<PAGE> 1
MUNICIPAL FUND FOR
NEW YORK INVESTORS, INC.
("New York Money Fund")
<TABLE>
<S> <C>
Bellevue Park Corporate Center For purchase and redemption orders call:
400 Bellevue Parkway 800-441-7450 (in Delaware: 302-478-6945);
Suite 100 For current yield information call:
Wilmington, Delaware 19809 800-821-6006
(Code: New York Money-53; New York Money
Dollar-55; New York Money Plus-56).
For other information call: 800-821-7432.
</TABLE>
Municipal Fund for New York Investors, Inc. (the "Fund") is designed
primarily to provide New York institutional investors and their customers with
as high a level of current interest income that is exempt from Federal income
tax and, to the extent possible, from New York State and New York City personal
income taxes as is consistent with the preservation of capital and relative
stability of principal. Portfolio securities held by the Fund will generally
have remaining maturities of 13 months or less and will be determined by the
Fund's investment adviser to have minimal credit risk. (See "Investment
Objective and Policies.")
PNC Institutional Management Corporation and PNC Bank, National Association
serve as the Fund's adviser and sub-adviser, respectively. PFPC Inc. ("PFPC")
and Provident Distributors, Inc. ("PDI") serve as the Fund's administrators. PDI
also serves as the Fund's distributor. Shares may not be purchased by
individuals directly but, as indicated above, institutional investors, such as
banks and broker-dealers, may purchase shares for accounts maintained by
individuals.
------------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES
OF THE FUND ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF
OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED. THERE CAN BE NO ASSURANCE
THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
------------------------
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information bearing the same date,
has been filed with the Securities and Exchange Commission. The current
Statement of Additional Information is available to investors without charge by
calling the Fund at 800-821-7432. The Statement of Additional Information, as
may be amended from time to time, is incorporated by reference in its entirety
into this Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
December 1, 1995
<PAGE> 2
BACKGROUND AND EXPENSE INFORMATION
The Fund was organized as a Maryland corporation on March 4, 1983 and
currently offers three separate series of shares-New York Money ("Money"), New
York Money Dollar ("Dollar") and New York Money Plus ("Plus"). The public
offering of Money shares commenced on August 22, 1983, and the public offering
of Dollar and Plus shares commenced on October 8, 1985. Shares of each series
represent equal pro rata interests in a single portfolio of high quality,
short-term tax-exempt obligations maintained by the Fund (See "Investment
Objective and Policies"), except that Dollar and Plus shares bear service fees
payable by the Fund (at the rate of .25% per annum) to institutional investors
for distribution and/or support services they provide to the beneficial owners
of such shares. (See "Management of the Fund-Service Organizations.") Because of
the service fees borne by Dollar and Plus shares, the net yield on such shares
can be expected, at any given time, to be approximately .25% lower than the net
yield on Money shares.
EXPENSE SUMMARY
<TABLE>
<CAPTION>
MONEY DOLLAR PLUS
SHARES SHARES SHARES
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees After Fee Waivers............. .06% .06% .06%
12b-1 Fees.................................... -- -- .25%
Other Expenses................................ .14% .39% .14%
Administration Fees After Fee Waivers.... .06% .06% .06%
Non-12b-1 Fees........................... -- .25% --
Other Expenses........................... .08% .08% .08%
===== ===== =====
Total Fund Operating
Expenses After
Fee Waivers................................. .20% .45% .45%
</TABLE>
- ---------------
EXAMPLE
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) an hypothetical 5% annual return and (2)
redemption at the end of each time period with respect to the
following shares:
Money Shares.............................................. $ 2 $ 6 $11 $ 26
Plus Shares............................................... $ 5 $14 $25 $ 57
Dollar Shares............................................. $ 5 $14 $25 $ 57
</TABLE>
The foregoing tables are intended to assist investors in understanding the
expenses the Fund pays. Investors bear these expenses indirectly since they
reduce the amount of income paid by the Fund to investors as dividends. In
addition, institutional investors may charge their customers fees for providing
services in connection with investments in the Fund's Dollar and Plus shares.
(For more complete descriptions of the various costs and expenses, see
"Management of the Fund" in the Prospectus and Statement of Additional
Information.) The investment adviser and administrators have voluntarily agreed
to waive the advisory and administration fees otherwise payable to them and to
reimburse the Fund for its operating expenses to the extent necessary to ensure
that the annual operating expense ratio of the Fund (excluding Non-12b-1 Fees
and 12b-1 Fees applicable to the
2
<PAGE> 3
Dollar shares and Plus shares, respectively) will not exceed .20% of the Fund's
average daily net assets for the year ended July 31, 1996. Absent such fee
waivers and expense reimbursements, estimated "Total Fund Operating Expenses"
for the Fund's Money, Dollar and Plus shares would be .49%, .74%, and .74%,
respectively, of the Fund's average daily net assets. The foregoing table has
not been audited by the Fund's independent accountants.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
3
<PAGE> 4
FINANCIAL HIGHLIGHTS
The tables of "Financial Highlights" below, a part of the Fund's financial
statements, set forth certain information concerning the historic investment
results for Money, Dollar and Plus shares. The financial highlights for the
fiscal years ended July 31, 1995, 1994, 1993, 1992 and 1991 have been audited by
Coopers & Lybrand L.L.P., the Fund's independent accountants, whose report
therein is contained in the Statement of Additional Information along with the
financial statements. This information should be read in conjunction with the
Fund's financial statements and notes for the year ended July 31, 1995, included
in the Statement of Additional Information. More information about the
performance of the Fund is also contained in the Annual Report to Shareholders,
which may be obtained without charge by calling 800-821-7432.
FINANCIAL HIGHLIGHTS
(For a Fund share outstanding throughout each period)
<TABLE>
<CAPTION>
MONEY SHARES
-----------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
7/31/95 7/31/94 7/31/93 7/31/92 7/31/91 7/31/90 7/31/89 7/31/88 7/31/87 7/31/86
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Year............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From
Investment
Operations:
Net Investment
Income......... 0.0338 0.0226 0.0230 0.0321 0.0441 0.0535 0.0548 0.0445 0.0385 0.0446
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From
Investment
Operations..... 0.0338 0.0226 0.0230 0.0321 0.0441 0.0535 0.0548 0.0445 0.0385 0.0446
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends From
Net Investment
Income......... (0.0338) (0.0226) (0.0230) (0.0321) (0.0441) (0.0535) (0.0548) (0.0445) (0.0385) (0.0446)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
Distributions... (0.0338) (0.0226) (0.0230) (0.0321) (0.0441) (0.0535) (0.0548) (0.0445) (0.0385) (0.0446)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End
of Year............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Returns....... 3.43% 2.29% 2.33% 3.26% 4.50% 5.48% 5.62% 4.52% 3.92% 4.58%
Ratios/Supplemental
Data:
Net Assets, End of
Year $(000)...... 246,650 279,483 204,670 267,655 284,834 310,289 287,641 315,111 347,173 329,665
Ratios of Expenses
to Average
Net Assets1...... 0.20% 0.20% 0.25%2 0.30% 0.30% 0.30% 0.30% 0.30% 0.31% 0.40%
Ratios of Net
Investment Income
to Average Daily
Net Assets....... 3.36% 2.28% 2.31% 3.20% 4.42% 5.35% 5.45% 4.46% 3.84% 4.45%
</TABLE>
- ---------------
1 Annualized operating expense ratios before waivers of fees by the Investment
Adviser and Administrator for Money shares for the years ended July 31, 1995,
1994, 1993, 1992, 1991, 1990, 1989, 1988, 1987 and 1986 were .49%, .48%, .51%,
.49%, .49%, .49%, .49%, .49%, .50% and .50% respectively.
2 Expense limitation for Money shares was lowered to .20% of the Portfolio's
average daily net assets, effective January 18, 1993.
4
<PAGE> 5
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
DOLLAR SHARES
-----------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
7/31/95(5) 7/31/94(5) 7/31/93 7/31/92 7/31/91 7/31/90 7/31/89 7/31/88 7/31/87 7/31/86(1)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Year............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From
Investment
Operations:
Net Investment
Income......... 0.000 0.0127 0.0205 0.0296 0.0416 0.0510 0.0523 0.0420 0.0360 0.0109
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From
Investment
Operations..... 0.000 0.0127 0.0205 0.0296 0.0416 0.0510 0.0523 0.0420 0.0360 0.0109
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends From
Net Investment
Income......... 0.00 (0.0127) (0.0205) (0.0296) (0.0416) (0.0510) (0.0523) (0.0420) (0.0360) (0.0109)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
Distributions 0.00 (0.0127) (0.0205) (0.0296) (0.0416) (0.0510) (0.0523) (0.0420) (0.0360) (0.0109)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End
of Year............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Returns....... -- 1.96% 2.08% 3.01% 4.25% 5.23% 5.37% 4.27% 3.67% 4.33%
Ratios/Supplemental
Data:
Net Assets, End of
Year $(000)...... -- -- 46,509 50,094 54,613 69,705 70,839 82,618 87,715 8,299
Ratios of Expenses
to Average
Net Assets(3).... -- 0.45%(2) 0.50%(4) 0.55% 0.55% 0.55% 0.55% 0.55% 0.56% 0.65%(2)
Ratios of Net
Investment Income
to Average Daily
Net Assets....... -- 1.94%(2) 2.06% 2.95% 4.17% 5.10% 5.20% 4.21% 3.59% 3.63%(2)
</TABLE>
- ---------------
(1) The first public issuance of Dollar Shares occurred on April 14, 1986.
(2) Annualized.
(3) Annualized operating expense ratios before waivers of fees by the
Investment Adviser and Administrator for Dollar shares for the years ended
July 31, 1994, 1993, 1992, 1991, 1990, 1989, 1988, 1987 and for the period
ended July 31, 1986 were .73%, .76%, .74%, .74%, .74%, .74%, .74%, .75% and
.75%, respectively.
(4) Expense limitation for Dollar shares was lowered to .45% of the Portfolio's
average daily net assets, effective January 18, 1993.
(5) There were no shares outstanding during the period from March 28, 1994 to
July 31, 1995.
5
<PAGE> 6
<TABLE>
<CAPTION>
PLUS SHARES
-----------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
7/31/955 7/31/94 7/31/93 7/31/92 7/31/91 7/31/90 7/31/89 7/31/88 7/31/87 7/31/861
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Year............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From
Investment
Operations:
Net Investment
Income......... 0.0090 0.0201 0.0205 0.0296 0.0416 0.0510 0.0523 0.0420 0.0360 0.0303
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total From
Investment
Operations..... 0.0090 0.0201 0.0205 0.0296 0.0416 0.0510 0.0523 0.0420 0.0360 0.0303
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends From
Net Investment
Income......... (0.0090) (0.0201) (0.0205) (0.0296) (0.0416) (0.0510) (0.0523) (0.0420) (0.0360) (0.0303)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
Distributions... (0.0090) (0.0201) (0.0205) (0.0296) (0.0416) (0.0510) (0.0523) (0.0420) (0.0360) (0.0303)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End
of Year............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Returns....... 2.69%2 2.04% 2.08% 3.01% 4.25% 5.23% 5.37% 4.27% 3.67% 4.33%
Ratios/Supplemental
Data:
Net Assets, End of
Year $(000)...... -- 435 1,481 243 461 404 513 1,381 606 578
Ratios of Expenses
to Average
Net Assets3...... 0.45%2 0.45% 0.50%4 0.55% 0.55% 0.55% 0.55% 0.55% 0.56% 0.65%2
Ratios of Net
Investment Income
to Average Daily
Net Assets....... 2.64%2 2.03% 2.06% 2.95% 4.17% 5.10% 5.20% 4.21% 3.59% 4.05%2
</TABLE>
- ---------------
1 The first public issuance of Plus Shares occurred on November 15, 1985.
2 Annualized.
3 Annualized operating expense ratios before waivers of fees by the Investment
Adviser and Administrator for Plus shares for the years ended July 31, 1995,
1994, 1993, 1992, 1991, 1990, 1989, 1988, 1987 and for the period ended July
31, 1986 were .74%, .73%, .76%, .74%, .74%, .74%, .74%, .74%, .75% and .75%,
respectively.
4 Expense limitation for Plus shares was lowered to .45% of the Portfolio's
average daily net assets, effective January 18, 1993.
5 There were no Plus shares outstanding during the period from December 2, 1994
to July 31, 1995.
6
<PAGE> 7
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund is a no-load, open-end, non-diversified investment company which
has an investment objective to provide investors with as high a level of current
interest income that is exempt from Federal income tax and, to the extent
possible, from New York State and New York City personal income taxes as is
consistent with the preservation of capital and relative stability of principal.
There can be, of course, no assurance that the Fund will achieve its investment
objective.
Substantially all of the Fund's assets are invested in debt obligations
issued by or on behalf of the State of New York and other states, territories,
and possessions of the United States, the District of Columbia, and their
respective authorities, agencies, instrumentalities and political subdivisions,
and tax-exempt derivative securities such as tender option bonds,
participations, beneficial interests in trusts and partnership interests
(collectively, "Municipal Obligations"). Dividends paid by the Fund that are
derived from interest on obligations that is exempt from taxation under the
Constitution or statutes of New York ("New York Municipal Obligations") are
exempt from regular Federal, New York State and New York City personal income
tax. New York Municipal Obligations include municipal securities issued by the
State of New York and its political sub-divisions, as well as certain other
governmental issuers such as the Commonwealth of Puerto Rico. Dividends derived
from interest on Municipal Obligations other than New York Municipal Obligations
are exempt from Federal income tax but may be subject to New York State and New
York City personal income tax. (See, however, "Taxes" below concerning treatment
of exempt-interest dividends paid by the Fund for purposes of the Federal
alternative minimum tax applicable to particular classes of investors.) The Fund
expects that, except during temporary defensive periods or when acceptable
securities are unavailable for investment by the Fund, the Fund's assets will be
invested primarily in New York Municipal Obligations, although the amount of the
Fund's assets invested in such securities will vary from time to time.
The Fund will not knowingly purchase securities the interest on which is
subject to Federal income tax; however, the Fund may hold uninvested cash
reserves pending investment during temporary defensive periods or, if in the
opinion of the Fund's investment adviser, suitable tax-exempt obligations are
unavailable. Uninvested cash reserves will not earn income.
The Fund invests in Municipal Obligations which are determined by the
Fund's investment adviser to present minimal credit risks pursuant to guidelines
approved by the Fund's Board of Directors pursuant to Rule 2a-7 under the
Investment Company Act of 1940, as amended (the "1940 Act"). Pursuant to these
guidelines, the Fund is authorized to purchase instruments that are determined
to have minimum credit risk and which are "Eligible Securities" under the Rule.
"Eligible securities" are (i) instruments which are rated at the time of
purchase in one of the top two rating categories by two unaffiliated nationally
recognized statistical rating organizations ("NRSROs"), (ii) instruments rated
in one of the top two rating categories by one such NRSRO (if only one such
organization rates the instrument), (iii) instruments issued by issuers with
short-term debt having such ratings, and (iv) unrated instruments determined by
the investment adviser, pursuant to procedures approved by the Board of
Directors, to be of comparable quality to such instruments. (See the Appendix to
the Statement of Additional Information for a description of applicable NRSRO
ratings.)
The Fund intends to use its best efforts to maintain its net asset value at
$1.00 per share, and computes its net asset value using the amortized cost
method. In connection with its use of this
7
<PAGE> 8
valuation method, the Fund limits the dollar-weighted average maturity of its
portfolio to not more than 90 days and the remaining maturity of each portfolio
security to not more than 13 months (with certain exceptions).
The Fund's investment objective and the policies described herein may be
changed by its Board of Directors without the affirmative vote of the holders of
a majority of the Fund's outstanding shares, except that the Fund may not change
the following investment limitations without such a vote of shareholders. The
Fund may not:
1. Invest less than 80% of its assets in securities the interest on
which is exempt from Federal income tax, except during defensive periods or
during periods of unusual market conditions.
2. Purchase the securities of any issuer if as a result more than 5%
of the value of the Fund's total assets would be invested in the securities
of such issuer, except that (a) up to 50% of the value of the Fund's total
assets may be invested without regard to this 5% limitation provided that
no more than 25% of the value of the Fund's total assets are invested in
the securities of any one issuer and (b) this 5% limitation does not apply
to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. For purposes of this limitation, a security is
considered to be issued by the governmental entity (or entities) whose
assets and revenues back the security, or, with respect to a private
activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain
circumstances, the guarantor of a guaranteed security may also be
considered to be an issuer in connection with such guarantee, except that a
guarantee of a security shall not be deemed to be a security issued by the
guarantor when the value of all securities issued and guaranteed by the
guarantor, and owned by the Fund, does not exceed 10% of the value of the
Fund's total assets.
3. Borrow money except from banks for temporary purposes and then in
amounts not in excess of 10% of the value of the Fund's assets at the time
of such borrowing; or mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's
assets at the time of such borrowing. (This borrowing provision is not
intended for investment leverage, but solely to facilitate management of
the Fund's portfolio by enabling the Fund to meet redemption requests when
the liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient, and hence the Fund may not purchase any portfolio securities
while its borrowings are outstanding.)
4. Invest more than 10% of the value of the Fund's total assets in
illiquid securities which may be illiquid in light of legal or contractual
restrictions on resale or the absence of readily available market
quotations.
5. Purchase any securities, except securities issued by the United
States, any state, territory or possession of the United States, the
District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, which would cause more than
25% of the value of the Fund's total assets at the time of purchase to be
invested in the securities of issuers conducting their principal business
activities in the same industry.
Opinions relating to validity of Municipal Obligations and to the exemption
of interest thereon from Federal income tax (and, with respect to New York
Municipal Obligations, to the exemption of interest thereon from New York State
and New York City personal income taxes) are rendered by bond counsel to the
respective issuers at the time of issuance, and opinions relating to the
validity of
8
<PAGE> 9
and the tax-exempt status of payments received by the Fund from tax-exempt
derivatives are rendered by counsel to the respective sponsors of such
derivatives. The Fund and its investment adviser will rely on such opinions and
will not review independently the underlying proceedings relating to the
issuance of Municipal Obligations, the creation of any tax-exempt derivative
securities, or the bases for such opinions.
TYPES OF MUNICIPAL OBLIGATIONS
The two principal classifications of Municipal Obligations that may be held
by the Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Revenue securities may include private activity bonds.
Such bonds may be issued by or on behalf of public authorities to finance
various privately operated facilities and are not payable from the unrestricted
revenues of the issuer. As a result, the credit quality of private activity
bonds is frequently related directly to the credit standing of private
corporations or other entities.
The Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality that
created the issuer.
OTHER INVESTMENT PRACTICES
Municipal Obligations purchased by the Fund may include variable and
floating rate demand instruments issued by industrial development authorities
and other governmental entities and which provide for adjustments in the
interest rate on certain reset dates or whenever a specified interest rate index
changes, respectively. Variable and floating rate instruments are subject to the
credit quality standards described above. In some cases the Fund may require
that the obligation to pay the principal of the instrument be backed by a letter
or line of credit or guarantee. Such instruments may carry stated maturities in
excess of 397 days provided that the maturity-shortening provisions stated in
Rule 2a-7 are satisfied. Although a particular variable or floating rate demand
instrument may not be actively traded in a secondary market, in some cases, the
Fund may be entitled to principal on demand and may be able to resell such
instruments in the dealer market.
The Fund may also purchase Municipal Obligations on a "when-issued" basis.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield. The Fund generally will not pay for
such securities or start earning interest on them until they are received.
Securities purchased on a when-issued basis are recorded as an asset and are
subject to changes in value based upon changes in the general level of interest
rates. The Fund expects that commitments to purchase when-issued securities will
not exceed 25% of the value of its total assets absent unusual market
conditions, and that a commitment by the Fund to purchase when-issued securities
will not exceed 45 days. The Fund does not intend to purchase when-issued
securities for speculative purposes but only in furtherance of its investment
objective.
In addition, the Fund may acquire "stand-by commitments" with respect to
Municipal Obligations held in its portfolio. Under a stand-by commitment, a
dealer agrees to purchase at the Fund's option
9
<PAGE> 10
specified Municipal Obligations at a price equal to their amortized cost value
plus accrued interest. The Fund will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
RISK FACTORS
The Fund intends to follow the diversification standards set forth in the
1940 Act except to the extent, in the investment adviser's judgment, that
non-diversification is appropriate in order to maximize the percentage of the
Fund's assets that are New York Municipal Obligations. The investment return on
a non-diversified portfolio typically is dependent upon the performance of a
smaller number of issuers relative to the number of issuers held in a
diversified portfolio. In the event of changes in the financial condition of or
in the market's assessment of certain issuers, the Fund's maintenance of large
positions in the obligations of a small number of issuers may affect the value
of the Fund's portfolio to a greater extent than that of a diversified
portfolio.
Although the Fund does not presently intend to do so on a regular basis, it
may invest more than 25% of its assets in Municipal Obligations the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Fund's investment adviser. To the extent
that the Fund's assets are concentrated in Municipal Obligations payable from
revenues on similar projects, the Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if the Fund's
assets were not so concentrated.
Certain other risks with respect to portfolio securities which may be held
by the Fund from time to time are discussed herein and in the Statement of
Additional Information.
SPECIAL CONSIDERATIONS AFFECTING THE FUND
The Fund's ability to achieve its investment objective is dependent upon
the ability of the issuers of New York Municipal Obligations to meet their
continuing obligations for the payment of principal and interest. New York State
and New York City face long-term economic problems that could seriously affect
their ability and that of other issuers of New York Municipal Obligations to
meet their financial obligations.
Certain substantial issuers of New York Municipal Obligations (including
issuers whose obligations may be acquired by the Fund) have experienced serious
financial difficulties in recent years. These difficulties have at times
jeopardized the credit standing and impaired the borrowing abilities of all New
York issuers and have generally contributed to higher interest costs for their
borrowing and fewer markets for their outstanding debt obligations. In recent
years, several different issues of municipal securities of New York State and
its agencies and instrumentalities and of New York City have been downgraded by
Standard & Poor's Ratings Group ("S&P") and Moody's Investors Service, Inc.
("Moody's"). On the other hand, strong demand for New York Municipal Obligations
has more recently had the effect of permitting New York Municipal Obligations to
be issued with yields relatively lower, and after issuance, to trade in the
market at prices relatively higher, than comparably rated municipal obligations
issued by other jurisdictions. A recurrence of the financial difficulties
previously experienced by certain issuers of New York Municipal Obligations
could result in defaults or declines in the market values of those issuers'
existing obligations and, possibly, in the obligations of other issuers of New
York Municipal Obligations. Although as of the date of this Prospectus, no
issuers of New York Municipal Obligations are in default with respect to the
payment of their municipal obligations, the occurrence of any such default could
affect adversely the market values and
10
<PAGE> 11
marketability of all New York Municipal Obligations and, consequently, the net
asset value of the Fund's portfolio.
Other considerations affecting the Fund's investments in New York Municipal
Obligations are summarized in the Statement of Additional Information.
PURCHASE OF SHARES
The Fund's shares are sold to institutional investors at the net asset
value per share next determined after receipt of a purchase order by PFPC, the
Fund's transfer agent.
Purchase orders for shares will be accepted by the Fund only on a day on
which both the New York Stock Exchange and the Federal Reserve Bank of
Philadelphia are open for business (a "Business Day"), and must be transmitted
to PFPC by telephone at 800-441-7450 (in Delaware: 302-478-6945). Orders
received by PFPC by Noon, Eastern Time, will be executed the same day if PNC
Bank, National Association ("PNC Bank"), the Fund's Custodian, has received
payment by 4:00 P.M., Eastern Time, that day. Orders received after Noon,
Eastern Time, and orders for which payment has not been received by 4:00 P.M.,
Eastern Time, will not be accepted and notice thereof will be given to the
institution placing the order. Payment for shares may be made only in Federal
funds or other funds immediately available to PNC Bank. Payment for orders which
are not received or accepted will be returned after prompt inquiry by PNC Bank
to the sending institution.
The minimum initial investment is $5,000; however, broker-dealers and other
institutional investors may set a higher minimum for their customers. There is
no minimum subsequent investment. The Fund may in its discretion reject any
order for shares.
Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Dollar or Plus shares. Institutions, including banks regulated by the
Comptroller of the Currency and investment advisers and other money managers
subject to the jurisdiction of the Securities and Exchange Commission, the
Department of Labor or state securities commissions, should consult legal
counsel before investing in Dollar or Plus shares. (See also "Management of the
Fund -- Banking Laws.")
REDEMPTION OF SHARES
REDEMPTION PROCEDURES
Redemption orders must be transmitted to PFPC by telephone in the manner
described under "Purchase of Shares." Shares are redeemed at the net asset value
per share next determined after receipt of the redemption order by PFPC. While
the Fund intends to use its best efforts to maintain the net asset value per
share of each of its series at $1.00, the proceeds paid upon redemption may be
more or less than the amount invested depending upon a share's net asset value
at the time of redemption.
Payment for redeemed shares for which a redemption order is received by
PFPC prior to Noon, Eastern Time, on a Business Day is normally made in Federal
funds wired to the redeeming shareholder on the same business day. Payment for
redeemed shares for which a redemption order is received by PFPC after Noon,
Eastern Time, on such a business day or on a day that PNC Bank is closed is
normally made in Federal funds wired to the redeeming shareholder on the next
day that PNC Bank is open. The Fund reserves the right to wire redemption
proceeds within 7 days after
11
<PAGE> 12
receiving the redemption order if, in the judgment of the Fund's administrator,
an earlier payment could adversely affect the Fund.
The Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend or postpone the recordation of the
transfer of its shares) for such periods as are permitted under the 1940 Act.
The Fund reserves the right to redeem the shares of the Fund owned by a
shareholder at their net asset value if the value of such shares is less than
$4,000. Any such shareholder will first be notified in writing that its shares
have a value of less than $4,000 and be allowed 60 days to make an additional
investment before the redemption is processed by the Fund. The Fund may also
redeem shares involuntarily (and restrict the transfer of the shares) under
certain special circumstances described in the Statement of Additional
Information under "Additional Purchase and Redemption Information."
OTHER MATTERS
The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by PNC Institutional Management Corporation
("PIMC") as of Noon and 4:00 P.M., Eastern Time, on each Business Day (excluding
those holidays on which the Federal Reserve Bank of Philadelphia or the New York
Stock Exchange is closed). Currently, one or both of these institutions are
closed on the customary national business holidays. The net asset value per
share of each of the Fund's series is the same and is calculated by adding the
value of all of the Fund's portfolio securities and other assets, subtracting
liabilities (including the liability for the expenses of each series and
dividends declared with respect to each series) and dividing the result by the
number of the Fund's outstanding shares of such series. Portfolio securities are
valued on the basis of amortized cost. Under this method, the Fund values a
portfolio security at cost on the date of purchase and thereafter assumes a
constant amortization of any discount or premium until maturity of the security.
As a result, the value of the security for purposes of determining net asset
value normally does not change in response to fluctuating interest rates. While
the amortized cost method seems to provide certainty in portfolio valuation, it
may result in periods during which values, as determined by amortized cost, are
higher or lower than the amount the Fund would receive if it sold the
securities.
Shares of each of the Fund's series are sold and redeemed without charge by
the Fund, although Service Organizations (see below) and other institutional
investors purchasing or holding Fund shares for their customers' accounts may
charge customers for cash management and other services provided in connection
with their accounts including, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income. Such charges will reduce the yield of the Fund to such
customers. A customer should therefore read this Prospectus in light of the
terms governing its account with a Service Organization (or other institution)
before purchasing Fund shares. An institution purchasing or redeeming Fund
shares on behalf of its customers is responsible for transmitting orders to the
Fund in accordance with its agreements with the customers.
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<PAGE> 13
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the direction of its
Board of Directors.
The directors of the Fund are as follows:
Francis E. Drake, Jr. is the retired Chairman of the Board and Chief
Executive Officer of Rochester Gas and Electric Corp.
Rodney D. Johnson is President of Fairmount Capital Advisors, Inc.
Thomas A. Melfe is a Partner of the law firm of Donovan Leisure Newton
& Irvine.
Anthony M. Santomero is the Richard K. Mellon Professor of Finance at
The Wharton School, University of Pennsylvania.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly-owned subsidiary of PNC Asset Management Group, Inc., which
is in turn a wholly-owned subsidiary of PNC Bank, serves as the Fund's
investment adviser. PIMC was organized in 1977 by PNC Bank to perform advisory
services for investment companies, and has its principal offices at Bellevue
Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware 19809. PNC
Asset Management Group, Inc.'s principal business address is 1835 Market Street,
Philadelphia, Pennsylvania 19102. PNC Bank serves as the Fund's sub-adviser. PNC
Bank and its predecessors have been in the business of managing the investments
of fiduciary and other accounts in the Philadelphia area since 1847. PNC Bank is
an indirect, wholly-owned subsidiary of PNC Bank Corp. and its principal
business address is Broad and Chestnut Streets, Philadelphia, Pennsylvania
19102. PNC Bank Corp. is a multi-bank holding company.
PNC Bank Corp., headquartered in Pittsburgh, Pennsylvania, is the eleventh
largest bank holding company in the United States. Categorized as a super
regional bank holding company, PNC Bank Corp. operates over 500 branch offices
in six U.S. states.
PNC Financial Services Group is PNC Bank Corp.'s mutual fund complex,
headquartered in Wilmington, Delaware. This group includes PIMC, PFPC and PNC
Bank. In 1973, Provident National Bank (predecessor to PNC Bank) commenced
advising the first institutional money market mutual fund--a U.S.
dollar-denominated constant net asset value fund--offered in the United States.
The PNC Financial Services Group is one of the largest U.S. bank managers
of mutual funds with assets currently under management in excess of $30 billion.
This group, through PFPC and PFPC International Ltd. is also a leading mutual
fund service provider having contractual relationships with approximately 400
mutual funds with 3.5 million shareholders and in excess of $106 billion in
assets. This group, through its PNC Institutional Investment Service, provides
investment research to some 250 financial institutions located in the United
States and abroad. PNC Bank provides custodial services for approximately $217
billion in assets, including $106 billion in mutual fund assets.
In its advisory agreement with the Fund, PIMC has agreed to manage the
Fund's portfolio and to be responsible for, make decisions with respect to and
place orders for all purchases and sales of the Fund's portfolio securities.
PIMC also computes the Fund's net asset value and net income, and maintains
certain of the Fund's financial accounts and records. For the services provided
and expenses assumed pursuant to the advisory agreement, PIMC is entitled to
receive a fee, computed daily and
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<PAGE> 14
payable monthly, at the annual rate of .20% of the Fund's average daily net
assets. For the fiscal year ended July 31, 1995, the Fund paid advisory fees to
PIMC (after fee waivers) of .06% of the Fund's average daily net assets. PIMC
and the administrators have voluntarily agreed to reduce the advisory and
administration fees otherwise payable to them and to reimburse the Fund for its
operating expenses to the extent necessary to ensure that its annual operating
expense ratio does not exceed .20% of the Fund's average daily net assets with
respect to Money shares, and does not exceed .45% of such net assets with
respect to each of the Dollar shares and Plus shares.
As sub-adviser, PNC Bank has agreed to: (i) provide investment research and
credit analysis concerning the Fund's investments; (ii) make recommendations
with respect to the Fund's continuous investment program; (iii) supply PIMC with
computer facilities and operating personnel; and (iv) provide PIMC with such
statistical services as PIMC may from time to time reasonably request. As
compensation therefore, PIMC has agreed to pay PNC Bank an amount equal to 75%
of the advisory fee paid by the Fund to PIMC, as adjusted quarterly to ensure
that PIMC has income before taxes from all sources of at least $22,500 during
each quarter.
ADMINISTRATORS
PFPC whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809 and PDI, whose principal business address is 259 Radnor-Chester
Road, Suite 120, Radnor, Pennsylvania 19087, serve as co-administrators. PFPC is
an indirect wholly-owned subsidiary of PNC Bank Corp. A majority of the
outstanding stock of PDI is owned by its officers.
As co-administrators, PFPC and PDI have agreed to: assist in maintaining
office facilities for the Fund; furnish the Fund with statistical and research
data and clerical and certain other services required by the Fund; perform
administrative services in connection with the Fund's computer access program
maintained to facilitate shareholder access to the Fund; monitor the
arrangements pertaining to the Fund's agreements with Service Organizations;
prepare semi-annual reports to the Securities and Exchange Commission, Federal
and state tax returns and filings with state securities commissions; arrange for
and bear the cost of processing share purchase and redemption orders; and
generally assist in the Fund's operations.
For their administrative services, the administrators are entitled jointly
to receive a fee, computed daily and payable monthly, from the Fund determined
in the same manner as PIMC's advisory fee described above. (For information
regarding the administrators' obligations to waive administrative fees otherwise
payable to them and to reimburse the Fund for operating expenses, see
"Investment Adviser and Sub-Adviser" above.) For the fiscal year ended July 31,
1995, the Fund paid PFPC and PDI administrative fees (after fee waivers)
aggregating .06% of its average daily net assets. The Fund expects to reimburse
the administrators for reasonable out-of-pocket expenses incurred in connection
with the Fund's computer access program.
DISTRIBUTOR
PDI serves as distributor of the Fund's shares. Its principal offices are
located at 259 Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087. Fund
shares are sold on a continuous basis by the Distributor as agent. The
Distributor pays the cost of printing and distributing prospectuses to persons
who are not shareholders of the Fund (excluding preparation and printing
expenses necessary for the continued registration of the Fund's shares) and of
printing and distributing all sales literature. No compensation is payable by
the Fund to the distributor for its distribution services.
14
<PAGE> 15
CUSTODIAN AND TRANSFER AGENT
PNC Bank serves as the custodian of the Fund's assets, and PFPC, an
indirect, wholly-owned subsidiary of PNC Bank Corp., serves as the Fund's
transfer and dividend disbursing agent. The Fund compensates PNC Bank and PFPC
for their services, and reimburses PFPC for its out-of-pocket expenses incurred
in connection with its transfer agency and dividend disbursing services.
Communications to PFPC, including any election to reinvest dividends in
additional shares of the Fund, should be directed to PFPC Inc., P.O. Box 8950,
Wilmington, Delaware 19899.
SERVICE ORGANIZATIONS
As stated above, institutional investors ("Service Organizations") may
purchase Dollar or Plus shares offered by the Fund. Dollar shares are sold to
institutions other than broker/dealers, and Plus shares are sold to
broker/dealers, both of which enter into servicing agreements with the Fund
requiring them to provide support services to their customers who are the
beneficial owners of such shares in consideration for .25% (on an annualized
basis) of the average daily net asset value of the Dollar or Plus shares held by
the Service Organizations for the benefit of their customers. Such services,
which are described more fully in the Statement of Additional Information under
"Management of the Fund--Service Organizations," include aggregating and
processing purchase and redemption requests from customers and placing net
purchase and redemption orders with PFPC; processing dividend payments from the
Fund on behalf of customers; providing information periodically to customers
showing their positions in Dollar or Plus shares; and providing sub-accounting
with respect to shares beneficially owned by customers or the information
necessary for sub-accounting. In addition, broker/dealers purchasing Plus shares
may be requested to provide from time to time assistance (such as the forwarding
of sales literature and advertising to their customers) in connection with the
distribution of Plus shares. Under the terms of the agreements, Service
Organizations are required to provide to their customers a schedule of any fees
that they may charge such customers relating to the investment of such
customers' assets in Dollar or Plus shares. Money shares offered by the Fund may
be purchased by any type of institutional investor (including banks and
broker/dealers) which do not wish to enter into such servicing agreements with
the Fund in connection with their investments.
EXPENSES
Except as noted above, the Fund's service contractors bear all expenses in
connection with the performance of their services. The Fund bears the expenses
incurred in its operations. The ratios of the Fund's expenses to its average
annual net assets for the fiscal year ended July 31, 1995 were .20% for the
Fund's Money shares, and would have been .45% for each of the Dollar shares and
Plus shares. (No Dollar shares were outstanding during the year, and no Plus
shares were outstanding after December 1, 1994.) Without the waiver of advisory
and administrative fees described above, such ratios would have been .49%, .74%
(estimated) and .74% (estimated) for the Fund's Money, Dollar and Plus shares,
respectively.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing,
15
<PAGE> 16
underwriting, selling or distributing securities, but such banking laws and
regulations do not prohibit such a holding company or affiliate or banks
generally from acting as the investment adviser, transfer agent or custodian to
such an investment company, or from purchasing shares of such a company as agent
for and upon the order of customers. PNC Bank, PIMC, PFPC, as well as certain
Service Organizations (i.e., banks), are subject to such banking laws and
regulations.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of bank
Service Organizations in connection with the provision of support services to
their customers, the Fund
might be required to alter or discontinue its arrangements with Service
Organizations generally and
change its method of operations. It is not anticipated, however, that any change
in the Fund's method
of operations would affect its net asset value per share or result in a
financial loss to any customer.
DIVIDENDS
The Fund's net income is declared daily as a dividend to the holders of
record of each of the Fund's series of shares at the close of business on the
day of declaration. Dividends on each share of each Series are determined in the
same manner. Dollar shares bear all the expense of fees paid to Service
Organizations for their services with respect to Dollar shares, and Plus shares
bear all the expense of fees paid to Service Organizations with respect to Plus
shares. (See "Management of the Fund-Service Organizations.") Shares of each
series begin accruing dividends on the day the purchase order for the shares is
executed and continue to accrue dividends through, and including, the day before
the redemption order for the shares is executed. Dividends are paid monthly by
check, or by wire transfer if requested in writing by the shareholder, within 5
business days after the end of the month or within 5 business days of the
redemption of all of a shareholder's shares of a series. The Fund does not
expect to realize net long-term capital gains.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same series with respect to which
dividends are declared valued at their net asset value on the payment date.
Reinvested dividends receive the same tax treatment as dividends paid in cash.
Such election, or any revocation thereof, must be made in writing to PFPC, and
will become effective with respect to dividends paid after its receipt by PFPC.
TAXES
The Fund qualified in its last taxable year and intends to qualify in
future years as a "regulated investment company" under the Internal Revenue Code
of 1986, as amended (the "Code"). Such qualification generally relieves the Fund
of liability for Federal income taxes to the extent its earnings are distributed
in accordance with the Code. Qualification as a regulated investment company for
a taxable year requires, among other things, that the Fund distribute an amount
equal to at least the sum of 90% of its exempt-interest income net of certain
deductions and 90% of its investment company taxable income for such year, which
the Fund intends to do. Federal exempt-interest dividends may be treated by the
Fund's shareholders as items of interest excludable from their gross income
under Section 103(a) of the Code, unless under the circumstances applicable to
the particular shareholder exclusion would be disallowed. (See Statement of
Additional Information under "Additional Information Concerning Taxes").
If the Fund should hold certain "private activity bonds" issued after
August 7, 1986, the portion of dividends attributable to interest on such bonds
must be included in a shareholder's Federal alternative minimum taxable income,
as an item of tax preference, for the purpose of determining liability (if any)
16
<PAGE> 17
for the 26% to 28% alternative minimum tax for individuals and the 20%
alternative minimum tax and the environmental tax applicable to corporations.
Corporate shareholders also must take all exempt-interest dividends into account
in determining certain adjustments for Federal alternative minimum and
environmental tax purposes. The environmental tax applicable to corporations is
imposed at the rate of .12% on the excess of the corporation's modified Federal
alternative minimum taxable income over $2 million. Shareholders receiving
Social Security benefits should note that all exempt-interest dividends will be
taken into account in determining the taxability of such benefits.
Exempt-interest dividends derived from interest on New York Municipal
Obligations will be exempt from New York State and New York City personal income
taxes (but not corporate franchise taxes), provided the interest on such
obligations is and continues to be excluded or exempt from applicable Federal
income taxation and New York State and New York City income taxation. Dividends
and distributions derived from taxable income and capital gains, if any, are not
exempt from Federal income tax or from New York State and New York City taxes.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of the Fund is not deductible for Federal, New York State or New
York City personal income tax purposes. Except as noted with respect to New York
State and New York City personal income taxes, dividends and distributions paid
to shareholders that are derived from income on Municipal Obligations may be
taxable income under state or local law even though all or a portion of such
dividends or distributions may be derived from interest on tax-exempt
obligations that, if paid directly to shareholders, would be tax-exempt income.
Shareholders will be advised at least annually as to the Federal income
tax, as well as the New York State and New York City personal income tax, status
and consequences of dividends and distributions made each year.
The foregoing is only a brief summary of some of the important tax
considerations generally affecting the Fund and its shareholders. No attempt is
made to present a detailed explanation of the Federal, state or local income tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential investors in
the Fund should consult their tax advisers with specific reference to their own
tax situations.
DESCRIPTION OF SHARES AND MISCELLANEOUS
The Fund's Charter authorizes the Board of Directors to issue up to 2
billion full and fractional shares of capital stock, $.001 par value per share,
and to classify or reclassify any unissued shares of the Fund into one or more
classes or series by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. Pursuant to such authority, the Board of Directors has classified
1.4 billion of its shares as Money shares (Class A Common Stock), 300 million of
its shares as Dollar shares (Class A Common Stock-Special Series 1) and 300
million of its shares as Plus shares (Class A Common Stock-Special Series 2).
Each New York Money, Dollar and Plus share represents an equal
proportionate interest in the assets of the Fund. Shareholders of each series
are entitled to participate equally in any dividend or distribution declared by
the Fund's Board of Directors except as provided under "Dividends" and in the
net distributable assets of the Fund on liquidation. Fund shares have no
pre-emptive rights and only such conversion and exchange rights as the Board may
grant in its discretion. When issued for payment as described in this
Prospectus, the Fund's shares will be fully paid and non-assessable. Further,
shareholders of each series are entitled to one vote for each full share held
and proportionate fractional votes for fractional shares held, and will vote in
the aggregate and not by series, except
17
<PAGE> 18
where otherwise required by law and except that only Dollar shares will be
entitled to vote on matters submitted to a vote of shareholders pertaining to
the Fund's arrangements with Service Organizations with respect to Dollar
shares, and Plus shares will enjoy similar voting rights on matters pertaining
to the Fund's arrangements with Service Organizations with respect to Plus
shares. (See "Management of the Fund-Service Organizations.") Shares of the Fund
have non-cumulative voting rights and, accordingly, the holders of more than 50%
of the Fund's outstanding shares (irrespective of series) may elect all of the
directors.
For information concerning the redemption of Fund shares and possible
restrictions on their transferability, see "Redemption of Shares."
YIELD
From time to time the Fund may advertise the "yields," "effective yields"
and "tax-equivalent yields" of its Money, Dollar and Plus shares. Yield figures
are based on historical earnings and are not intended to indicate future
performances. The "yield" for each series of Fund shares refers to the income
generated by an investment in the shares of such series over a seven-day period
(which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
the week is assumed to be generated each week over a 52-week period and is shown
as a percentage of the investment. The "effective yield" is calculated similarly
but, when annualized, the income earned by an investment in a series of Fund
shares is assumed to be reinvested in shares of that series. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. The "tax-equivalent yield" shows the level
of taxable yield necessary to produce an after-tax yield equivalent to the
Fund's tax-free yield. It is calculated by increasing the Fund's yield
(calculated as above) by the amount necessary to reflect the payment of Federal
and New York income taxes at a stated tax rate. The "tax-equivalent yield" will
always be higher than the "yield."
For the seven-day period ended July 31, 1995, the yields on Money and Plus
shares were 3.52% and 3.27%, respectively, the compounded effective yields on
Money and Plus shares were 3.58% and 3.32%, respectively, and the tax-equivalent
yields on Money and Plus shares were 5.58% and 5.18%, respectively. These
tax-equivalent yields assume a Federal income tax rate of 28% and a combined New
York State and New York City income tax rate of 12.332%. During this seven-day
period, the Fund's investment adviser and administrators voluntarily waived
approximately 71% of the advisory and administration fees payable by the Fund.
Without such waivers, such yields on Money and Plus shares would have been 3.32%
and 3.07%, respectively, the compounded effective yields on Money and Plus
shares would have been 3.37% and 3.12%, respectively, and the tax-equivalent
yields on Money and Plus shares would have been 5.26% and 4.86%, respectively.
The yield of any investment is generally a function of portfolio quality and
maturity, type of investment and operating expenses. The yield on Money, as well
as Dollar and Plus shares, will fluctuate and is not necessarily representative
of future results. Any fees charged by broker-dealers, banks or others directly
to their customers in connection with investments in the Fund are not reflected
in the yields on the Fund's shares, and such fees, if charged, will reduce the
actual return received by customers on their investments. There were no Dollar
shares outstanding during the period from March 28, 1994 through July 31, 1995.
Investors may call 800-821-6006 to obtain the current yields on each series of
the Fund's shares.
18
<PAGE> 19
[THIS PAGE INTENTIONALLY LEFT BLANK.]
19
<PAGE> 20
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION
INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN
OFFERING BY THE FUND OR BY
THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE
MADE.
---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Background and Expense
Information.................. 2
Financial Highlights........... 4
Investment Objective and
Policies..................... 7
Purchase of Shares............. 11
Redemption of Shares........... 11
Management of the Fund......... 13
Dividends...................... 16
Taxes.......................... 16
Description of Shares and
Miscellaneous................ 17
Yield.......................... 18
</TABLE>
PIF-P-012-02
- --------------------------------------------------------------------------------
NEW YORK
MONEY FUND
AN INVESTMENT PORTFOLIO OFFERED BY
MUNICIPAL FUND FOR
NEW YORK INVESTORS, INC.
LOGO
Prospectus
December 1, 1995
<PAGE> 21
MUNICIPAL FUND FOR NEW YORK INVESTORS, INC.
(the "Fund")
Statement of Additional Information
December 1, 1995
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objective and Policies.................................... 1
Municipal Obligations................................................ 5
Additional Purchase and Redemption Information....................... 22
Management of the Fund............................................... 24
Additional Information Concerning Taxes.............................. 31
Dividends........................................................... 34
Counsel............................................................. 37
Independent Accountants.............................................. 37
Miscellaneous....................................................... 37
Financial Statements................................................. FS-1
Appendix............................................................ A-1
</TABLE>
This Statement of Additional Information is meant to be read
in conjunction with the Fund's Prospectus dated December 1, 1995 and is
incorporated by reference in its entirety into that Prospectus. Because this
Statement of Additional Information is not itself a prospectus, no investment
in shares of the Fund should be made solely upon the information contained
herein. Copies of the Fund's Prospectus may be obtained by calling
800-821-7432. Capitalized terms used but not defined herein have the same
meanings as in the Prospectus.
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INVESTMENT OBJECTIVE AND POLICIES
As stated in the Fund's Prospectus, the investment objective
of the Fund is to provide investors with as high a level of current interest
income that is exempt from Federal income tax and, to the extent possible, from
New York State and New York City personal income taxes as is consistent with
the preservation of capital and relative stability of principal. The following
policies supplement the description of the Fund's investment objective and
policies in the Prospectus.
Additional Information on Investment Practices.
Variable and Floating Rate Demand Instruments. Variable and
floating rate demand instruments held by the Fund may have maturities of more
than 13 months provided: (i) the Fund is entitled to the payment of principal
at any time or during specified intervals not exceeding 13 months, subject to
notice of no more than 30 days, and (ii) the rate of interest on such
instruments is adjusted (based upon a pre-selected market sensitive index such
as the prime rate of a major commercial bank) at periodic intervals not
exceeding 13 months. In determining the Fund's average weighted portfolio
maturity and whether a variable or floating rate demand instrument has a
remaining maturity of 13 months or less, the maturity of each instrument will
be computed in accordance with guidelines established by the Securities and
Exchange Commission (the "SEC"). In determining whether an unrated variable or
floating rate demand instrument is of comparable quality at the time of
purchase to instruments with minimal credit risks, the Fund's investment
adviser will consider the earning power, cash flow and other liquidity ratios
of the issuer of the instrument and will continuously monitor its financial
condition. In addition, the Fund will sometimes require that the issuer's
obligation to pay the principal of the instrument be backed by an unconditional
bank letter or line of credit, guarantee or commitment to lend.
Variable and floating rate notes that do not provide for
payment within seven days may be deemed illiquid and subject to the 10%
limitation on such investments.
When-Issued Securities. As stated in the Prospectus, the Fund
may purchase Municipal Obligations on a "when-issued" basis (i.e., for delivery
beyond the normal settlement date at a stated price and yield). When the Fund
agrees to purchase when-issued securities, its custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to
satisfy a purchase commitment, and in such a case the Fund may be required
subsequently to place additional assets in the separate account in order to
ensure that
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the value of the account remains equal to the amount of the Fund's commitment.
It may be expected that the Fund's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because the Fund will set aside cash
or liquid assets to satisfy its purchase commitments in the manner described,
the Fund's liquidity and ability to manage its portfolio might be affected in
the event its commitments to purchase when-issued securities ever exceeded 25%
of the value of its assets.
When the Fund engages in when-issued transactions, it relies
on the seller to consummate the trade. Failure of the seller to do so may
result in the Fund's incurring a loss or missing an opportunity to obtain a
price considered to be advantageous.
Stand-By Commitments. The Fund may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio.
Under a stand-by commitment, a dealer agrees to purchase, at the Fund's option,
specified Municipal Obligations at their amortized cost value to the Fund plus
accrued interest, if any. (Stand-by commitments acquired by the Fund may also
be referred to as "put" options.) Stand-by commitments may be sold, transferred
or assigned only with the underlying instruments.
The Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration.
However, if necessary or advisable, the Fund may pay for a stand-by commitment
either separately in cash or by paying a higher price for portfolio securities
which are acquired subject to the commitment (thus reducing the yield to
maturity otherwise available for the same securities). The total amount paid
in either manner for outstanding stand-by commitments held in the Fund's
portfolio is not expected to exceed 1/2 of 1% of the value of the Fund's total
assets calculated immediately after each stand-by commitment is acquired.
The Fund intends to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the investment adviser's opinion,
present minimal credit risks. In evaluating the creditworthiness of the issuer
of a stand-by commitment, the investment adviser will review periodically the
issuer's assets, liabilities, contingent claims and other relevant financial
information.
The Fund would acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. Stand-by commitments acquired by the Fund
would be valued at zero in determining net asset value. Where the Fund paid
any consideration directly or indirectly for a stand-by commitment, its cost
would be reflected
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<PAGE> 24
as unrealized depreciation for the period during which the commitment was held
by the Fund.
Portfolio Transactions.
Subject to the general control of the Fund's Board of
Directors, PNC Institutional Management Corporation ("PIMC"), the Fund's
investment adviser, is responsible for, makes decisions with respect to and
places orders for all purchases and sales of portfolio securities. Purchases
and sales of portfolio securities are usually principal transactions without
brokerage commissions. Purchases, if any, from underwriters may include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market markers may include the spread between the bid
and asked prices. In transactions with dealers, PIMC seeks to obtain the best
net price and the most favorable execution of orders. To the extent that the
execution and price offered by more than one dealer are comparable, PIMC may,
in its discretion, effect transactions in portfolio securities with dealers who
provide the Fund with research advice or other services such as information
relating to the price of portfolio securities.
Investment decisions for the Fund are made independently from
those for other investment company portfolios advised by PIMC. Such other
investment company portfolios may invest in the same securities as the Fund.
When purchases or sales of the same security are made at substantially the same
time on behalf of such other investment company portfolios, transactions are
averaged as to price, and available investments allocated as to amount, in a
manner which PIMC believes to be equitable to each investment company
portfolio, including the Fund. In some instances, this investment procedure
may adversely affect the price paid or received by the Fund or the size of the
position obtained for the Fund. To the extent permitted by law, PIMC may
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for such other investment companies in order to obtain best
execution.
Portfolio securities will not be purchased from or sold to
PIMC, PNC Bank, National Association ("PNC Bank"), PFPC Inc. ("PFPC"),
Provident Distributors, Inc. ("PDI"), or any affiliated person of any of them
(as such term is defined in the 1940 Act except to the extent permitted by the
SEC). In addition, the Fund will not purchase Municipal Obligations during the
existence of any underwriting or selling group relating thereto of which PNC
Bank is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Fund may be at a disadvantage because of these limitations
in comparison with other investment company portfolios which have a similar
investment objective but are not subject to such limitations. Furthermore, with
respect to such transactions, securities and
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<PAGE> 25
deposits, the Fund will not give preference to Service Organizations with whom
the Fund enters into agreements concerning the provision of support services to
customers who beneficially own shares of New York Money Dollar ("Dollar
shares") or New York Money Plus ("Plus shares"). (See the Prospectus,
"Management of the Fund - Service Organizations.")
The Fund may participate, if and when practicable, in bidding
for the purchase of Municipal Obligations directly from an issuer in order to
take advantage of the lower purchase price available to members of such a
group. The Fund will engage in this practice, however, only when PIMC, in its
sole discretion, believes such practice to be otherwise in the Fund's interest.
The Fund does not intend to seek profits through short-term
trading. The Fund's annual portfolio turnover will be relatively high because
of the short-term nature of the instruments in which it invests, but the Fund's
portfolio turnover is not expected to have a material effect on its net income.
The Fund's portfolio turnover is expected to be zero for regulatory reporting
purposes.
Additional Investment Limitations.
In addition to the investment limitations disclosed in the
Prospectus, the Fund is subject to the following investment limitations, which
may only be changed by a vote of the holders of a majority of the Fund's
outstanding shares (as defined below under "Miscellaneous").
The Fund may not:
1. Make loans except that the Fund may purchase or hold
debt obligations in accordance with its investment objective, policies and
limitations.
2. Underwrite any issue of securities except to the
extent that the purchase of debt obligations directly from the issuer thereof
in accordance with the Fund's investment objective, policies and limitations
may be deemed to be underwriting.
3. Purchase or sell real estate except that the Fund may
invest in debt obligations secured by real estate or interests therein.
4. Purchase securities on margin, make short sales of
securities or maintain a short position.
5. Write or sell puts, calls, straddles, spreads or
combinations thereof.
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<PAGE> 26
6. Purchase or sell commodities or commodity contracts,
or invest in oil, gas or mineral exploration or development programs.
7. Purchase securities of other investment companies
except in connection with a merger, consolidation, acquisition or
reorganization.
Portfolio Valuation.
The Fund's portfolio securities are valued on the basis of
amortized cost. In connection with its use of amortized cost valuation, the
Fund limits the dollar-weighted average maturity of its portfolio to not more
than 90 days and does not purchase any instrument with a remaining maturity of
more than 13 months (with certain exceptions). The Fund's Board of Directors
has also established procedures that are intended to stabilize the net asset
value per share of each of the Fund's series of shares for purposes of sales
and redemptions at $1.00. Such procedures include the determination, at such
intervals as the Board deems appropriate, of the extent, if any, to which the
Fund's net asset value per share calculated by using available market
quotations deviates from $1.00 per share. In the event such deviation exceeds
1/2 of 1%, the Board will promptly consider what action, if any, should be
initiated. If the Board believes that the amount of any deviation from the
Fund's $1.00 amortized cost price per share may result in material dilution or
other unfair results to investors or existing shareholders, it will take such
steps as it considers appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity; shortening the Fund's
average portfolio maturity; withholding or reducing dividends; redeeming shares
in kind; reducing the number of the Fund's outstanding shares without monetary
consideration; or utilizing a net asset value per share determined by using
available market quotations.
MUNICIPAL OBLIGATIONS
In General.
Municipal Obligations include debt obligations issued by
governmental entities to obtain funds for various public purposes, including
the construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses and the
extension of loans to public institutions and facilities. Private activity
bonds that are issued by or on behalf of public authorities to finance various
privately-operated facilities are included within the term Municipal
Obligations if the interest paid thereon is
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<PAGE> 27
(subject to the Federal alternative minimum tax) exempt from regular Federal
income tax.
The Fund may hold tax-exempt derivatives which may be in the
form of tender option bonds, participations, beneficial interests in a trust,
partnership interests or other forms. A number of different structures have
been used. For example, interests in long-term fixed-rate Municipal
Obligations, held by a bank as trustee or custodian, are coupled with tender
option, demand and other features when the tax-exempt derivatives are created.
Together, these features entitle the holder of the interest to tender (or put)
the underlying Municipal Obligation to a third party at periodic intervals and
to receive the principal amount thereof. In some cases, Municipal Obligations
are represented by custodial receipts evidencing rights to receive specific
future interest payments, principal payments, or both, on the underlying
municipal securities held by the custodian. Under such arrangements, the
holder of the custodial receipt has the option to tender the underlying
municipal security at its face value to the sponsor (usually a bank or broker
dealer or other financial institution), which is paid periodic fees equal to
the difference between the bond's fixed coupon rate and the rate that would
cause the bond, coupled with the tender option, to trade at par on the date of
a rate adjustment. The Fund may hold tax-exempt derivatives, such as
participation interests and custodial receipts, for Municipal Obligations which
give the holder the right to receive payment of principal subject to the
conditions described above. The Internal Revenue Service has not ruled on
whether the interest received on tax-exempt derivatives in the form of
participation interests or custodial receipts is tax-exempt, and accordingly,
purchases of any such interests or receipts are based on the opinion of counsel
to the sponsors of such derivative securities. Neither the Fund nor its
investment adviser will independently review the underlying proceedings related
to the creation of any tax-exempt derivatives or the bases for such opinion.
Before purchasing a tax-exempt derivative for the Fund, the Adviser is
required by the Fund's procedures to conclude that the tax-exempt security and
the supporting short-term obligation involve minimal credit risks and are
Eligible Securities under the Fund's Rule 2a-7 procedures. In evaluating the
creditworthiness of the entity obligated to purchase the tax-exempt security,
the investment adviser will review periodically the entity's relevant financial
information. Currently, the Directors have authorized the purchase of
tax-exempt derivatives by the Fund so long as after any purchase not more than
10% of the Fund's assets are invested in such securities.
As described in the Fund's Prospectus, the two principal
classifications of Municipal Obligations consist of
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<PAGE> 28
"general obligation" and "revenue" issues, and the Fund's portfolio may include
"moral obligation" issues, which are normally issued by special purpose
authorities. There are, of course, variations in the quality of Municipal
Obligations, both within a particular classification and between
classifications, and the yields on Municipal Obligations depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the
issue. The ratings of Moody's and S&P represent their opinions as to the
quality of Municipal Obligations. It should be emphasized, however, that
ratings are general and are not absolute standards of quality, and Municipal
Obligations with the same maturity, interest rate and rating may have different
yields while Municipal Obligations of the same maturity and interest rate with
different ratings may have the same yield. Subsequent to its purchase by the
Fund, an issue of Municipal Obligations may cease to be rated or its rating may
be reduced below the minimum rating required for purchase by the Fund. The
Fund's investment adviser will consider such an event in determining whether
the Fund should continue to hold the obligation.
An issuer's obligations under its Municipal Obligations are
subject to the provisions of bankruptcy, insolvency and other laws affecting
the rights and remedies of creditors, such as the Federal Bankruptcy Code, and
laws, if any, which may be enacted by Federal or state legislatures extending
the time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations or upon the ability of
municipalities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest on and principal of its Municipal
Obligations may be materially adversely affected by litigation or other
conditions.
Among other types of Municipal Obligations, the Fund may
purchase short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Tax-Exempt Commercial Paper,
Construction Loan Notes and other forms of short-term loans. Such instruments
are issued with a short-term maturity in anticipation of the receipt of tax
funds, the proceeds of bond placements or other revenues. In addition, the
Fund may invest in other types of tax-exempt instruments, including general
obligation and private activity bonds, provided they have remaining maturities
of 13 months or less at the time of purchase.
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<PAGE> 29
Special Considerations Relating to New York Municipal Obligations.
Some of the significant financial considerations relating to
the Fund's investment in New York Municipal Obligations are summarized below.
This summary information is not intended to be a complete description and is
principally derived from official statements relating to issues of New York
Municipal Obligations that were available prior to the date of this Statement
of Additional Information. The accuracy and completeness of the information
contained in those official statements have not been independently verified.
STATE ECONOMY. New York is the third most populous state in the nation and has
a relatively high level of personal wealth. The State's economy is diverse
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State has a declining
proportion of its workforce engaged in manufacturing, and an increasing
proportion engaged in service industries. New York City (the "City"), which is
the most populous city in the State and nation and is the center of the
nation's largest metropolitan area, accounts for a large portion of the State's
population and personal income.
The State has historically been one of the wealthiest states in
the nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic position. The
recession has been more severe in the State, owing to a significant retrenchment
in the financial services industry, cutbacks in defense spending, and an
overbuilt real estate market. There can be no assurance that the State economy
will not experience worse-than-predicted results in the1995-96 fiscal year,
with corresponding material and adverse effects on the State's projections of
receipts and disbursements.
The unemployment rate in the State dipped below the national
rate in the second half of 1981 and remained lower until 1991. It stood at 6.9%
in 1994. The total employment growth rate in the State has been below the
national average since 1984 and is expected to slow to less than 0.5% in 1995.
State per capita personal income remains above the national average. State per
capita income for 1994 was estimated at $25,999, which was 19.2% above the
1994 estimated national average of $21,809. During the past ten years, total
personal income in the State rose slightly faster than the national average only
in 1986 through 1989.
STATE BUDGET. The State Constitution requires the governor (the "Governor")
to submit to the State legislature (the
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<PAGE> 30
"Legislature") a balanced executive budget which contains a complete plan of
expenditures for the ensuing fiscal year and all moneys and revenues estimated
to be available therefor, accompanied by bills containing all proposed
appropriations or reappropriations and any new or modified revenue measures to
be enacted in connection with the executive budget. The entire plan
constitutes the proposed State financial plan for that fiscal year. The
Governor is required to submit to the Legislature quarterly budget updates
which include a revised cash-basis state financial plan, and an explanation of
any changes from the previous state financial plan.
The State's budget for the 1995-96 fiscal year was enacted by
the Legislature on June 7, 1995, more than two months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State operations
and other purposes, including all necessary appropriations for debt service.
The State financial plan for the 1995-96 fiscal year was formulated on June
20, 1995 and was based upon the State's budget as enacted by the Legislature and
signed into law by the Governor (the "1995-96 State Financial Plan").
The 1995-96 State Financial Plan was the first to be enacted in
the administration of the Governor, who assumed office on January 1. It was the
first budget in over half a century which proposed and, as enacted, projected an
absolute year-over-year decline in disbursements in the General Fund, the
State's principal operating fund. Spending for State operations was projected
to drop even more sharply, by 4.6%. Nominal spending from all State spending
sources (i.e., excluding Federal aid) was proposed to increase by only 2.5% from
the prior fiscal year, in contrast to the prior decade when such spending growth
averaged more than 6.0% annually.
In his executive budget, the Governor indicated that in the
1995-96 fiscal year, the state financial plan, based on then-current law
governing spending and revenues, would be out of balance by almost $4.7 billion,
as a result of the projected structural deficit resulting from the ongoing
disparity between sluggish growth in receipts, the effect of prior-year tax
changes, and the rapid acceleration of spending growth; the impact of unfunded
1994-95 initiatives, primarily for local aid programs; and the use of one-time
solutions, primarily surplus funds from the prior year, to fund recurring
spending in the 1994-95 budget. The Governor proposed additional tax cuts to
spur economic growth and provide relief for low and middle-income tax payers,
which were larger than those ultimately adopted, and which added $240 million to
the then projected imbalance or budget gap, bringing the total to approximately
$5 billion.
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<PAGE> 31
This gap was projected to be closed in the 1995-96 State
Financial Plan through a series of actions, mainly spending reductions and cost
containment measures and certain reestimates that are expected to be recurring,
but also through the use of one-time solutions. The 1995-96 State Financial
Plan projected (i) nearly $1.6 billion in savings from cost containment,
disbursement reestimates, and other savings in social welfare programs,
including Medicaid, income maintenance and various child and family care
programs; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State workforce, SUNY and CUNY, mental hygiene programs, capital
projects, the prison system and fringe benefits; (iii) $300 million in savings
from local assistance reforms, including actions affecting school aid and
revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400 million in revenue
measures, primarily through a new Quick Draw Lottery game, changes to tax
payments schedules, and the sale of assets; and (v) $300 million from
reestimates in receipts.
The 1995-96 State Financial Plan included actions that will have
an effect on the budget outlook for State fiscal year 1996-97 and beyond. The
Division of the Budget estimated that the 1995-96 State Financial Plan contained
actions that provide nonrecurring resources or savings totaling approximately
$900 million while the State comptroller (the "Comptroller") believed that such
amount exceeded $1 billion. In addition to this use of nonrecurring resources,
the 1995-96 State Financial Plan reflected actions that will directly affect the
State's 1996-97 fiscal year baseline receipts and disbursements. The three-year
plan to reduce State personal income taxes will decrease State tax receipts by
an estimated $1.7 billion in State fiscal year 1996-97 in addition to the amount
of reduction in State fiscal year 1995-96. Further significant reductions in
the personal income tax are scheduled for the 1997-98 State fiscal year. Other
tax reductions enacted in 1994 and 1995 are estimated to cause an additional
reduction in receipts of over $500 million in 1996-97, as compared to the level
of receipts in 1995-96. Similarly, many actions taken to reduce disbursements
in the State's 1995-96 fiscal year are expected to provide greater reductions in
the State's fiscal year 1996-97. These include actions to reduce the State
workforce, reduce Medicaid and welfare expenditures and slow community mental
hygiene program development.
The State issued the first of the three required quarterly
updates (the "First Quarter Update") to the 1995-96 State Financial Plan on July
28, 1995. The First Quarter Update projected continued balance in the State's
1995-96 State Financial Plan. Actual cash receipts and disbursements during the
first quarter of the fiscal year were impacted by the late adoption of the
budget, and fell somewhat short of original
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<PAGE> 32
monthly cashflow estimates. Receipt variances were mainly related to timing
issues rather than changes in the forecast. Disbursement variances were also
ascribed to timing factors.
On October 2, 1995, the State Comptroller released a report on
the State's financial condition. The report identified several risks to the
1995-96 State Financial Plan and also estimated a potential imbalance in
receipts and disbursements in the 1996-97 fiscal year of at least $2.7 billion
and in the 1997-98 fiscal year of at least $3.9 billion. The Governor is
required to submit a balanced budget to the State Legislature and has indicated
that he will close any potential imbalance primarily through General Fund
expenditure reductions and without increases in taxes or deferrals of scheduled
tax reductions.
The State issued its second quarterly update to the 1995-96
State Financial Plan on October 26, 1995 (the "Mid-Year Update" and together
with the First Quarter Update, the "Financial Plan Updates"). The Mid-Year
Update projected continued balance in the 1995-96 State Financial Plan, with
estimated receipts reduced by a net $71 million and estimated disbursements
reduced by a net $30 million as compared to the First Quarter Update. The
resulting General Fund balance decreased from $213 million in the First Quarter
Update to $172 million in the Mid-Year Update, reflecting the use of $41 million
from the contingency reserve fund for payments of litigation and disallowance
expenses.
The 1995-96 State Financial Plan and the Financial Plan
Updates were based on a number of assumptions and projections. Because it is
not possible to predict accurately the occurrence of all factors that may affect
the 1995-96 State Financial Plan or the Financial Plan Updates, actual results
could differ materially and adversely from projections made at the outset
of a fiscal year. There can be no assurance that the State will not face
substantial potential budget gaps in future years resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To
address any potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements in future
fiscal years.
A significant risk to the 1995-96 State Financial Plan arises
from tax legislation pending in Congress. Changes to federal tax treatment of
capital gains are likely to flow through automatically to the State personal
income tax. Such changes, depending upon their precise character and timing,
and upon taxpayer response, could produce either revenue gains or losses during
the balance of the State's fiscal year.
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<PAGE> 33
RECENT FINANCIAL RESULTS. The General Fund is the principal operating fund
of the State and is used to account for all financial transactions, except
those required to be accounted for in another fund. It is the State's largest
fund and receives almost all State taxes and other resources not dedicated to
particular purposes.
The State reported a General Fund operating deficit of $1.426
billion for the 1994-95 fiscal year, as compared to an operating surplus of $914
million for the prior fiscal year. The 1994-95 fiscal year deficit was
caused by several factors, including the use of $1.026 billion of the 1993-94
cash-based surplus to fund operating expenses in 1994-95 and the adoption of
changes in accounting methodologies by the State Comptroller. These factors
were offset by net proceeds of $315 million in bonds issued by the Local
Government Assistance Corporation. The General Fund is projected to be balanced
on a cash basis for the 1995-96 fiscal year.
Total revenues for 1994-95 were $31.455 billion. Revenues
decreased by $173 million over the prior fiscal year, a decrease of less than
one percent. Total expenditures for 1994-95 totaled $33.079 billion, an increase
of $2.083 billion, or 6.7 percent over the prior fiscal year.
The State's financial position on a GAAP (generally accepted
accounting principles) basis as of March 31, 1995 showed an accumulated
deficit in its combined governmental funds of $1.666 billion, reflecting
liabilities of $14.778 billion and assets of $13.112 billion.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by which the
State of New York may incur debt. Under the State Constitution, the State may
not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by
the Legislature and approved by the voters. There is no limitation on the
amount of long-term general obligation debt that may be so authorized and
subsequently incurred by the State.
The State may undertake short-term borrowings without voter
approval (i) in anticipation of the receipt of taxes and revenues, by issuing
tax and revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds from the sale of duly authorized but unissued general obligation bonds,
by issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State of New York's authorities and public benefit corporations
("Authorities"). Payments of debt service on New York State general obligation
and New York
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<PAGE> 34
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.
The State employs additional long-term financing mechanisms,
lease-purchase and contractual-obligation financings, which involve
obligations of public authorities or municipalities that are State-supported but
are not general obligations of the State. Under these financing arrangements,
certain public authorities and municipalities have issued obligations to finance
the construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the Local Government
Assistance Corporation ("LGAC") in an effort to restructure the way the State
makes certain local aid payments.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating LGAC, a public benefit corporation empowered to issue
long-term obligations to fund certain payments to local governments
traditionally funded through New York State's annual seasonal borrowing. The
legislation empowered LGAC to issue its bonds and notes in an amount not in
excess of $4.7 billion (exclusive of certain refunding bonds) plus certain other
amounts. Over a period of years, the issuance of these long-term obligations,
which are to be amortized over no more than 30 years, was expected to
eliminate the need for continued short-term seasonal borrowing. The
legislation also dedicated revenues equal to one-quarter of the four cent State
sales and use tax to pay debt service on these bonds. The legislation also
imposed a cap on the annual seasonal borrowing of the State at $4.7 billion,
less net proceeds of bonds issued by LGAC and bonds issued to provide for
capitalized interest, except in cases where the Governor and the legislative
leaders have certified the need for additional borrowing and provided a
schedule for reducing it to the cap. If borrowing above the cap is thus
permitted in any fiscal year, it is required by law to be reduced to the cap by
the fourth fiscal year after the limit was first exceeded. As of June 1995,
LGAC had issued bonds to provide net proceeds of $4.7 billion, completing
the program. The impact of LGAC's borrowing is that the State is able to meet
its cash flow needs in the first quarter of the fiscal year without relying on
short-term seasonal borrowings. The 1995-96 State Financial Plan includes no
spring borrowing nor did the 1994-95 State Financial Plan, which was the
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<PAGE> 35
first time in 35 years there was no short-term seasonal borrowing.
In June 1994, the Legislature passed a proposed
constitutional amendment that would significantly change the long-term financing
practices of the State and its public authorities. The proposed amendment would
permit the State, within a formula-based cap, to issue revenue bonds, which
would be debt of the State secured solely by a pledge of certain State tax
receipts (including those allocated to State funds dedicated for transportation
purposes), and not by the full faith and credit of the State. In addition, the
proposed amendment would (i) permit multiple purpose general obligation bond
proposals to be proposed on the same ballot, (ii) require that State debt be
incurred only for capital projects included in a multi-year capital financing
plan, and (iii) prohibit, after its effective date, lease-purchase and
contractual-obligation financing mechanisms for State facilities.
Before the approved constitutional amendment can be
presented to the voters for their consideration, it must be passed by a
separately elected legislature. The amendment must therefore be passed by the
newly elected Legislature in 1995 prior to presentation to the voters in
November 1995. The amendment was passed by the Senate in June 1995, and the
Assembly is expected to pass the amendment shortly. If approved by the voters,
the amendment would become effective January 1, 1996.
On January 13, 1992, Standard & Poor's Corporation
("Standard & Poor's") reduced its ratings on the State's general obligation
bonds from A to A- and, in addition, reduced its ratings on the State's moral
obligation, lease purchase, guaranteed and contractual obligation debt.
Standard & Poor's also continued its negative rating outlook assessment on State
general obligation debt. On April 26, 1993, Standard & Poor's revised the
rating outlook assessment to stable. On February 14, 1994, Standard & Poor's
raised its outlook to positive and, on February 28, 1994, confirmed its A-
rating. On January 6, 1992, Moody's Investors Service, Inc. ("Moody's") reduced
its ratings on outstanding limited-liability State lease purchase and
contractual obligations from A to Baa1. On February 28, 1994, Moody's
reconfirmed its A rating on the State's general obligation long-term
indebtedness.
The State anticipates that its capital programs will be
financed, in part, by State and public authorities borrowings in 1995-96. The
State expects to issue $248 million in general obligation bonds (including
$170 million for purposes of redeeming outstanding bond anticipation notes) and
$186 million in general obligation commercial paper. The Legislature has also
authorized the issuance of up to $33 million in certificates of
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<PAGE> 36
participation during the State's 1995-96 fiscal year for equipment purchases
and $14 million for capital purposes. These projections are subject to change
if circumstances require.
Principal and interest payments on general obligation
bonds and interest payments on bond anticipation notes and on tax and revenue
anticipation notes were $793.3 million for the 1994-95 fiscal year, and are
estimated to be $774.4 million for the 1995-96 fiscal year. These figures
do not include interest payable on State General Obligation Refunding Bonds
issued in July 1992 ("Refunding Bonds") to the extent that such interest was
paid from an escrow fund established with the proceeds of such Refunding Bonds.
Principal and interest payments on fixed rate and variable rate bonds issued by
LGAC were $239.4 million for the 1994-95 fiscal year, and are estimated to be
$328.2 million for 1995-96. State lease-purchase rental and contractual
obligation payments for 1994-95, including State installment payments relating
to certificates of participation, were $1.607 billion and are estimated to be
$1.641 billion in 1995-96.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees.
LITIGATION. Certain litigation pending against New York State or its officers
or employees could have a substantial or long-term adverse effect on New York
State finances. Among the more significant of these cases are those that
involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) action against New York
State and New York City officials alleging inadequate shelter allowances to
maintain proper housing; (4) challenges to the practice of reimbursing certain
Office of Mental Health patient care expenses from the client's Social Security
benefits; (5) alleged responsibility of New York State officials to assist in
remedying racial segregation in the City of Yonkers; (6) challenges by
commercial insurers, employee welfare benefit plans, and health maintenance
organizations to the imposition of 13%, 11% and 9% surcharges on inpatient
hospital bills; (7) challenges to certain aspects of petroleum business
taxes; (8) action alleging damages resulting from the failure by the State's
Department of Environmental Conservation to timely provide certain data; (9) a
challenge to the constitutionality of the treatment of certain moneys held in
a Supplemental Reserve Fund; and (10) a challenge to the constitutionality of
a State lottery game.
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<PAGE> 37
Several actions challenging the constitutionality of
legislation enacted during the 1990 legislative session which changed actuarial
funding methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
Comptroller has developed a plan to restore the State's retirement systems to
prior funding levels. Such funding is expected to exceed prior levels by $30
million in fiscal 1994-95, $63 million in fiscal 1995-96, $116 million in fiscal
1996-97, $193 million in fiscal 1997-98, peaking at $241 million in fiscal
1998-99. Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of State of Delaware v. State of New York, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State is required to make
aggregate payments of $351.4 million, of which $90.3 million have been made.
Annual payments to the various parties will continue through the State's 2002-03
fiscal year in amounts which will not exceed $48.4 million in any fiscal year
subsequent to the State's 1994-95 fiscal year.
The legal proceedings noted above involve State
finances, State programs and miscellaneous tort, real property and contract
claims in which the State is a defendant and the monetary damages sought are
substantial. These proceedings could affect adversely the financial condition
of the State. Adverse developments in these proceedings or the initiation of
new proceedings could affect the ability of the State to maintain a balanced
1995-96 State Financial Plan. An adverse decision in any of these proceedings
could exceed the amount of the 1995-96 State Financial Plan reserve for the
payment of judgments and, therefore, could affect the ability of the State to
maintain a balanced 1995-96 State Financial Plan. In its audited financial
statements for the fiscal year ended March 31, 1995, the State reported its
estimated liability for awarded and anticipated unfavorable judgments to be
$676 million.
Although other litigation is pending against New York
State, except as described above, no current litigation involves New York
State's authority, as a matter of law, to contract indebtedness, issue its
obligations, or pay such indebtedness when it matures, or affects New York
State's power or ability, as a matter of law, to impose or collect significant
amounts of taxes and revenues.
AUTHORITIES. The fiscal stability of New York State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
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<PAGE> 38
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that are
State-supported or State-related. As of September 30, 1994, date of the
latest data available, there were 18 Authorities that had outstanding debt of
$100 million or more. The aggregate outstanding debt, including refunding
bonds, of these 18 Authorities was $70.3 billion. As of March 31, 1995,
aggregate public authority debt outstanding as State-supported debt was $27.9
billion and as State-related debt was $36.1 billion.
Authorities are generally supported by revenues
generated by the projects financed or operated, such as fares, user fees on
bridges, highway tolls and rentals for dormitory rooms and housing. In recent
years, however, New York State has provided financial assistance through
appropriations, in some cases of a recurring nature, to certain of the 18
Authorities for operating and other expenses and, in fulfillment of its
commitments on moral obligation indebtedness or otherwise, for debt service.
This operating assistance is expected to continue to be required in future
years. In addition, certain statutory arrangements provide for State local
assistance payments otherwise payable to localities to be made under certain
circumstances to certain Authorities. The State has no obligation to provide
additional assistance to localities whose local assistance payments have been
paid to Authorities under these arrangements. However, in the event that such
local assistance payments are so diverted, the affected localities could seek
additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State of New York
may also be impacted by the fiscal health of its localities, particularly the
City of New York, which has required and continues to require significant
financial assistance from New York State. The City depends on State aid both
to enable the City to balance its budget and to meet its cash requirements.
The City has achieved balanced operating results for each of its fiscal
years since 1981 as reported in accordance with the then-applicable GAAP.
In 1975, New York City suffered a fiscal crisis that
impaired the borrowing ability of both the City and New York State. In that
year the City lost access to public credit markets. The City was not able to
sell short-term notes to the public again until 1979.
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<PAGE> 39
In 1975, Standard & Poor's suspended its A rating of
City bonds. This suspension remained in effect until March 1981, at which time
the City received an investment grade rating of BBB from Standard & Poor's. On
July 2, 1985, Standard & Poor's revised its rating of City bonds upward to BBB+
and on November 19, 1987, to A-. On July 2, 1993, Standard & Poor's reconfirmed
its A- rating of City bonds, continued its negative rating outlook assessment
and stated that maintenance of such rating depended upon the City's making
further progress towards reducing budget gaps in the outlying years. Moody's
ratings of City bonds were revised in November 1981 from B (in effect since
1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May 1988 to
A and again in February 1991 to Baa1. On July 10, 1995, Standard & Poor's
downgraded its rating on the City's $23 billion of outstanding general
obligation bonds to "BBB+" from "A-", citing to the City's chronic structural
budget problems and weak economic outlook. Standard & Poor's stated that New
York City's reliance on one-time revenue measures to close annual budget gaps, a
dependence on unrealized labor savings, overly optimistic estimates of revenues
and state and federal aid and the City's continued high debt levels also
contributed to its decision to lower the rating.
New York City is heavily dependent on New York State and
federal assistance to cover insufficiencies in its revenues. There can be no
assurance that in the future federal and State assistance will enable the City
to make up its budget deficits. To help alleviate the City's financial
difficulties, the Legislature created the Municipal Assistance Corporation
("MAC") in 1975. MAC is authorized to issue bonds and notes payable from
certain stock transfer tax revenues, from the City's portion of the State sales
tax derived in the City and, subject to certain prior claims, from State per
capita aid otherwise payable by the State to the City. Failure by the State to
continue the imposition of such taxes, the reduction of the rate of such taxes
to rates less than those in effect on July 2, 1975, failure by the State to pay
such aid revenues and the reduction of such aid revenues below a specified level
are included among the events of default in the resolutions authorizing MAC's
long-term debt. The occurrence of an event of default may result in the
acceleration of the maturity of all or a portion of MAC's debt. MAC bonds and
notes constitute general obligations of MAC and do not constitute an enforceable
obligation or debt of either the State or the City. As of June 30, 1995, MAC
had outstanding an aggregate of approximately $4.882 billion of its bonds. MAC
is authorized to issue bonds and notes to refunds its outstanding bonds and
notes and to fund certain reserves, without limitation as to principal amount,
and to finance certain capital commitments to certain authorities in the event
the City fails to provide such financing.
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<PAGE> 40
Since 1975, the City's financial condition has been
subject to oversight and review by the New York State Financial Control Board
(the "Control Board") and since 1978 the City's financial statements have been
audited by independent accounting firms. To be eligible for guarantees and
assistance, the City is required during a "control period" to submit annually
for Control Board approval, and when a control period is not in effect for
Control Board review, a financial plan for the next four fiscal years covering
the City and certain agencies showing balanced budgets determined in accordance
with GAAP. New York State also established the Office of the State Deputy
Comptroller for New York City ("OSDC") to assist the Control Board in exercising
its powers and responsibilities. On June 30, 1986, the City satisfied the
statutory requirements for termination of the control period. This means that
the Control Board's powers of approval are suspended, but the Board continues to
have oversight responsibilities.
From time to time, the Control Board staff, OSDC, the
City comptroller and others issue reports and make public statements regarding
the City's financial condition, commenting on, among other matters, the City's
financial plans, projected revenues and expenditures and actions by the City to
eliminate projected operating deficits. Some of these reports and statements
have warned that the City may have underestimated certain expenditures and
overestimated certain revenues and have suggested that the City may not have
adequately provided for future contingencies. Certain of these reports have
analyzed the City's future economic and social conditions and have questioned
whether the City has the capacity to generate sufficient revenues in the future
to meet the costs of its expenditure increases and to provide necessary
services.
The City submitted to the Control Board on July 21,
1995 a fourth quarter modification to the City's financial plan for the 1995
fiscal year (the "1995 Modification"), which projects a balanced budget in
accordance with GAAP for the 1995 fiscal year, after taking into account a
discretionary transfer of $75 million. On July 11, 1995, the City submitted to
the Control Board the Financial Plan for the 1996 through 1999 fiscal years (the
"1996-1999 Financial Plan").
The 1996-1999 Financial Plan projected revenues and
expenditures for the 1996 fiscal year balanced in accordance with GAAP. The
projections for the 1996 fiscal year reflected proposed actions to close a
previously projected gap of approximately $3.1 billion for the 1996 fiscal
year. The proposed actions in the 1996-1999 Financial Plan for the 1996 fiscal
year included (i) a reduction in spending of $400 million, primarily affecting
public assistance and Medicaid payment to the City; (ii) expenditure reductions
in agencies, totaling $1.2 billion; (iii) transitional labor savings, totaling
$600 million;
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<PAGE> 41
and (iv) the phase-in of the increased annual pension funding cost due to
revisions resulting from an actuarial audit of the City's pension systems,
which would reduce such costs in the 1996 fiscal year.
The proposed agency spending reductions included the
reduction of City personnel through attrition, government efficiency
initiatives, procurement initiatives and labor productivity initiatives. The
substantial agency expenditure reductions proposed in the 1996-1999 Financial
Plan may be difficult to implement, and the 1996-1999 Financial Plan is subject
to the ability of the City to implement proposed reductions in City personnel
and other cost reduction initiatives. In addition, certain initiatives are
subject to negotiation with the City's municipal unions, and various actions,
including proposed anticipated State aid totaling $50 million are subject to
approval by the Governor and the Legislature.
The 1996-1999 Financial Plan also set forth projections
for the 1997 through 1999 fiscal years and outlined a proposed gap-closing
program to eliminate projected gaps of $888 million, $1.5 billion and $1.4
billion for the 1997, 1998 and 1999 fiscal years, respectively, after successful
implementation of the $3.1 billion gap-closing program for the 1996 fiscal
year. These actions, a substantial number of which were not specified in
detail, include additional agency spending reductions, reduction in
entitlements, government procurement initiatives, revenue initiatives and the
availability of the general reserve.
Contracts with all of the City's municipal unions
either expired in the 1995 fiscal year or will expire in the 1996 fiscal years.
The 1996-1999 Financial Plan provided no additional wage increases for City
employees after the 1995 fiscal year. Each 1% wage increase for all union
contracts commencing in the 1995 or 1996 fiscal year would cost the City an
additional $141 million for the 1996 fiscal year and $161 million each year
thereafter above the amounts provided for in the 1996-1999 Financial Plan.
Although the City has balanced its budget since 1981,
estimates of the City's revenues and expenditures, which are based on numerous
assumptions, are subject to various uncertainties. If expected federal or
State aid is not forthcoming, if unforeseen developments in the economy
significantly reduce revenues derived from economically sensitive taxes or
necessitate increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the amounts provided for
in the City's financial plan or if other uncertainties materialize that reduce
expected revenues or increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional
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<PAGE> 42
actions, including increases in taxes and reductions in essential City
services. The City might also seek additional assistance from New York State.
The City requires certain amounts of financing for
seasonal and capital spending purposes. The City's current monthly cash flow
forecast for the 1996 fiscal year shows a need of $2.4 billion of seasonal
financing for the 1996 fiscal year. Seasonal financing requirements for the
1995 fiscal year increased to $2.2 billion from $1.75 billion and $1.4 billion
in the 1994 and 1993 fiscal years, respectively.
Certain localities, in addition to the City, could have
financial problems leading to requests for additional New York State
assistance. The potential impact on the State of such requests by localities
was not included in the projections of the State's receipts and disbursements
in the State's 1995-96 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the creation of the Financial Control Board for the City
of Yonkers (the "Yonkers Board") by New York State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken
by the Governor or the Legislature to assist Yonkers could result in allocation
of New York State resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1993, the total
indebtedness of all localities in New York State other than New York City was
approximately $17.7 billion. A small portion (approximately $105 million) of
that indebtedness represented borrowing to finance budgetary deficits and was
issued pursuant to enabling New York State legislation. State law requires the
comptroller to review and make recommendations concerning the budgets of those
local government units other than New York City authorized by State law to issue
debt to finance deficits during the period that such deficit financing is
outstanding. Fifteen localities had outstanding indebtedness for deficit
financing at the close of their fiscal year ending in 1993.
From time to time, federal expenditure reductions could
reduce, or in some cases eliminate, federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities. If New York State, New York City or any of the Authorities
were to suffer serious financial difficulties jeopardizing their respective
access to the public credit markets, the marketability of notes and bonds issued
by localities within New York State could be
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<PAGE> 43
adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions and long-range
economic trends. Long-range potential problems of declining urban
population, increasing expenditures and other economic trends could adversely
affect localities and require increasing New York State assistance in the
future.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
In General.
Information on how to purchase and redeem Fund shares, and how
such shares are priced, is included in the Prospectus. The issuance of shares
is recorded on the books of the Fund, and share certificates are not issued
unless expressly requested in writing. Certificates are not issued for
fractional shares.
Prior to effecting a redemption of shares represented by
certificates, PFPC must have received such certificates at its principal
office. All such certificates must be endorsed by the redeeming shareholder or
accompanied by a signed stock power, in each instance with the signature
guaranteed by a commercial bank or a member of a major stock exchange, unless
other arrangements satisfactory to the Fund have previously been made. The
Fund may require any additional information reasonably necessary to evidence
that a redemption has been duly authorized.
Under the 1940 Act, the Fund may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which the
New York Stock Exchange is closed, other than customary weekend and holiday
closings, or during which trading on said Exchange is restricted, or during
which (as determined by the SEC by rule or regulation) an emergency exists as a
result of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (The Fund may
also suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
In addition, if, in the opinion of the directors of the Fund,
ownership of shares has or may become concentrated to an extent which would
cause the Fund to be deemed a personal holding company, the Fund may compel the
redemption of, reject any order for or refuse to give effect on the books of
the Fund to the transfer of the Fund's shares in an effort to prevent that
consequence. The Fund may also redeem shares involuntarily if such redemption
appears appropriate in light of the Fund's responsibilities under the 1940 Act.
If the Fund's Board of Directors determines that conditions exist which make
payment of redemption proceeds wholly in cash unwise or undesirable, the Fund
may make payment wholly or partly in securities or other
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<PAGE> 44
property. In certain instances, the Fund may redeem shares pro rata from each
shareholder of record without payment of monetary consideration. (See
Statement of Additional Information --"Investment Objective and Policies
(Portfolio Valuation)" for an example of when such redemption or form of
payment might be appropriate.)
Any institution purchasing shares on behalf of separate accounts
will be required to hold the shares in a single nominee name (a "Master
Account"). Institutions investing in more than one series of the Fund's shares
must maintain a separate Master Account for each series. Institutions may
arrange with PFPC for certain sub-accounting services (such as purchase,
redemption and dividend recordkeeping) paid for by the Fund, if PFPC is
provided with the information necessary for sub-accounting. Sub-accounts may
be established by name or number.
The customary national business holidays which either the Federal
Reserve Bank of Philadelphia or the New York Stock Exchange observe are New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and
Christmas Day.
Net Asset Value.
As stated in the Fund's Prospectus, the Fund's net asset value per
share is calculated by adding the value of all of the Fund's portfolio
securities and other assets belonging to the Fund, subtracting the liabilities
charged to the Fund including dividends that have been declared but not paid,
and dividing the result by the number of the Fund's shares outstanding
(irrespective of series). The value of the Fund's assets is calculated using
the amortized cost method pursuant to procedures adopted by the Board of
Directors under Rule 2a-7. "Assets belonging to" the Fund consist of the
consideration received upon the issuance of the Fund's shares together with all
income, earnings, profits and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments and any funds or
payments derived from any re-investment of such proceeds. Assets belonging to
the Fund are charged with the direct liabilities of the Fund.
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<PAGE> 45
MANAGEMENT OF THE FUND
Directors and Officers.
The Fund's directors and officers, their addresses, principal
occupations during the past 5 years and other affiliations are as follows:
<TABLE>
<CAPTION>
Principal Occupations
during past 5 years
Name and Address Position and Other Affiliations
- ---------------- -------- ----------------------
<S> <C> <C>
Thomas A. Melfe Chairman Partner of the law firm of
30 Rockefeller Plaza and Donovan Newton Leisure & Irvine
New York, NY 10112 Director since 1984; Partner of the law firm
Age: 63 of Hale Russell & Gray, 1981 to
1984.
Francis E. Drake, Jr. Director Retired; Chairman of Executive and
90 Knollwood Drive Finance Committee, Rochester Gas and
Rochester, NY 14618 Electric Corp. until December, 1988;
Age: 80 Chairman of the Board and Chief Executive
Officer, Rochester Gas and Electric Corp.
until 1980.
</TABLE>
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<PAGE> 46
<TABLE>
Principal Occupations
during past 5 years
Name and Address Position and Other Affiliations
- ---------------- -------- ----------------------
<S> <C> <C>
Rodney D. Johnson Director President, Fairmount Capital
Fairmount Capital Advisors, Inc. (financial advising)
Advisors, Inc. since 1987.
1435 Walnut Street
Drexel Building,
3rd Floor
Philadelphia, PA
19102
Age: 53
Anthony M. Santomero Director Richard K. Mellon Professor of
310 Keithwood Road Finance, since April 1984 and Dean's
Wynnewood, PA 19096 Advisory Council Member since July
Age: 48 1984, The Wharton School, University
of Pennsylvania; Associate Editor,
Journal of Banking and Finance,
since June 1978; Associate Editor,
Journal of Economics and Business,
since October 1979; Associate
Editor, Journal of Money, Credit and
Banking, since January 1989;
Research Associate, New York
University Center for Japan-US
Business and Economic Studies, since
July 1989; Editorial Advisory Board,
Open Economics Review, since
November 1990; Director, The Zweig
Fund and The Zweig Total Return
Fund.
Edward J. Roach President Certified Public Accountant;
Bellevue Park and Treasurer Partner of the accounting firm
Corporate Center of Main Hurdman until 1981;
Suite 100 Vice Chairman of the Board,
400 Bellevue Parkway Fox Chase Cancer Center;
Wilmington, DE 19809 Trustee Emeritus, Pennsylvania
Age: 71 School for the Deaf; Officer of
various investment companies advised by PNC
Institutional Management Corporation.
Morgan R. Jones Secretary Partner of the law firm of Drinker
1345 Chestnut Street Biddle & Reath.
Suite 1100
Philadelphia, PA 19107-3496
Age: 55
</TABLE>
----------------------------
Messrs. Johnson and Santomero serve as directors of
Temporary Investment Fund, Inc. ("TempFund"), Municipal Fund for California
Investors, Inc. ("California Muni") and Provident Institutional Funds, Inc.
("PIF") and as trustees of Trust for Federal Securities ("FedFund"), Municipal
Fund for Temporary Investment ("MuniFund") and The PNC(R) Fund ("PNC"). Mr.
Johnson also serves as a director of the International Dollar Reserve
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<PAGE> 47
Fund ("IDR"). Each of these funds shares the same investment adviser and/or
sub-adviser as the Fund.
Mr. Roach is Vice President and Treasurer of TempFund,
FedFund, MuniFund, PNC, Independence Square Income Securities ("ISIS"),
California Muni and PIF. In addition, Mr. Roach is Treasurer of Chestnut
Street Exchange Fund ("Chestnut") and President and Treasurer of The RBB Fund,
Inc. ("RBB"); and Mr. Jones is Secretary of Chestnut, California Muni,
MuniFund, PNC and RBB. Each of the investment companies named above receives
various advisory or other services from PIMC or PNC Bank. Of the
above-mentioned funds, PDI and PFPC provide distribution and administration
services to TempFund, FedFund, MuniFund, Diversified, PNC and California Muni.
In addition, PFPC provides administration services to RBB.
Each director is paid $5,000 annually, plus $250 for each
Board meeting attended, and is reimbursed for expenses incurred in connection
with his attendance at Board meetings. The Chairman of the Board receives an
additional $2,500 per annum for his services in such capacity.
The following table sets forth information about the fees
received by the Fund's directors for the fiscal year ended July 31, 1995,
the Fund's most recently completed fiscal year.
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<PAGE> 48
<TABLE>
<CAPTION>
Pension or Total
Retirement Estimated Compensation
Benefits Annual from Fund
Aggregate Accrued as Benefits and Fund
Name of Person Compensation Part of Fund Upon Complex(1) Paid
Position from Fund Expenses Retirement to Directors
- -------------- --------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Thomas A. Melfe $ 8,500 0.00 N/A (1)(2) $ 8,500
Director and Chairman
Rodney D. Johnson $ 6,000 0.00 N/A (6)(2) $ 58,450
Director
Francis E. Drake, Jr. $ 6,000 0.00 N/A (1)(2) $ 6,000
Director
Anthony M. Santomero, N/A 0.00 N/A (5)(2) $ 51,000
Director
$18,000 0.00 $123,950
</TABLE>
- --------------------------------
(1) A "fund complex" means two or more investment companies that hold
themselves out to investors as related companies for purposes of
investment and investor services, or have a common investment adviser
or have an investment adviser that is an affiliated person of the
investment adviser of any of the other investment companies. The fund
complex consists of the Fund, Muni Fund, FedFund, PNC, TempFund,
CalMuni, PIF, IDR, Chestnut Street Exchange Fund and Independence
Square Income Securities, Inc.
(2) Total number of investment companies each director serves on within
the fund complex.
In addition, the Fund contributed $1,118.62 for its last
fiscal year to its retirement plan for employees (who include Mr. Roach). No
employee of PDI, PIMC, PFPC or PNC Bank receives any compensation from the Fund
for acting as an officer or director of the Fund. The directors and officers
of the Fund own less than 1% of the Fund's shares.
By virtue of the responsibilities assumed by PDI, PIMC, PNC
Bank and PFPC under their respective agreements with the Fund, the Fund itself
requires only one part-time employee in addition to its officers. Drinker
Biddle & Reath, of which Mr. Jones is a partner, receives legal fees as counsel
to the Fund.
Adviser and Administrators.
The advisory and administrative services provided and the
expenses assumed by PIMC and the administrators, as well as the fees payable
to each of them, are described in the Prospectus. For the fiscal years ended
July 31, 1993, 1994
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<PAGE> 49
and 1995 the Fund paid $184,272, $165,619 and $134,630, respectively, in
advisory fees to PIMC (net of waivers). During the fiscal year ended July
31, 1993 the Fund paid $194,546 in administration fees to its former
administrator, The Boston Company Advisors, Inc. ("Boston Advisors"), PFPC and
PDI (net of waivers). For the fiscal years ended July 31, 1994 and 1995, the
Fund paid administration fees to PFPC and PDI (net of waivers) totalling
$165,618 and $134,629, respectively. During the fiscal year ended July 31,
1993, PIMC and PFPC, PDI and Boston Advisors each voluntarily waived advisory
and administration fees in amounts totalling $361,266 and $350,992,
respectively. During the fiscal year ended July 31, 1994, PIMC and PFPC and
PDI each voluntarily waived advisory and administration fees in amounts
totalling $379,276 and $379,277, respectively. During the fiscal year ended
July 31, 1995, PIMC, PFPC and PDI each voluntarily waived advisory and
administration fees in amounts totalling $350,428 and $350,429,
respectively.
PIMC and the administrators have agreed that if, in any fiscal
year, the expenses borne by the Fund exceed the applicable expense limitations
imposed by the securities regulations of any state in which shares of the Fund
are registered or qualified for sale to the public, they will each reimburse
the Fund for one-half of any excess to the extent required by such regulations.
To the Fund's knowledge, as of the date of this Statement of Additional
Information, the most restrictive expense limitation applicable to the Fund
provides that annual expenses (as defined by statute) may not exceed 2-1/2% of
the first $30 million of a Fund's average annual net assets, 2% of the next $70
million of the average annual net assets and 1-1/2% of the remaining average
annual net assets. The Fund's expenses, however, are not expected to exceed
any such limitation.
Banking Laws.
Certain banking laws and regulations with respect to
investment companies are discussed in the Fund's Prospectus. PIMC, PFPC and
PNC Bank believe that they may perform the services for the Fund contemplated
by the respective Advisory, Sub-Advisory, Transfer Agency and Custody
Agreements without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. However, changes in legal requirements relating
to the permissible activities of banks and their affiliates, as well as further
interpretations of present and future requirements, could prevent PIMC, PNC
Bank and PFPC from continuing to perform such services for the Fund. If PIMC,
PFPC or PNC Bank were prohibited from continuing to perform such services, it
is expected that the Board of Directors would recommend that the Fund enter
into new agreements with other qualified firms. Any new advisory agreement
would be subject to shareholder approval.
-28-
<PAGE> 50
Custodian and Transfer Agent.
As custodian of the Fund's assets, PNC Bank (i) maintains a
separate account or accounts in the name of the Fund, (ii) holds and
disburses portfolio securities on account of the Fund, (iii) makes receipts and
disbursements of money on behalf of the Fund, (iv) collects and receives all
income and other payments and distributions on account of the Fund's portfolio
securities, (v) responds to correspondence from security brokers and others
relating to its duties and (vi) makes periodic reports to the Fund's Board of
Directors concerning the Fund's operations. PNC Bank is authorized to select
one or more banks or trust companies to serve as sub-custodian on behalf of the
Fund, provided that PNC Bank remains responsible for the performance of all its
duties under its Custody Agreement with the Fund and holds the Fund harmless
from the acts and omissions of any sub-custodian chosen by PNC Bank. The Fund
pays PNC Bank a fee for its custodial services equal to $.25 per annum for each
$1,000 of the Fund's average gross assets.
As the Fund's transfer and dividend disbursing agent, PFPC (i)
issues and redeems shares of the Fund, (ii) addresses and mails all
communications by the Fund to its shareholders, including reports to
shareholders, dividend and distribution notices and proxy material for its
meetings of shareholders, (iii) responds to correspondence by shareholders and
others relating to its duties, (iv) maintains shareholder accounts and
sub-accounts, (v) provides installation and other services in connection with
the Fund's computer access program maintained to facilitate shareholder access
to the Fund, and (vi) makes periodic reports to the Fund's Board of Directors
concerning the Fund's operations. PFPC may, on 30 days' notice to the Fund,
assign its duties thereunder to any other affiliate of PNC Bank Corp. For its
transfer agency, dividend disbursing and sub-accounting services, the Fund pays
PFPC $12.00 per account and sub-account per annum plus $1.00 for each purchase
or redemption transaction by an account (other than a purchase transaction made
in connection with the automatic reinvestment of dividends).
PFPC sends each shareholder of record a monthly statement
showing the total number of shares owned as of the last business day of the
month (as well as the dividends paid during the current month and year), and
provides each shareholder of record with a daily transaction report for each
day on which a transaction occurs in the shareholder's Master Account with the
Fund. Further, an institution establishing sub-accounts with PFPC is provided
with a daily transaction report for each day on which a transaction occurs in a
sub-account and, as of the last calendar day of each month, a report which sets
forth the share balance for the sub-account at the beginning and end of the
month and income paid or reinvested during the month.
-29-
<PAGE> 51
Service Organizations.
As stated in the Fund's Prospectus, the Fund enters into
agreements with institutional investors ("Service Organizations") requiring
them to provide support services to their customers who beneficially own Dollar
or Plus shares in consideration of .25% (on an annualized basis) of the average
daily net asset value of the Dollar or Plus shares held by the Service
Organizations for the benefit of their customers. Such services include: (i)
aggregating and processing purchase and redemption requests from customers and
placing net purchase and redemption orders with the transfer agent; (ii)
providing customers with a service that invests the assets of their accounts in
Dollar or Plus shares; (iii) processing dividend payments from the Fund on
behalf of customers; (iv) providing information periodically to customers
showing their positions in Dollar and Plus shares; (v) arranging for bank
wires; (vi) responding to customer inquiries relating to the services performed
by the Service Organizations; (vii) providing sub-accounting with respect to
Dollar and Plus shares beneficially owned by customers or the information
necessary for sub-accounting; (viii) forwarding shareholder communications from
the Fund (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to customers,
if required by law; and (ix) other similar services if requested by the Fund.
In addition, broker/dealers purchasing Plus shares may be requested to provide
from time to time assistance (such as the forwarding of sales literature and
advertising to customers) in connection with the distribution of Plus shares.
For the period from August 1, 1994 through December 1, 1994, the Fund paid a
total of $302 to Service Organizations with respect to Plus shares (no Plus
Shares were outstanding from December 2, 1994 through July 31, 1995). For the
fiscal year ended July 31, 1995, no fees were paid with respect to Dollar
shares and no such shares were outstanding.
The Fund's agreements with Service Organizations are governed
by Plans (called "non-12b-1 Shareholder Services Plan" and "12b-1 Services
Plan" for the Dollar shares and Plus shares, respectively), which have been
adopted by the Fund's Board of Directors pursuant to applicable rules and
regulations of the SEC and an exemptive order granted by the SEC in connection
with the creation of the Dollar and Plus shares. Pursuant to the Plans, the
Board of Directors reviews, at least quarterly, a written report of the amounts
expended under the Fund's agreements with Service Organizations and the
purposes for which the expenditures were made. In addition, the Fund's
arrangements with Service Organizations must be approved annually by a majority
of the Fund's directors, including a majority of the directors who are not
"interested persons" of the Fund as defined in the 1940 Act
-30-
<PAGE> 52
and have no direct or indirect financial interest in such arrangements (the
"Disinterested Directors").
The Board of Directors has approved the Fund's arrangements
with Service Organizations based on information provided to the Board that
there is a reasonable likelihood that the arrangements will benefit the Fund
and its shareholders by affording the Fund greater flexibility in connection
with the servicing of the accounts of the beneficial owners of its shares in an
efficient manner. Any material amendment to the Fund's arrangements with
Service Organizations must be approved by a majority of the Fund's Board of
Directors (including a majority of the Disinterested Directors), and any
amendment to increase materially the costs under the 12b-1 Services Plan
adopted by the Board with respect to Plus shares must be approved by the
holders of a majority of the outstanding Plus shares. (It should be noted that
while the annual service fee with respect to Plus shares is currently set at
.25%, the Plan adopted by the Board of Directors permits the Board to increase
this fee to .40% without shareholder approval.) So long as the Fund's
arrangements with Service Organizations are in effect, the selection and
nomination of the members of the Fund's Board of Directors who are not
"interested persons" (as defined in the 1940 Act) of the Fund will be committed
to the discretion of such non-interested directors.
Expenses.
Except as noted in the Prospectus, the Fund's service
contractors bear all expenses in connection with performance of their
services. The Fund bears the expenses incurred in its operations. Fund
expenses include taxes, interest, fees and salaries of its directors and
officers, SEC fees, state securities qualification fees, costs of preparing and
printing prospectuses for regulatory purposes and for distribution to
shareholders, advisory and administration fees, charges of the custodian,
transfer agent and dividend disbursing agent, Service Organization fees,
certain insurance premiums, outside auditing and legal expenses, costs of
independent pricing service, costs of shareholder reports and shareholder
meetings and any extraordinary expenses. The Fund also pays for brokerage fees
and commissions (if any) in connection with the purchase of portfolio
securities.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional Federal tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the
-31-
<PAGE> 53
Fund's Prospectus is not intended as a substitute for careful tax planning.
Investors should consult their tax advisers with specific reference to their
own tax situations.
As described above and in the Fund's Prospectus, the Fund is
designed to provide New York institutional investors and their customers with
current tax-exempt interest income. The Fund is not intended to constitute a
balanced investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Fund would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"), H.R.
10 plans and individual retirement accounts because such plans and accounts are
generally tax-exempt and, therefore, not only would not gain any additional
benefit from the Fund's dividends being tax-exempt, but such dividends would be
ultimately taxable to the beneficiaries when distributed to them. In addition,
the Fund may not be an appropriate investment for persons that are either
"substantial users" of facilities financed by private activity bonds or
"related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non-exempt person who (i) regularly uses a part of
such facilities in his trade or business and (ii) whose gross revenues derived
with respect to the facilities financed by the issuance of bonds are more than
5% of the total revenues derived by all users of such facilities, who
occupies more than 5% of the usable area of such facilities or for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons,
affiliated corporations, a partnership and its partners and an S corporation
and its shareholders.
The percentage of total dividends paid by the Fund with
respect to any taxable year which qualifies as Federal exempt-interest
dividends will be the same for all shareholders receiving dividends during such
year. In order for the Fund to pay exempt-interest dividends during any
taxable year, at the close of each fiscal quarter at least 50% of the aggregate
value of the Fund's portfolio must consist of Federal tax-exempt interest
obligations. In addition, the Fund must distribute an amount that is equal to
at least the sum of 90% of its net exempt-interest income and 90% of its
investment company taxable income with respect to each taxable year. After the
close of its taxable year, the Fund will notify each shareholder of the portion
of the dividends paid by the Fund to the shareholder with respect to such
taxable year which constitutes an exempt-interest dividend. However, the
aggregate amount of dividends so designated cannot exceed the excess of the
amount of interest exempt from tax under Section 103 of the Code received by
the
-32-
<PAGE> 54
Fund during the taxable year over any amounts disallowed as deductions under
Sections 265 and 171(a)(2) of the Code.
Interest on indebtedness incurred by a shareholder to purchase
or carry Fund shares generally is not deductible for Federal and New York State
and New York City personal income tax purposes if the Fund distributes
exempt-interest dividends during the shareholder's taxable year.
While the Fund does not expect to earn any investment company
taxable income, any such income earned by the Fund will be distributed. In
general, the Fund's investment company taxable income will be its taxable
income (including, for example, its short-term capital gains) subject to
certain adjustments and excluding the excess of any net long-term capital gain
for the taxable year over the net short-term capital loss, if any, for such
year. To the extent such income is distributed, it will be taxable to
shareholders as ordinary income, whether paid in cash or additional shares.
The Fund does not expect to realize long-term capital gains
and therefore does not expect to distribute any capital gain dividends.
Dividends declared in October, November or December of any
year payable to shareholders of record on a specified date in such months will
be deemed for Federal income tax purposes to have been received by the
shareholders and paid by the Fund on December 31 of such year in the event such
dividends are actually paid during January of the following year.
A 4% non-deductible excise tax is imposed on regulated
investment companies that fail currently to distribute an amount equal to
specified percentages of their ordinary taxable income and capital gain net
income (excess of capital gains over capital losses). The Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable income
and any capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Although the Fund expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all Federal
income taxes, the Fund may be subject to the tax laws of states or localities
depending upon the extent of its activities in such states and localities in
which its offices are maintained, in which its agents or independent
contractors are located or in which it is otherwise deemed to be conducting
business.
If for any taxable year the Fund does not qualify for the
special Federal income tax treatment afforded regulated investment companies,
all of its taxable income will be subject
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<PAGE> 55
to Federal income tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions,
including amounts derived from interest on tax-exempt obligations, would be
taxable to shareholders to the extent of current and accumulated earnings and
profits, and would be eligible for the dividends received deduction for
corporations.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of taxable dividends or 31% of gross
sale proceeds paid to shareholders who have failed to provide a correct tax
identification number in the manner required, who are subject to withholding by
the Internal Revenue Service for failure properly to include on their return
payments of taxable interest or dividends, or who have failed to certify to the
Fund that they are not subject to backup withholding when required to do so or
that they are "exempt recipients."
The foregoing discussion is based on Federal tax laws and
regulations which are in effect on the date of this Statement of Additional
Information; such laws and regulations may be changed by legislative or
administrative action. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes.
DIVIDENDS
General.
Net income for dividend purposes consists of interest accrued
and original discount earned on the Fund's assets for the applicable
dividend period, less amortization of market premium on such assets and accrued
expenses for such period. Net income for each of the Fund's three series of
shares is determined in the same manner, except that Dollar and Plus shares
bear the fees payable to Service Organizations for the services to the
beneficial owners of such shares. (See the Fund's Prospectus under
"Dividends.") Realized and unrealized gains and losses on portfolio securities
are reflected in net asset value.
Should the Fund incur or anticipate any unusual or unexpected
significant expense or loss which would affect disproportionately the income of
the Fund for a particular period, the Board of Directors would at that time
consider whether to adhere to the present dividend policy with respect to the
Fund or to revise it in order to mitigate to the extent possible the
disproportionate effect of such expense or loss on the income of the Fund.
Such expense or loss may result in the shareholder's receiving no dividends for
the period during which
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<PAGE> 56
it held shares of the Fund and in it receiving upon redemption a price per
share lower than that which it paid.
Yield Information.
The "yields," "effective yields" and "tax-equivalent yields"
of the Fund's series of shares as described and shown in the Prospectus are
calculated according to formulas prescribed by the SEC. The standardized
seven-day yield for each of the Fund's three series of shares is computed
separately for each series by determining the net change in the value of a
hypothetical pre-existing account in the Fund having a balance of one share of
the series involved at the beginning of the period, dividing the net change by
the value of the account at the beginning of the period to obtain the base
period return, and multiplying the base period return by 365/7. The net change
in the value of an account in the Fund includes the value of additional shares
purchased with dividends from the original share and dividends declared on the
original share and any such additional shares, net of all fees charged to all
shareholder accounts in proportion to the length of the base period and the
Fund's average account size, but does not include gains and losses or
unrealized appreciation and depreciation. The Fund's "effective yield" is
calculated by compounding the unannualized base period return for each series
of shares (calculated as above), by adding one to the base period return for
the series involved, raising that sum to a power equal to 365/7, and
subtracting one from the result. The Fund's "tax-equivalent" yield is computed
by: (a) dividing the portion of the Fund's yield (calculated as above) that is
exempt from both Federal and New York State income taxes by one minus a stated
combined Federal and New York State income tax rate; (b) dividing the portion
of the Fund's yield (calculated as above) that is exempt from Federal income
tax only by one minus a stated Federal income tax rate; and (c) adding the
figures resulting from (a) and (b) above to that portion, if any, of the Fund's
yield that is not exempt from Federal income tax.
From time to time, in advertisements or in reports to
shareholders, the yields of the Fund may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of the Fund may be compared to
Donoghue's Money Fund Average, which is an average compiled by Donoghue's MONEY
FUND REPORT(R) of Holliston, MA 01746, a widely recognized independent
publication that monitors the performance of money market funds, or to the data
prepared by Lipper Analytical Services, Inc. ("Lipper"), a widely-recognized
independent service that monitors the performance of mutual funds.
The Fund may also from time to time include in advertisements, sales
literature, communications to shareholders
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<PAGE> 57
and other materials ("Materials"), discussions or illustrations of the effects
of compounding. "Compounding" refers to the fact that, if dividends or other
distributions on an investment are reinvested by being paid in additional Fund
shares, any future income or capital appreciation of the Fund would increase
the value, not only of the original Fund investment, but also of the additional
Fund shares received through reinvestment. As a result, the value of the Fund
investment would increase more quickly than if dividends or other distributions
had been paid in cash.
In addition, the Fund may also include in Materials discussions and/or
illustrations of the potential investment goals of a prospective investor,
investment management strategies, techniques, policies or investment
suitability of the Fund, economic conditions, the relationship between sectors
of the economy and the economy as a whole, various securities markets, the
effects of inflation and historical performance of various asset classes,
including but not limited to, stocks, bonds and Treasury securities. From time
to time, Materials may summarize the substance of information contained in
shareholder reports (including the investment composition of the Fund), as well
as the views of the adviser and/or sub-adviser as to current market, economic,
trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to the Fund. The Fund may also include in Materials charts, graphs
or drawings which compare the investment objective, return potential, relative
stability and/or growth possibilities of the Fund and/or other mutual funds, or
illustrate the potential risks and rewards of investment in various investment
vehicles, including but not limited to, stocks, bonds, Treasury securities and
shares of the Fund and/or other mutual funds. Materials may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund and/or other mutual funds (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer, automatic
accounting rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments), shareholder profiles and hypothetical
investor scenarios, timely information on financial management, tax and
retirement planning and investment alternatives to certificates of deposit and
other financial instruments. Such Materials may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail therein.
The Fund's yields will fluctuate and any quotation of the Fund's yield
should not be considered as representative of the future performance of the
Fund. Since yields fluctuate, yield data cannot necessarily be used to compare
an investment in the Fund's shares with bank deposits, savings accounts, and
similar investment alternatives which often provide an agreed or
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<PAGE> 58
guaranteed fixed yield for a stated period of time. Shareholders should
remember that yield is generally a function of kind and quality of the
investments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any fees charged by banks or other financial institutions
to customer accounts investing in shares of the Fund will not be included in
calculations of yield; such fees would reduce the actual yield from that
quoted.
COUNSEL
Drinker Biddle & Reath, 1345 Chestnut Street, Suite 1100,
Philadelphia, Pennsylvania 19107, of which Mr. Jones, Secretary of the Fund, is
a partner, will pass upon certain legal matters for the Fund as its counsel.
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York,
New York 10022, acts as special New York counsel for the Fund and has reviewed
the portions of this Statement of Additional Information and the Fund's
Prospectus concerning New York taxes and the description of special
considerations relating to New York Municipal Obligations.
INDEPENDENT ACCOUNTANTS
The financial statements of the Fund which appear in this
Statement of Additional Information and the Financial Highlights which appear
in the Fund's Prospectus have been audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report thereon is contained in this Statement of
Additional Information, and have been included herein and in the Fund's
Prospectus in reliance upon the report of said firm of independent accountants
given upon their authority as experts in accounting and auditing. Coopers &
Lybrand L.L.P. has offices at 2400 Eleven Penn Center, Philadelphia,
Pennsylvania 19103.
MISCELLANEOUS
The Fund was organized as a Maryland corporation on March 4,
1983 under the name of New York Municipal Fund for Temporary Investment,
Inc. On July 18, 1983, the Fund changed its name to Municipal Fund for New
York Investors, Inc.
As used in this Statement of Additional Information and the
Fund's Prospectus, a "majority of the outstanding shares of the Fund" means,
with respect to the approval of an investment advisory agreement, distribution
plan or a change in an investment objective or fundamental investment policy,
the lesser of (1) 67% of the Fund's shares, irrespective of series, represented
at a meeting at which the holders of more than 50% of
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<PAGE> 59
the outstanding shares are present in person or by proxy, or (2) more than 50%
of the Fund's outstanding shares, irrespective of series.
As stated in the Prospectus, holders of the Fund's Money,
Dollar and Plus shares will vote in the aggregate and not by series on all
matters, except where otherwise required by law, except that only Dollar shares
will be entitled to vote on matters submitted to a vote of shareholders
pertaining to the Fund's arrangements with Service Organizations with respect
to Dollar shares and only Plus shares will be entitled to vote on matters
submitted to a vote of shareholders pertaining to the Fund's arrangements with
Service Organizations with respect to Plus shares.
Rule 18f-2 under the 1940 Act provides that any matter
required to be submitted by the provisions of such Act or applicable state law,
or otherwise, to the holders of the outstanding securities of an investment
company such as the Fund shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series affected by the matter. Rule 18f-2 further provides that a series
shall be deemed to be affected by a matter unless it is clear that the
interests of each series in the matter are identical or that the matter does
not affect any interest of the series. Under the Rule, the approval of an
investment advisory agreement or any change in a fundamental investment policy
would be effectively acted upon with respect to a series only if approved by
the holders of a majority of the outstanding voting securities of such series.
However, the Rule also provides that the ratification of the selection of
independent accountants, the approval of principal underwriting contracts and
the election of directors are not subject to the separate voting requirements
and may be effectively acted upon by shareholders of the investment company
voting without regard to series.
As of November 20, 1995, the name, address and percentage of
ownership of each institutional investor that owned of record 5% or more of the
outstanding shares of the Fund were as follows: Chemical Bank,
Administrative Services, AIS Section 31-270, 270 Park Avenue, New York, New
York 10017, 25.43%; Chase Manhattan Bank, N.A., 1211 Avenue of the
Americas, 35th Floor, New York, New York 10036, 23.63%; Trulin & Co., c/o Chase
Manhattan Bank, N.A., P.O. Box 1412, Rochester, New York 14603, 18.49%;
Fleet New York, Fleet Investment Services, One East Avenue NY/RO/3090,
Rochester, New York 14638, 11.42%; GSS as Agent, The Chase Manhattan Bank,
N.A., 2 Chase Plaza, 4th Floor, New York, New York 10081, 5.20%. The Fund
does not know whether the entities named above are the beneficial owners of the
shares held by them.
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<PAGE> 60
The Fund does not currently intend to hold annual meetings of
shareholders (except as required by the 1940 Act or other applicable law). The
law under certain circumstances provides shareholders with the right to call
for a meeting of shareholders to consider the removal of one or more directors.
To the extent required by law, the Fund will assist in shareholder
communication in such matters.
Notwithstanding any provision of Maryland law requiring a
greater vote of the Fund's shares in connection with any corporate action,
unless otherwise provided by law or by the Fund's Charter, the Fund may take or
authorize such action upon the favorable vote of the holders of more than 50%
of the Fund's outstanding shares voting without regard to class or series.
(See, however, the Fund's Prospectus under "Description of Shares" regarding
certain special voting rights of Dollar and Plus shares on matters pertaining
to the Fund's arrangements with Service Organizations.)
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<PAGE> 61
NEW YORK MONEY FUND
MUNICIPAL FUND FOR NEW YORK INVESTORS, INC.
Statement of Net Assets
July 31, 1995
<TABLE>
<CAPTION>
INVESTMENTS IN MATURITY PAR
SECURITIES DATE (000) VALUE
- --------------------------------- ------- ------------
<S> <C> <C> <C>
NEW YORK -- 94.3%
City of New York G.O. DN /
(Mitsubishi Bank LOC)
(A-1+, VMIG-1)**
3.80%.................08/01/95 $ 3,500 $ 3,500,000
City of New York G.O. Series
B-10 DN / (Union Bank of
Switzerland LOC) (A-1+,
VMIG-1)**
3.75%.................08/07/95 2,200 2,200,000
City of New York G.O. TECP /
(Banque Paribas LOC)
(A-1, VMIG-1)
3.60%.................08/25/95 4,800 4,800,000
4.25%.................10/13/95 1,000 1,000,000
City of New York Housing
Development Corporation
(Columbus Gardens Project) DN
/ (Citibank LOC) (A-1)**
3.75%.................08/07/95 1,400 1,400,000
City of New York Housing
Development Corporation
(East 96th St. Project) DN /
(Mitsubishi Bank LOC)
(A-1+, VMIG-1)**
3.45%.................08/07/95 2,000 2,000,000
City of New York Housing
Development Corporation
(Parkgate Tower) Resolution
One Series 1985 DN /
(Citibank LOC)
(A-1, VMIG-1)**
3.75%.................08/07/95 4,945 4,945,000
City of New York Housing
Development Corporation
(Queenswood Apartment Project)
DN / (Sumitomo Bank LOC)
(VMIG-1)**
3.75%.................08/07/95 2,700 2,700,000
City of New York IDA (Columbia
Grammar School and Preparatory
School) Civic Facility RB
Series 1994 DN / (Chemical
Bank LOC) (A-1)**
3.60%.................08/07/95 300 300,000
City of New York IDA Refunding
Revenue Adjustable Tender
Notes (La Guardia Associates)
Series 1985 DN / (Banque
Indosuez LOC) (A1, VMIG-1)**
3.70%.................08/02/95 5,700 5,700,000
City of New York IDA Refunding
Revenue Adjustable Tender
Notes, Field Hotel Association
(JFK Project) DN / (Banque
Indosuez LOC) (A1, VMIG-1)**
3.70%.................08/07/95 3,750 3,750,000
NEW YORK (CONTINUED)
City of New York Tender Option
Bond DN / (MBIA Insurance)
(VMIG-1)**
3.96%.................08/07/95 $ 7,000 $ 7,000,000
City of New York Trust For
Cultural Resources (American
Museum of Natural History) DN
/ (MBIA Insurance) (A-1+,
VMIG-1)**
3.55%.................08/07/95 400 400,000
City of New York Trust For
Cultural Resources (Carnegie
Hall) Series 1985 DN / (Dai-Ichi
Kangyo LOC) (A-1, VMIG-1)**
3.75%.................08/07/95 3,250 3,250,000
City of New York Trust For
Cultural Resources (Carnegie
Hall) Series 1990 DN / (Dai-Ichi
Kangyo LOC) (A-1, VMIG-1)**
3.75%.................08/07/95 2,700 2,700,000
City of New York Trust For
Cultural Resources (The Jewish
Museum) Series 1992 DN /
(Sumitomo Bank LOC) (A1+,
VMIG-1)**
3.75%.................08/07/95 1,900 1,900,000
City of New York Trust For
Cultural Resources (The Museum
of Broadcasting) Series 1989
DN / (Sumitomo Bank LOC)
(A-1+, VMIG-1)**
3.75%.................08/07/95 2,300 2,300,000
County of Albany BAN
6.00%.................02/21/96 5,440 5,475,968
County of Erie Water Authority
DN / (AMBAC Insurance) (A-1+,
VMIG-1)**
3.60%.................08/07/95 600 600,000
County of Erie Water Authority
Water Works System RB DN /
(AMBAC Insurance)
(A-1+, VMIG-1)**
3.60%.................08/07/95 800 800,000
County of Monroe IDA Adjustable
Rate IDRB (Emerson Electric)
MB (Aa1)
3.80%.................07/01/96 2,290 2,290,000
County of Monroe IDA 1985 IDRB
(Rochester District Heating
Cooperative, Inc. Facility) DN
/ (Chemical Bank LOC)**
3.70%.................08/07/95 3,800 3,800,000
County of Montgomery IDRB
(Service Merchandise Company)
DN / (Barclays Bank LOC) (A1+,
VMIG-1)**
3.35%.................08/15/95 4,700 4,700,000
</TABLE>
-40-
<PAGE> 62
NEW YORK MONEY FUND
Statement of Net Assets (Continued)
July 31, 1995
<TABLE>
<CAPTION>
INVESTMENTS IN MATURITY PAR
SECURITIES DATE (000) VALUE
- --------------------------------- ------- ------------
<S> <C> <C> <C>
NEW YORK (CONTINUED)
County of Suffolk TAN 1995
(RA Series I) / (Westdeutsche
Landesbank Girozentrale LOC)
(SP-1+, MIG-1)
5.25%.................08/15/95 $ 3,900 $ 3,900,808
County of Suffolk Water
Authority Series 1994
(VMIG-1)**
3.75%.................08/01/95 4,100 4,100,000
Dormitory Authority of The
State of New York (Columbia
University) MGT 14-C DN /
(Morgan Guaranty LOC)
(VMIG-1)**
3.75%.................08/07/95 5,500 5,500,000
Dormitory Authority of The
State of New York
(Metropolitan Museum of Art)
Series 1993 A DN (A-1+,
VMIG-1)**
3.60%.................08/07/95 385 385,000
Dormitory Authority of The
State of New York (United
Cerebral Palsy of New York
City, Inc.) RB DN / (Chemical
Bank LOC)
(A-1, VMIG-1)**
3.60%.................08/07/95 8,600 8,600,000
Dormitory Authority of The
State of New York Pooled Short
Term TECP / (Dai-Ichi Kangyo
LOC) (A-1, P-1)
2.90%.................08/16/95 303 303,000
4.10%.................09/08/95 1,010 1,010,000
East Islip Union Free School
District TAN 1995
4.25%.................06/28/96 2,500 2,509,830
Hempstead BAN (MIG-1)
4.50%.................08/17/95 4,000 4,000,877
Massapequa Union Free School
District TAN (MIG-1)
4.25%.................06/28/96 3,000 3,013,101
Metropolitan Transportation
Authority Commuter Facilities
Series 1991 DN /
(Morgan Guaranty LOC)
(A-1+, VMIG-1)**
3.65%.................08/07/95 9,200 9,200,000
New York State Energy Research
and Development Authority PCR
(Central-Hudson Gas and
Electric Corporation) Series A
DN / (Bankers Trust LOC)
(A1+, VMIG-1)**
3.40%.................08/03/95 600 600,000
NEW YORK (CONTINUED)
New York State Energy Research
and Development Authority PCR
(Rochester Gas and Electric)
DN / (Bank of New York LOC)
(A-1, VMIG-1)**
3.55%.................08/01/95 $14,600 $ 14,600,000
New York State Energy Research
and Development Authority PCRB
(Orange and Rockland
Utilities, Inc. Projects)
Series 1994 A DN / (FGIC
Insurance)
(A-1+, VMIG-1)**
3.55%.................08/07/95 400 400,000
New York State Energy Research
and Development Authority (New
York State Electric and Gas)
Series 1985-A MB / (Morgan
Guaranty LOC) (A-1+)
4.65%.................03/15/96 1,000 1,000,000
New York State Energy Research
and Development Authority
Adjustable Rate PCRB (Long
Island Lighting Project) MB /
(Deutsche Bank LOC) (VMIG-1)
4.70%.................03/01/96 4,000 4,000,000
New York State Energy Research
and Development Authority
Annual Tender PCRB MB/(Union
Bank of Switzerland LOC) (P-1)
4.10%.................10/15/95 2,000 2,000,000
4.60%.................12/01/95 2,065 2,065,000
New York State Housing Finance
Agency (Memorial Sloan-
Kettering Cancer Center) DN
(A-1+)**
3.75%.................08/07/95 400 400,000
New York State Housing Finance
Agency (Mount Sinai School of
Medicine) Series A DN / (Sanwa
Bank LOC) (A1+, VMIG-1)**
3.60%.................08/07/95 5,500 5,500,000
New York State Housing Finance
Agency, (Multi-Family Housing)
RB Series 1988 A DN / (AMBAC
Insurance)
(A-1+, VMIG-1)**
3.65%.................08/07/95 700 700,000
New York State Housing Finance
Authority (Normandie Court I)
Series 1991A DN / (Societe
Generale LOC)
(A-1+, VMIG-1)**
3.60%.................08/07/95 2,300 2,300,000
</TABLE>
-41-
<PAGE> 63
NEW YORK MONEY FUND
Statement of Net Assets (Continued)
July 31, 1995
<TABLE>
<CAPTION>
INVESTMENTS IN MATURITY PAR
SECURITIES DATE (000) VALUE
- --------------------------------- ------- ------------
<S> <C> <C> <C>
NEW YORK (CONTINUED)
New York State IDA Civic
Facilities (National Audubon
Society) Series 1989 DN /
(Swiss Bank LOC) (VMIG-1)**
4.10%.................08/01/95 $ 1,600 $ 1,600,000
New York State Job Development
Authority DN / (Sumitomo Bank
LOC) (A-1, VMIG-1)**
3.50%.................08/01/95 935 935,000
New York State Job Development
Authority Special Purpose
Bonds Series 1984 C DN /
(Sumitomo Bank LOC) (A-1,
VMIG-1)**
3.70%.................08/01/95 7,235 7,235,000
New York State Job Development
Authority Special Purpose
Bonds Series 1984 D DN /
(Sumitomo Bank LOC) (A-1,
VMIG-1)**
3.70%.................08/01/95 375 375,000
New York State Job Development
Authority Special Purpose
Bonds Series 1984 E DN /
(Sumitomo Bank LOC) (A-1,
VMIG-1)**
3.70%.................08/01/95 1,725 1,725,000
New York State Job Development
Authority Special Purpose
Bonds Series 1984 F DN /
(Sumitomo Bank LOC) (A-1,
VMIG-1)**
3.70%.................08/01/95 1,930 1,930,000
New York State Job Development
Authority Special Purpose
Bonds Series 1984 G DN /
(Sumitomo Bank LOC) (A-1,
VMIG-1)**
3.70%.................08/01/95 3,175 3,175,000
New York State Job Development
Authority Special Purpose
Bonds Series 1984 H DN /
(Sumitomo Bank LOC) (A-1,
VMIG-1)**
3.70%.................08/01/95 1,755 1,755,000
New York State Local Government
Assistance Corp. Series 1995-D
MB / (Societe Generale LOC)
(A-1+, VMIG-1)
3.20%.................08/01/95 12,100 12,100,000
New York State Local Government
Assistance Corp. Series 1995-G
MB / (National Westminster
LOC) (A-1+, VMIG-1)
3.20%.................08/01/95 10,000 10,000,000
NEW YORK (CONTINUED)
New York State Medical Care
Facilities Finance Agency
Revenue Pooled Equipment Loan
Program, Series 1985 Issue One
DN / (Chemical Bank LOC) (A-1,
VMIG-1)**
3.60%.................08/07/95 $ 2,000 $ 2,000,000
New York State Power Authority
Adjustable Tender Notes MB
(A-1, VMIG-1)
4.40%.................09/01/95 15,300 15,300,000
New York State Solid Waste
Management Authority (North
Hempstead) DN / (National
Westminster LOC)
(A-1+, VMIG-1)**
3.55%.................08/07/95 150 150,000
New York State TECP Series Q
(A-1, P-1)
3.75%.................10/25/95 5,000 5,000,000
New York State TECP Series R
(A-1, P-1)
3.75%.................08/09/95 8,000 8,000,000
3.20%.................08/24/95 5,500 5,500,000
Niagara Falls Toll Bridge
Series 1993 A DN (FGIC
Insurance) (A-1+, VMIG-1)**
3.60%.................08/07/95 200 200,000
Triborough Bridge and Tunnel
Authority Beneficial Interest
Certificates DN / (MBIA
Insurance) (VMIG-1)**
3.45%.................08/15/95 4,475 4,475,000
Triborough Bridge and Tunnel
Authority DN / (FGIC
Insurance) (A-1+, VMIG-1)**
3.50%.................08/07/95 6,600 6,600,000
Yonkers IDA Series 1994 Civic
Facility RB (Consumers Union
Facility) DN / (AMBAC
Insurance) (A-1+, VMIG-1)**
3.50%.................08/07/95 1,000 1,000,000
------------
232,653,584
------------
PUERTO RICO -- 5.1%
Government Development Bank for
Puerto Rico Adjustable RB
Series 1985 DN / (Credit
Suisse LOC) (A1+, VMIG-1)**
3.45%.................08/07/95 3,850 3,850,000
Puerto Rico Industrial,
Medical, and Environmental
Control Facility Finance
Authority IDRB MB / (Morgan
Guaranty LOC)
4.35%.................12/01/9 2,700 2,700,000
</TABLE>
-42-
<PAGE> 64
NEW YORK MONEY FUND
Statement of Net Assets (Concluded)
July 31, 1995
<TABLE>
<CAPTION>
INVESTMENTS IN MATURITY PAR
SECURITIES DATE (000) VALUE
- --------------------------------- ------- ------------
<S> <C> <C> <C>
PUERTO RICO (CONTINUED)
Puerto Rico Industrial,
Medical, and Higher Education
Authority Revenue Bonds MB /
(Bank of Tokyo LOC) (VMIG-1)
3.85%.................08/10/95 $ 2,300 $ 2,300,000
Puerto Rico Industrial,
Medical, Higher Education, and
Pollution Control Facility
Finance Authority
Inter-American University of
Puerto Rico Project Series
1988 MB / (Bank of Tokyo LOC)
(VMIG-1)
3.45%.................08/07/95 1,400 1,400,000
Puerto Rico Medical, Higher
Education, and Environmental
PCR (Ana G. Mendez Educational
Foundation Project) DN /
(Bank of Tokyo LOC)
(A-1+, VMIG-1)**
3.90%.................08/07/95 2,300 2,300,000
------------
12,550,000
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $245,203,584*)............... 99.4% 245,203,584
OTHER ASSETS IN EXCESS OF
LIABILITIES..........................0.6% 1,446,698
----- ------------
NET ASSETS (Equivalent to $1.00
per share based on 246,681,714
Money shares of capital stock
outstanding).......................100.0% $246,650,282
====== ============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER SHARE
($246,650,282 / 246,681,714).......................$1.00
=====
- -------------
* Aggregate cost for federal income tax purposes is
substantially the same.
** Variable rate demand notes -- the interest rate shown
is as of July 31, 1995, and the maturity date shown is
the longer of (i) the next interest readjustment date
or (ii) the date on which the principal amount owed can
be recovered through demand.
The Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group ratings are believed to be the most
recent ratings available at July 31, 1995. The ratings
have not been verified by the Independent Accountants
and, therefore, are not covered by the Report of the
Independent Accountants.
</TABLE>
- ---------------------------------------------------------
NEW YORK MONEY FUND
MUNICIPAL FUND FOR NEW YORK
INVESTORS, INC.
Maturity Schedule of Portfolio
July 31, 1995
<TABLE>
<CAPTION>
MATURITY
PERIOD PAR PERCENTAGE
------------- ------------ ----------
<S> <C> <C>
1-30 days $197,838,000 80.7%
31-60 days 16,310,000 6.7%
61-90 days 8,000,000 3.3%
91-120 days 0 0.0%
Over 120 days 22,995,000 9.3%
Average Weighted Maturity -- 33 days
</TABLE>
- ---------------------------------------------------------
INVESTMENT ABBREVIATIONS:
BAN Bond Anticipation Note
DN Demand Note
GO General Obligation
IDA Industrial Development Authority
IDRB Industrial Development Revenue Bond
LOC Letter of Credit
MB Municipal Bond
PCR Pollution Control Revenue
RAN Revenue Anticipation Note
RB Revenue Bond
TAN Tax Anticipation Note
TECP Tax-Exempt Commercial Paper
TRAN Tax and Revenue Anticipation Note
See Notes to Financial Statements.
-43-
<PAGE> 65
NEW YORK MONEY FUND
MUNICIPAL FUND FOR NEW YORK INVESTORS, INC.
Statement of Operations
For the Year Ended July 31, 1995
<TABLE>
<S> <C>
Investment income:
Interest income......................................................... $8,631,699
----------
Expenses:
Investment advisory fees................................................ 485,058
Administration fees..................................................... 485,058
Service Organization fees:
Plus shares.......................................................... 302
Legal and audit fees.................................................... 69,567
Directors' and officers' fees and expenses.............................. 27,000
Custodian fees.......................................................... 60,755
Transfer agent fees..................................................... 21,957
Miscellaneous........................................................... 36,496
----------
1,186,193
Fees waived by Investment Adviser and Administrator..................... (700,857)
----------
Total expenses....................................................... 485,336
----------
Net investment income................................................ 8,146,363
Realized gain on investments:
Net realized gain on investments sold................................... 3,631
----------
Net increase in net assets resulting from operations...................... $8,149,994
==========
</TABLE>
See Notes to Financial Statements.
-44-
<PAGE> 66
NEW YORK MONEY FUND
MUNICIPAL FUND FOR NEW YORK INVESTORS, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994
------------- -------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income................................... $ 8,146,363 $ 6,086,824
Net gain (loss) on investments.......................... 3,631 (3,432)
------------- -------------
Net increase in net assets resulting from operations.... 8,149,994 6,083,392
------------- -------------
Dividends to shareholders from net investment income:
Money shares............................................ (8,143,179) (5,431,630)
Dollar shares........................................... -- (636,261)
Plus shares............................................. (3,184) (18,933)
------------- -------------
Total dividends to shareholders......................... (8,146,363) (6,086,824)
------------- -------------
Increase (decrease) in net assets from Fund share
transactions............................................ (33,270,815) 27,260,410
------------- -------------
Net increase (decrease) in net assets................... (33,267,184) 27,256,978
Net assets:
Beginning of year.......................................... 279,917,466 252,660,488
------------- -------------
End of year................................................ $ 246,650,282 $ 279,917,466
============= =============
</TABLE>
See Notes to Financial Statements.
-45-
<PAGE> 67
NEW YORK MONEY FUND
MUNICIPAL FUND FOR NEW YORK INVESTORS, INC.
Financial Highlights
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
MONEY SHARES
-----------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994 JULY 31, 1993 JULY 31, 1992 JULY 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------- ------------- ------------- ------------- -------------
Income From Investment Operations:
Net Investment Income........................ 0.0338 0.0226 0.0230 0.0321 0.0441
------------- ------------- ------------- ------------- -------------
Total From Investment Operations........... 0.0338 0.0226 0.0230 0.0321 0.0441
------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends From Net Investment Income......... (0.0338) (0.0226) (0.0230) (0.0321) (0.0441)
------------- ------------- ------------- ------------- -------------
Total Distributions........................ (0.0338) (0.0226) (0.0230) (0.0321) (0.0441)
------------- ------------- ------------- ------------- -------------
Net Asset Value, End of Year...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Returns..................................... 3.43% 2.29% 2.33% 3.26% 4.50%
Ratios/Supplemental Data:
Net Assets, End of Year $(000)............... 246,650 279,483 204,670 267,655 284,834
Ratios of Expenses to Average Net Assets(1).. 0.20% 0.20% 0.25%(2) 0.30% 0.30%
Ratios of Net Investment Income to Average
Daily Net Assets........................... 3.36% 2.28% 2.31% 3.20% 4.42%
</TABLE>
- ---------------
(1) Annualized operating expense ratios before waivers of fees by the Investment
Adviser and Administrator for Money shares for the years ended July 31,
1995, 1994, 1993, 1992 and 1991 were .49%, .48%, .51%, .49% and .49%,
respectively.
(2) Expense limitation for Money shares was lowered to .20% of the Portfolio's
average daily net assets, effective January 18, 1993.
See Notes to Financial Statements.
-46-
<PAGE> 68
NEW YORK MONEY FUND
MUNICIPAL FUND FOR NEW YORK INVESTORS, INC.
Financial Highlights
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
DOLLAR SHARES
-------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1995(4) JULY 31, 1994(4) JULY 31, 1993 JULY 31, 1992 JULY 31, 1991
-------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------------- ------------- ------------- -------------
Income From Investment Operations:
Net Investment Income...................... 0.00 0.0127 0.0205 0.0296 0.0416
------- -------------- ------------- ------------- -------------
Total From Investment Operations......... 0.00 0.0127 0.0205 0.0296 0.0416
------- -------------- ------------- ------------- -------------
Less Distributions:
Dividends From Net Investment Income....... 0.00 (0.0127) (0.0205) (0.0296) (0.0416)
------- -------------- ------------- ------------- -------------
Total Distributions...................... 0.00 (0.0127) (0.0205) (0.0296) (0.0416)
------- -------------- ------------- ------------- -------------
Net Asset Value, End of Period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ============== ============= ============= ============
Total Returns................................... -- 1.96%(3) 2.08% 3.01% 4.25%
Ratios/Supplemental Data:
Net Assets, End of Period $(000)........... -- -- 46,509 50,094 54,613
Ratios of Expenses to Average Net
Assets(1)................................. -- 0.45%(3) 0.50%(2) 0.55% 0.55%
Ratios of Net Investment Income to Average
Daily Net Assets......................... -- 1.94%(3) 2.06% 2.95% 4.17%
</TABLE>
- ---------------
(1) Annualized operating expense ratios before waivers of fees by the Investment
Adviser and Administrator for Dollar shares for the years ended July 31,
1994, 1993, 1992 and 1991 were .73%, .76%, .74% and .74%, respectively.
(2) Expense limitation for Dollar shares was lowered to .45% of the Portfolio's
average daily net assets, effective January 18, 1993.
(3) Annualized.
(4) There were no Dollar shares outstanding during the period from March 28,
1994 to July 31, 1995.
See Notes to Financial Statements.
-47-
<PAGE> 69
NEW YORK MONEY FUND
MUNICIPAL FUND FOR NEW YORK INVESTORS, INC.
Financial Highlights
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
PLUS SHARES
------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1995(4) JULY 31, 1994 JULY 31, 1993 JULY 31, 1992 JULY 31, 1991
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------- ------------- ------------- ------------- -------------
Income From Investment Operations:
Net Investment Income........................ 0.0090 0.0201 0.0205 0.0296 0.0416
-------------- ------------- ------------- ------------- -------------
Total From Investment Operations........... 0.0090 0.0201 0.0205 0.0296 0.0416
-------------- ------------- ------------- ------------- -------------
Less Distributions:
Dividends From Net Investment Income......... (0.0090) (0.0201) (0.0205) (0.0296) (0.0416)
-------------- ------------- ------------- ------------- -------------
Total Distributions........................ (0.0090) (0.0201) (0.0205) (0.0296) (0.0416)
-------------- ------------- ------------- ------------- -------------
Net Asset Value, End of Year...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============== ============= ============= ============= =============
Total Returns..................................... 2.69%(3) 2.04% 2.08% 3.01% 4.25%
Ratios/Supplemental Data:
Net Assets, End of Year $(000)............... -- 435 1,481 243 461
Ratios of Expenses to Average Net Assets(1).. 0.45%(3) 0.45% 0.50%(2) 0.55% 0.55%
Ratios of Net Investment Income to Average
Daily Net Assets........................... 2.64%93) 2.03% 2.06% 2.95% 4.17%
</TABLE>
- ---------------
(1) Annualized operating expense ratios before waivers of fees by the Investment
Adviser and Administrator for Plus shares for the years ended July 31, 1995,
1994, 1993, 1992 and 1991 were .73%, .73%, .76%, .74% and .74%,
respectively.
(2) Expense limitation for Plus shares was lowered to .45% of the Portfolio's
average daily net assets, effective January 18, 1993.
(3) Annualized.
(4) There were no Plus shares outstanding during the period from December 2,
1994 to July 31, 1995.
See Notes to Financial Statements.
-48-
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS
1. Municipal Fund for New York Investors, Inc. (the "Company") is a no-load,
non-diversified, open-end management investment company registered under the
Investment Company Act of 1940, as amended. The Company offers three series of
shares--New York Money ("Money"), New York Money Dollar ("Dollar"), and New York
Money Plus ("Plus"). Shares of each series represent equal pro rata interests in
a single investment portfolio of the Company and are identical in all respects
except that the Dollar and Plus shares bear the service fees described below and
are entitled to vote separately on matters relating to these fees.
Dollar shares are sold pursuant to a non-12b-1 Shareholder Services Plan to
institutions other than broker/dealers, and Plus shares are sold pursuant to a
12b-1 Services Plan only to broker/dealers which enter into agreements with the
Company requiring them to provide certain support services to their customers in
consideration of the Company's payment of .25% (on an annualized basis) of the
average daily net asset value of such shares held by the institutions on behalf
of their customers. Dividends paid to Dollar and Plus shareholders are reduced
by such fees. In addition, broker/dealers purchasing Plus shares may be
requested to provide assistance in connection with the distribution of such
shares. Money shares are sold to institutional investors who choose not to enter
into such servicing agreements with the Company.
Certain New York municipal obligations in the Company's portfolio may be
obligations of issuers which rely in whole or in part on New York State
revenues, real property taxes, revenues from health care institutions, or
obligations secured by mortgages on real property. Consequently, the possible
effect of economic conditions in New York State or of New York law on these
obligations must be considered.
2. Significant Accounting Policies
Portfolio valuation--Portfolio securities of the Company are valued at
amortized cost which approximates market value. Amortized cost valuation
involves valuing an instrument at its cost initially and, thereafter, assuming a
constant amortization to maturity of any discount or premium.
Securities transactions and investment income--Securities transactions are
recorded on the trade date. Realized gains and losses on investments sold are
recorded on the identified cost basis. Interest income is recorded on the
accrual basis.
Dividends and distributions to shareholders--It is the policy of the Company
to declare dividends from net investment income daily and to pay such dividends
within five business days of the end of each month. Net realized capital gains,
if any, are distributed at least annually.
Federal taxes--No provision is made for federal income or excise taxes since
the Company intends to continue to qualify as a regulated investment company by
complying with the applicable requirements of the Internal Revenue Code of 1986,
as amended, and by distributing all of its earnings to its shareholders.
3. Investment Advisory Fee, Administration Fee and Other Related Party
Transactions
The Company has entered into an Investment Advisory Agreement with PNC
Institutional Management Corporation (the "Investment Adviser"), an indirect
wholly-owned subsidiary of PNC Bank, National Association ("PNC Bank"). PNC Bank
serves as the Company's sub-investment adviser pursuant to a Sub-Advisory
Agreement. Under the Investment Advisory Agreement, the Investment Adviser is
entitled to receive a fee from the Company, computed daily and payable monthly,
at an annual rate of .20% of the Company's average daily net assets.
Provident Distributors, Inc. ("PDI") is the Company's distributor. No
compensation is pay-
-49-
<PAGE> 71
able by the Company to PDI for its distribution services.
The Company has entered into an Administration Agreement with PFPC Inc.
("PFPC"), an indirect wholly-owned subsidiary of PNC Bank, and PDI (the
"Administrators"), for certain administrative services. Pursuant to their
administrative agreement with the Company, PFPC and PDI jointly are entitled to
receive a fee at an annual rate of .20% of the Company's average daily net
assets.
The Investment Adviser and Administrators have agreed to reduce the advisory
and administration fees otherwise payable to them and to reimburse the Company
for its operating expenses to the extent necessary to ensure that its annual
operating expense ratio (excluding fees paid to Service Organizations pursuant
to Servicing Agreements) does not exceed .20% of the Company's average daily net
assets.
For the year ended July 31, 1995, the Investment Advisor and the
Administrators voluntarily waived fees totaling $350,428 and $350,429,
respectively.
Expenses include legal fees paid to counsel to the Company, a partner of which
is secretary of the Company.
PNC Bank is the Company's custodian and PFPC is transfer agent.
4. Fund Shares
Since the Company has sold, issued as reinvestments of dividends and redeemed
shares only at a constant net asset value of $1.00 per share, the number of
shares is the same as the following amounts for such transactions.
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
7/31/95 7/31/94
--------------- ---------------
Sold
<S> <C> <C>
Money shares........... $ 1,040,239,729 $ 1,176,497,722
Dollar shares.......... -- 41,213,523
Plus shares............ 9,800 242,100
Issued as reinvestments
of dividends
Money shares........... 361,349 233,959
Dollar shares.......... -- --
Plus shares............ -- --
Redeemed
Money shares........... (1,073,436,993) (1,101,910,204)
Dollar shares.......... -- (87,727,990)
Plus shares............ (444,700) (1,288,700)
--------------- ---------------
Net increase
(decrease)............. $ (33,270,815) $ 27,260,410
=============== ===============
</TABLE>
The authorized capital of the Company consists of 1.4 billion Money shares,
300 million Dollar shares and 300 million Plus shares, each with a par value of
$.001 per share.
5. Capital Loss Carryover
At July 31, 1995, a capital loss carryover of $31,432 was available to offset
possible future capital gains. The carryover expires as follows: $7,769 in 1997,
$3,125 in 1998, $17,106 in 2001, and $3,432 in 2002.
6. Net Assets
At July 31, 1995, net assets consisted of the following:
<TABLE>
<S> <C>
Paid-in capital............... $246,681,714
Accumulated net realized
losses on investments....... (31,432)
------------
$246,650,282
============
</TABLE>
-50-
<PAGE> 72
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors
of Municipal Fund for New York Investors, Inc.:
We have audited the accompanying statement of net assets of Municipal Fund for
New York Investors, Inc. as of July 31, 1995 and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities held by the
custodian as of July 31, 1995. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Municipal Fund for New York Investors, Inc. as of July 31, 1995, the results of
its operations for the year then ended, the changes in net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 8, 1995
-51-
<PAGE> 73
APPENDIX
DESCRIPTION OF MUNICIPAL OBLIGATIONS RATINGS
The following summarizes the two highest ratings used by
Standard & Poor's Corporation for municipal debt:
AAA - This designation represents the highest rating assigned
by Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
AA - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
PLUS (+) OR MINUS (-) - To provide more detailed indications
of credit quality, the "AA" rating may be modified by the addition of a plus or
minus sign to show relative standing within this major rating category.
The following summarizes the two highest ratings used by
Moody's Investors Service, Inc. for municipal debt:
Aaa - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." 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 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.
Moody's applies numerical modifiers (1, 2 and 3) with respect
to bonds rated Aa. The modifier 1 indicates that the issuer ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issuer ranks in the lower end of
its generic rating category.
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less.
A-1
<PAGE> 74
SP-1 - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a plus (+)
designation.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit
risk and long-term credit risk. The following summarizes the two highest
ratings used by Moody's for short-term notes and variable rate demand
obligations:
MIG-1/VMIG-1-Loans bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2-Loans bearing these designations are of high
quality, with margins of protection ample although not so large as in the
preceding group.
Commercial paper rated A-1 by Standard & Poor's indicates that
the issuer's degree of safety for timely payment is strong. Those issues
determined to possess extremely strong safety characteristics are denoted A-1+.
Issuer's capacity for timely payment on commercial paper rated A-2 is
satisfactory, but the relative degree of safety is not as high as for issues
designated A-1.
The rating Prime-1 is the highest commercial paper rating
assigned by Moody's. Issuers rated Prime-1 (or related supporting
institutions) are considered to have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics: leading market positions in well
established industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earning coverage of fixed financial charges and
high internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
A-2
