operating costs,
including rent, depreciation of equipment and facilities, interest and
amortization of loans financing equipment used by the Fund and all of the
expenses incurred to conduct the Fund's affairs. The amounts of such
reimbursements must be agreed upon between the Fund and the Sub-Adviser. The
Sub-Adviser, at its discretion, may voluntarily waive all or a portion of the
administrative services fee and the operating expense reimbursement. For its
services under the Administrative Services Agreement, the Sub-Adviser receives
from the Fund a fee equal to .10% per annum of the Fund's average daily net
assets. For the Fund's fiscal year ended January 31, 2000, the Sub-Adviser
received administration fees totaling $124,717, of which $76,210 was waived.
Any portion of the total fees received by the Sub-Adviser may be used to provide
shareholder services and for distribution of Fund shares. (See "Distribution and
Service Plan" herein.)
Expense Limitation
The Sub-Adviser has agreed, pursuant to the Sub-Advisory Agreement, 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 Sub-Adviser to reimburse the Fund for its excess expenses as described
above, the Fund has, under the Sub-Advisory Agreement, confirmed its obligation
for payment of all its other expenses, including taxes, brokerage fees and
commissions, commitment fees, certain insurance premiums, interest charges and
expenses of the custodian, transfer agent and dividend disbursing agent's fees,
telecommunications expenses, auditing and legal expenses, bookkeeping agent
fees, costs of forming the corporation and maintaining corporate existence,
compensation of disinterested Directors, costs of investor services,
shareholder's reports and corporate meetings, Securities and Exchange Commission
registration fees and expenses, state securities laws registration fees and
expenses, expenses of preparing and printing the Fund's prospectus for delivery
to existing shareholders and of printing application forms for shareholder
accounts and the fees and reimbursements payable to the Sub-Adviser under the
Sub-Advisory Agreement and the Administrative Services Agreement and the
Distributor under the Shareholder Servicing Agreement.
The Fund may from time to time contract to have management services performed by
third parties as discussed herein and the management of the Fund intends to do
so whenever it appears advantageous to the Fund. The Fund's expenses for such
services are among the expenses subject to the expense limitation described
above. As a result of the recent passage of the National Securities Markets
Improvement Act of 1996, all state expense limitations have been eliminated at
this time.
The Fund has reserved the right to charge individual shareholder accounts for
expenses actually incurred by such account for postage, wire transfers and
certain other shareholder expenses, as well as to impose a monthly service
charge for accounts whose account value falls below the minimum amount.
Distribution and Service Plan
The Fund's distributor is Reich & Tang Distributors, Inc., a Delaware
corporation with principal offices at 600 Fifth Avenue, New York, New York
10020.
Pursuant to Rule 12b-1 under the 1940 Act, the Securities and Exchange
Commission requires 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 the Individual Investor Class, Broker Service Class and the MMA
Praxis Class) with the Distributor as distributor of the Fund's shares.
-13-
<PAGE>
Reich & Tang Asset Management, Inc. serves as the sole general partner for Reich
& Tang Asset Management L.P. and is the sole shareholder of the Distributor.
Under the Plan, the Fund and the Distributor will enter into a Shareholder
Servicing Agreement, with respect to the Fund's Individual Investor Class,
Broker Service Class and MMA Praxis Class shares. For its services under the
Shareholder Servicing Agreement (with respect to Individual Investor Class,
Broker Service Class and MMA Praxis Class shares only), the Distributor receives
from the Fund a fee equal to .25% per annum of the Individual Investor Class,
Broker Service Class and MMA Praxis Class shares of the Fund's average daily net
assets (the "Shareholder Servicing Fee") for providing personal shareholder
services and for the maintenance of shareholder accounts. The fee is accrued
daily and paid monthly and any portion of the fee may be deemed to be used by
the Distributor for payments to Clearing Brokers with respect to servicing their
clients or customers who are shareholders of the Individual Investor Class,
Broker Service Class or MMA Praxis Class of the Fund. The Institutional Class
shareholders do not receive the benefit of such services from Clearing Brokers
and, therefore, will not be assessed a Shareholder Servicing Fee.
For the Fund's fiscal year ended January 31, 2000, the amount payable to the
Distributor under the Distribution and Service Plan and Shareholder Servicing
Agreement adopted thereunder pursuant to Rule 12b-1 under the 1940 Act, totaled
$25,494 for the Individual Investor Class, none of which was waived, $2,318 for
the Broker Service Class, none of which was waived, and $931 for the MMA Praxis
Class, all of which was waived. During the same period, the Sub-Advisor and
Distributor made total payments under the Plan to or on behalf of Participating
Organizations of $128,643 . The excess of such payments over the total payments
the Distributor received by the Fund under the Plan represents distribution and
servicing expenses funded by the Sub-Advisor from its own resources including
the management fee. Of the total amount paid pursuant to the Plan, $1,028 was
utilized for broker assistance payments, $3,555 for compensation to sales
personnel, $73,001 for promotional material, $38,522 for prospectus, application
and miscellaneous printing and $12,537 for miscellaneous expenses.
Under the Distribution Agreement, the Distributor, for nominal consideration and
as agent for the Fund, will solicit orders for the purchase of the Fund's
shares, provided that any subscriptions and orders will not be binding on the
Fund until accepted by the Fund as principal.
The Plan and the Shareholder Servicing Agreement provide that the Fund will pay
for (i) telecommunications expenses, including the cost of dedicated lines and
CRT terminals, incurred by the Clearing Brokers and Distributor in carrying out
their obligations under the Shareholder Servicing Agreement with respect to the
Fund's Individual Investor Class and Broker Service Class 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 Sub-Adviser may make payments from time to time from
its own resources, which may include the advisory fee, the management fee, and
past profits for the following purposes: (i) to defray the costs of, and to
compensate others, including Participating Organizations and Clearing Brokers
with whom the Distributor has entered into written agreements for performing
shareholder servicing and related administrative functions on behalf of the
Fund; (ii) to defray the costs of, and to compensate others, including certain
Participating Organizations and Clearing Brokers, for providing assistance in
distributing the Fund's Individual Investor Class, Broker Service Class and MMA
Praxis Class 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 Individual Investor Class, Broker Service Class
and MMA Praxis Class 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 that the
Fund is required to pay to the Sub-Adviser and the Distributor for any fiscal
year under the Advisory Agreement or the Sub-Advisory Agreement, the
Administrative Services Contract or the Shareholder Servicing Agreement in
effect for that year.
In accordance with Rule 12b-1, 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.
-14-
<PAGE>
The Plan was most recently approved on January 27, 2000 by 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 Sub-Adviser, and shall continue
until March 31, 2001. The Plan provides that it may continue in effect for
successive annual periods provided it is approved by the Individual Investor
Class, Broker Service Class and MMA Praxis Class 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 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 Individual Investor Class,
Broker Service Class and MMA Praxis Class 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 Individual
Investor Class, Broker Service Class and MMA Praxis Class shareholders.
Custodian and Transfer Agents
State Street Kansas City, 801 Pennsylvania Avenue, Kansas City, Missouri 64105,
is custodian for the Fund's cash and securities. Reich & Tang Services, Inc.,
600 Fifth Avenue, New York, New York 10020 is transfer agent and dividend
disbursing agent for the Institutional Class and Broker Service Class shares of
the Fund. PFPC, Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809 is the
transfer agent and dividend agent for Individual Investor Class shares of the
Fund. BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219, is the
transfer agent for the MMA Praxis Class 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 Massachusetts law are passed upon by Dechert, Price &
Rhoads, Ten Post Office Square South, Boston, Massachusetts 02109-4603.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, independent certified public accountants, have been selected as auditors
for the Fund.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
The Fund's purchases and sales of portfolio securities usually are principal
transactions. Portfolio securities are normally purchased directly from the
issuer, from banks and financial institutions or from an underwriter or market
maker for the securities. There are usually no brokerage commissions paid for
such purchases. The Fund has paid no brokerage commissions since its formation.
Any transaction for which the Fund pays a brokerage commission will be effected
at the best price and execution available. Purchases from underwriters of
portfolio securities include a commission or concession paid by the issuer to
the underwriter, and purchases from dealers serving as market makers include the
spread between the bid and asked price.
Allocation of transactions, including their frequency, to various dealers is
determined by the Sub-Adviser 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 now be or may hereafter become
managed by the Sub-Adviser or its affiliates. If, however, the Fund and other
investment companies or accounts managed by the Sub-Adviser 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 Sub-Adviser occur contemporaneously, the purchase or sale orders
may be aggregated in order to obtain any price advantage available to large
denomination purchasers or sellers.
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<PAGE>
No portfolio transactions are executed with the Sub-Adviser or its affiliates
acting as principal. In addition, the Fund will not buy bankers' acceptances,
certificates of deposit or commercial paper from the Sub-Adviser or its
affiliates.
VII. CAPITAL STOCK AND OTHER SECURITIES
The authorized capital stock of the Fund, which was incorporated on November 26,
1997 in Maryland, consists of twenty billion shares of stock having a par value
of one tenth of one cent ($.001) per share. Except as noted below, each share
has equal dividend, distribution, liquidation and voting rights within the Fund
and a fractional share has those rights in proportion to the percentage that the
fractional share represents of a whole share. Generally, shares will be voted in
the aggregate except if voting by Fund Class is required by law or the matter
involved affects only one Fund Class, in which case shares will be voted
separately by Fund Class. There are no conversion or preemptive rights in
connection with any shares of the Fund. All shares when issued in accordance
with the terms of the offering will be fully paid and nonassessable. Shares of
the Fund are redeemable at net asset value, at the option of the shareholder.
The Fund is subdivided into four classes of shares of beneficial interest;
Institutional Class, Individual Investor Class, Broker Service Class and MMA
Praxis Class. Each share, regardless of Class, will represent an interest in the
same portfolio of investments and will have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that: (i) each
Class of shares will have different class designations; (ii) only the Individual
Investor Class, Broker Service Class and MMA Praxis Class shares will be
assessed a Shareholder Servicing Fee of .25% of the average daily net assets of
the Individual Investor Class, Broker Service Class and MMA Praxis Class shares
of the Fund, respectively, pursuant to the Rule 12b-1 Distribution and Service
Plan of the Fund; (iii) only the holders of the Individual Investor Class,
Broker Service Class and MMA Praxis Class shares will be entitled to vote on
matters pertaining to the Plan and any related agreements applicable to that
class in accordance with provisions of Rule 12b-1; (iv) only the Broker Service
Class shares will be assessed an additional sub-transfer agent accounting fee of
.20% of the average daily net assets of the Broker Service Class shares of the
Fund; and (v) the exchange privilege will permit shareholders to exchange their
shares only for shares of a fund that participates in 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.
Generally, all shares will be voted in the aggregate, except if voting by Class
is required by law or the matter involved affects only one Class, in which case
shares will be voted separately by Class. The shares of the Fund have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares outstanding voting for the election of directors can elect 100% of
the directors if the holders choose to do so, and, in that event, the holders of
the remaining shares will not be able to elect any person or persons to the
Board of Directors. The Fund's By-laws provide that the holders of a majority of
the outstanding shares of the Fund present at a meeting in person or by proxy
will constitute a quorum for the transaction of business at all meetings.
As a general matter, the Fund will not hold annual or other meetings of the
Fund's shareholders. This is because the By-laws of the Fund provide for annual
meetings only (a) for the election of Directors, (b) for approval of revised
investment advisory contracts with respect to a particular class or series of
beneficial interest, (c) for approval of revisions to the Fund's Distribution
Agreement with respect to a particular class or series of beneficial interest
and (d) upon the written request of holders of shares entitled to cast not less
than 10% of all the votes entitled to be cast at such meeting. Annual and other
meetings may be required with respect to such additional matters relating to the
Fund as may be required by the 1940 Act including the removal of Fund
Director(s) and communication among shareholders, any registration of the Fund
with the Securities and Exchange Commission or any state, or as the Directors
may consider necessary or desirable. For example, procedures for calling a
shareholder's meeting for the removal of Directors of the Fund, similar to those
set forth in Section 16(c) of the 1940 Act, are available to shareholders of the
Fund. A meeting for such purpose can be called by the holders of at least 10% of
the Fund's outstanding shares of beneficial interest. The Fund will aid
shareholder communications with other shareholders as required under Section
16(c) of the 1940 Act. Each Director serves until the next meeting of the
shareholders called for the purpose of considering the election or reelection of
such Director or of a successor to such Director, and until the election and
qualification of his or her successor, elected at such a meeting, or until such
Director sooner dies, resigns, retires or is removed by the vote of the
shareholders.
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<PAGE>
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
The material relating to the purchase, redemption and pricing of shares in the
prospectus for each Class of Shares is located in the Shareholder Information
section of each prospectus and is hereby incorporated by reference.
Net Asset Value
Pursuant to rules of the Securities and Exchange Commission, the 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 $1.00. Should that deviation exceed 1/2 of 1%, the Board will consider
whether any action should be initiated to eliminate or reduce material dilution
or other unfair results to shareholders. Such action may include redemption of
shares in kind, selling portfolio securities prior to maturity, reducing or
withholding dividends and utilizing a net asset value per share as determined by
using available market quotations. The Fund will maintain a dollar-weighted
average portfolio maturity of 90 days or less, will not purchase any instrument
with a remaining maturity greater than 397 days or subject to a repurchase
agreement having a duration of greater than one year, will limit portfolio
investments, including repurchase agreements, to those United States
dollar-denominated instruments that 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
that portfolio securities meet the quality criteria as provided in Rule 2a-7 of
the 1940 Act. (See "Investment Objectives, Principal Investment Strategies and
Related Risks" in the Prospectus.)
IX. TAXATION OF THE FUND
Federal Income Taxes
The Fund has elected and intends to continue to qualify to be treated as a
regulated investment company under the Internal Revenue Code (the "Code"). To
qualify as a regulated investment company, the Fund must distribute to
shareholders at least 90% of its investment company taxable income (which
includes, among other items, dividends, taxable interest and the excess of net
short-term capital gains over net long-term capital losses), and meet certain
diversification of assets, source of income, and other requirements of the Code.
By meeting these requirements, the Fund generally will not be subject to Federal
income tax on its investment company taxable income distributed to shareholders
or on its net capital gains (the excess of net long-term capital gains over net
short-term capital losses) designated by the Fund as capital gain dividends and
distributed to shareholders. If the Fund does not meet all of these Code
requirements, it will be taxed as an ordinary corporation and its distributions
will generally be taxed to shareholders as ordinary income. In determining the
amount of net capital gains to be distributed, any capital loss carryover from
prior years will be applied against capital gains to reduce the amount of
distributions paid.
Amounts, other than tax-exempt interest, not distributed on a timely basis in
accordance with a calendar year distribution requirement may be subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, the Fund
must distribute for the calendar year an amount equal to the sum of (1) at least
98% of its ordinary income (excluding any capital gains or losses) for the
calendar year, (2) at least 98% of the excess of its capital gains over capital
losses (adjusted for certain losses) for the one-year period ending October 31
of such year, and (3) all ordinary income and capital gain net income (adjusted
for certain ordinary losses) for previous years that were not distributed during
such years.
Generally, on the sale or exchange of obligations held for more than one year,
gain realized by the Fund that is not attributable to accrued market discount
will be long-term capital gain. However, gain on the disposition of a bond
purchased at a market discount generally will be treated as ordinary income
rather than capital gain, to the extent of the accrued market discount.
Distributions of investment company taxable income generally are taxable to
shareholders as ordinary income. Distributions from the Fund are not eligible
for the dividends-received deduction available to corporations. Distributions of
net capital gains, if any, designated by the Fund as capital gain dividends are
taxable to shareholders as long-term capital gains, regardless of the length of
time the Fund's shares have been held by the shareholder. All distributions are
taxable to the shareholder whether reinvested in additional shares or received
in cash. Shareholders will be notified annually as to the Federal tax status of
distributions.
Upon the taxable disposition (including a sale or redemption) of shares of the
Fund, a shareholder may realize a gain or loss, depending upon its basis in the
shares. Such gain or loss will be treated as capital gain or
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<PAGE>
loss if the shares are capital assets in the shareholder's hands, and will be
long-term or short-term, generally depending upon the shareholder's holding
period for the shares. Non-corporate shareholders are subject to tax at a
maximum rate of 20% on capital gains resulting from the disposition of shares
held for more than 12 months. A loss realized by a shareholder on the
disposition of Fund shares with respect to which capital gains dividends have
been paid will, to the extent of such capital gain dividends, also be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less.
Income received by the Fund from sources within foreign countries may be subject
to withholding and other similar income taxes imposed by the foreign country,
which may decrease the net return on foreign investments as compared to
dividends and interest paid by domestic issuers. The Fund does not expect to be
eligible to elect to allow shareholders to claim such foreign taxes as a credit
against their U.S. tax liability.
The Fund is required to report to the Internal Revenue Service ("IRS") all
distributions to shareholders except in the case of certain exempt shareholders.
Distributions by the Fund (other than distributions to exempt shareholders) are
generally subject to backup withholding of Federal income tax at a rate of 31%
("backup withholding") if (1) the shareholder fails to furnish the Fund with and
to certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the Fund or a shareholder that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, distributions
(whether requested to be reinvested in additional shares or taken in cash) will
be reduced by the amounts required to be withheld.
The foregoing discussion relates only to Federal income tax law as applicable to
U.S. persons (i.e., U.S. citizens and residents and U.S. domestic corporations,
partnerships, trusts and estates). Distributions by the Fund also may be subject
to state and local taxes, and the treatment of distributions under state and
local income tax laws may differ from the Federal income tax treatment.
Shareholders should consult their tax advisors with respect to particular
questions of Federal, state and local taxation. Shareholders who are not U.S.
persons should consult their tax advisors regarding U.S. foreign tax
consequences of ownership of shares of the Fund, including the likelihood that
distributions to them would be subject to withholding of U.S. tax at a rate of
30% (or at a lower rate under a tax treaty).
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. In the opinion of the
Sub-Adviser, 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 as 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 Securities and Exchange Commission. Under that
method, the Fund's portfolios' yield figures, which are based on a chosen
seven-day period, are computed as follows: the portfolio's return for the
seven-day period is obtained by dividing the net change in the value of a
hypothetical account having a balance of one share at the beginning of the
period by the value of such account at the beginning of the period (expected to
always be $1.00). This quotient is multiplied by (365/7) with the resulting
annualized figure carried to the nearest hundredth of one
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<PAGE>
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 portfolio'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 portfolios' performance, investors should be aware that the Fund's
portfolios' yields fluctuate from day to day. The Fund's portfolios' yields for
any given period are not an indication, or representation by the Fund, of future
yields or rates of return on the Fund's shares, and may not provide a basis for
comparison with bank deposits or other investments that pay a fixed yield for a
stated period of time. Investors who purchase the Fund's shares directly may
realize a higher yield than Participant Investors because they will not be
subject to any fees or charges that may be imposed by Participating
Organizations.
The Fund may from time to time advertise its portfolios' tax equivalent current
yield. The tax equivalent yield for each Class is computed based upon a 30-day
(or one month) period ended on the date of the most recent balance sheet
included in this Statement of Additional Information. It is computed by dividing
that portion of the yield of the Fund (as computed pursuant to the formulae
previously discussed) which is tax exempt by one minus a stated income tax rate
and adding the quotient to that portion, if any, of the yield of the Fund that
is not tax exempt. The tax equivalent yield for the Fund may also fluctuate
daily and does not provide a basis for determining future yields.
The Fund may from time to time advertise a tax equivalent effective yield table
which shows the yield that an investor would need to receive from a taxable
investment in order to equal a tax-free yield from the Fund. This is calculated
by dividing that portion of the Fund's effective yield that is tax-exempt by one
minus a stated income tax rate and adding the quotient to that portion, if any,
of the Fund's effective yield that is not tax-exempt.
The Fund's yield for the Institutional Class for the seven-day period ended
January 31, 2000 was 5.41% which is equivalent to an effective yield of 5.56%.
The Fund's yield for the Broker Service Class for the seven-day period ended
January 31, 2000 was 4.96% which is equivalent to an effective yield of 5.08%.
The Fund's yield for the Individual Investor Class for the seven-day period
ended January 31, 2000 was 5.16% which is equivalent to an effective yield of
5.29%. The Fund's yield for the MMA Praxis Class shares for the seven-day period
ended January 31, 2000 was 5.16% which is equivalent to an effective yield of
5.29%.
XII. FINANCIAL STATEMENTS
The audited financial statements for the Fund for the fiscal year ended January
31, 2000 and the report therein of PricewaterhouseCoopers LLP, are herein
incorporated by reference to the Fund's Annual Report. The Annual Report is
available upon request and without charge.
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<PAGE>
DESCRIPTION OF RATINGS*
Description of Moody's Investors Service, Inc.'s Two Highest Municipal Bond
Ratings:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Con. ( c ): Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These are bonds
secured by (i) earnings of projects under construction, (ii) earnings of
projects unseasoned in operating experience, (iii) rentals which begin when
facilities are completed, or (iv) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Description of Moody's Investors Service, Inc.'s Two Highest Ratings of State
and Municipal Notes and Other Short-Term Loans:
Moody's ratings for state and municipal notes and other short-term loans will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in bond risk
are of lesser importance in the short run. Symbols used will be as follows:
MIG-1: Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.
MIG-2: Loans bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.
Description of Standard & Poor's Rating Services Two Highest Debt Ratings:
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only to a small degree.
Plus ( + ) or Minus ( - ): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
Provisional Ratings: The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
Standard & Poor's does not provide ratings for state and municipal notes.
Description of Standard & Poor's Rating Services Two Highest Commercial Paper
Ratings:
A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
Description of Moody's Investors Service, Inc.'s Two Highest Commercial Paper
Ratings:
Moody's employs the following designations, both judged to be investment grade,
to indicate the relative repayment capacity of rated issues: Prime-1, highest
quality; Prime-2, higher quality.
----------
* As described by the rating agencies.
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