As filed with the Securities and Exchange Commission on May 15, 1996
Securities Act File No. 2-94935
Investment Company File No. 811-4179
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 23 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 25 [X]
CORTLAND TRUST, INC.
(Exact Name of Registrant as Specified in Charter)
600 Fifth Avenue
New York, New York 10020-2302
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 830-5200
STEVEN W. DUFF
c/o Cortland Trust, Inc.
600 Fifth Avenue
New York, New York 10020-2302
(Name and Address of Agent for Service)
Copy to: Jules Buchwald, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, N.Y. 10022
(212) 715-7507
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 15, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
The Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Section 24(f) under the Investment Company
Act of 1940, as amended, and Rule 24f-2 thereunder, and the Registrant will file
a Rule 24f-2 Notice for its fiscal year ended March 31, 1996 on or about May 31,
1996.
<PAGE>
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
[as required by Rule 404 (c)]
PART A Location in Prospectus
Item No. (Caption)
LIVE OAK MONEY MARKET SHARES
Live Oak General Money Market Fund
Live Oak U.S. Government Fund
Live Oak Municipal Money Market Fund
1. Cover Page Cover Page
2. Synopsis Table of Fees and Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Programs; General
Information
5. Management of the Fund Management
5a. Management Discussion of Fund
Performance Not Applicable
6. Capital Stock and Other Securities Dividends and Taxes; General
Information
7. Purchase of Securities Being Offered How to Purchase Shares
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
<PAGE>
PART B Caption in Statement of
Item No. Additional Information
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History General Information about
the Company
13. Investment Objectives and Policies Investment Programs
and Restrictions
14. Management of the Fund Manager and
Investment Advisor
15. Control Persons and Holder of Securities Distributor and
Plans of Distribution
16. Investment Advisory and Other Services Manager and Investment Advisor
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities General Information
about the Company
19. Purchase, Redemption and Pricing
of Securities Being Offered Share Purchases and Redemptions
20. Tax Status Dividends and Tax Matters
21. Underwriters Distributor and
Plans of Distribution
22. Calculation of Performance Data Yield Information
23. Financial Statements Independent Auditor's Report;
Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
600 FIFTH AVENUE
LIVE OAK SHARES NEW YORK, NY 10020
(212) 830-5280
================================================================================
PROSPECTUS
May 15, 1996
The Company, Cortland Trust, Inc. is an open-end, diversified money market fund
designed as a cash management service for institutional customers and
individuals. The Company consists of three portfolios (collectively, the
"Portfolios"). This Prospectus relates exclusively to the Live Oak classes (the
"Live Oak Shares") of the Portfolios (collectively, the "Funds"). THE LIVE OAK
GENERAL MONEY MARKET FUND and the LIVE OAK U.S. GOVERNMENT FUND seek to provide
as high a level of current income as is consistent with the preservation of
capital and liquidity. The LIVE OAK MUNICIPAL MONEY MARKET FUND seeks to provide
as high a level of current income exempt from federal income taxes as is
consistent with the preservation of capital and liquidity. Each Fund invests in
high quality debt obligations with relatively short maturities. Each Fund seeks
to achieve its objective by investing in different types of securities.
Investors may purchase shares of any or all of the Company's three Funds:
LIVE OAK GENERAL MONEY MARKET FUND ("LIVE OAK GENERAL FUND"): a portfolio of
securities and instruments issued or guaranteed by the United States
Government, its agencies or instrumentalities, bank instruments and corporate
commercial instruments.
LIVE OAK U.S. GOVERNMENT FUND ("LIVE OAK GOVERNMENT FUND"): a portfolio of
securities and instruments issued or backed by the full faith and credit of
the United States Government and repurchase agreements collateralized by U.S.
Government obligations.
LIVE OAK MUNICIPAL MONEY MARKET FUND ("LIVE OAK MUNICIPAL FUND"): a portfolio
of obligations issued by states, territories and possessions of the United
States and their political subdivisions, public authorities and other
entities authorized to issue debt, the interest on which is exempt from
federal income taxes.
SHARES OF THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
THERE IS NO ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE OR THAT EACH FUND'S INVESTMENT OBJECTIVE WILL BE
ACHIEVED. SEE "INVESTMENT PROGRAMS."
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
Shares of the Funds are part of an integrated cash management service, the Key
Account. A description of the Key Account features and certain information
concerning the component parts of the Key Account program may be obtained from
Interstate/Johnson Lane.
This Prospectus sets forth basic information that investors should know about
the Company prior to investing and should be read and retained for future
reference. A Statement of Additional Information relating to the Company dated
May 15, 1996 has been filed with the Securities and Exchange Commission and is
hereby incorporated by reference. It is available upon request and without
charge by writing or calling the Company at 600 Fifth Avenue, New York, New York
10020 (212) 830-5280.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF FEES AND EXPENSES
For a better understanding of the expenses you will incur when investing in a
Fund offered pursuant to this Prospectus, a summary of estimated expenses is set
forth below:
<S> <C> <C> <C>
Live Oak Live Oak Live Oak
General Government Municipal
Fund Fund Fund
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchase
(as a percentage of offering price).............................. None None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).............................. None None None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, as applicable).......................... None None None
Redemption Fees (as a percentage of amount redeemed, if
applicable)..................................................... None None None
Exchange Fee....................................................... None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees.................................................... 0.77% 0.77% 0.77%
12b-1 Fees (after fee waiver)...................................... 0.18% 0.09% 0.17%
Other Expenses..................................................... 0.02% 0.03% 0.02%
Total Fund Operating Expenses (after fee waiver)................... 0.97% 0.89% 0.96%
Example
You would pay the following expenses on a $1,000
investment assuming a 5% annual return:
1 year ............................................................ $ 10 $ 9 $ 10
3 years............................................................ $ 31 $ 28 $ 31
5 years............................................................ $ 54 $ 49 $ 53
10 years........................................................... $ 119 $ 110 $ 118
</TABLE>
The above table of fees and expenses is provided to assist you in understanding
the various costs and expenses that you will bear directly and indirectly. (For
more complete descriptions of the various costs and expenses, including fees
waived by the Company's Manager, see "Management.") The expenses and example
appearing in the preceding table reflect current management fees and operating
expenses for each Portfolio of the Company. THE EXAMPLE SHOWN IN THE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Absent fee waivers by the Distributor, Total Fund Operating Expenses would have
been .99% of the General Fund's average net assets, 1.00% of the Government
Fund's average net assets and .99% of the Municipal Fund's average net assets.
Such fee waivers may be rescinded at any time without notice to investors.
As a result of 12b-1 fees, a long-term shareholder in a Fund may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
Rules of the National Association of Securities Dealers, Inc.
Incorporated herein by reference is the Company's prospectus dated August 1,
1995 contained in Post-Effective Amendment No. 18 to the Company's Registration
Statement on Form N-1A (File Nos. 2-94935 and 811-4179) filed with the
Securities and Exchange Commission on July 28, 1995. It is available upon
request and without charge by writing or calling the Company at 600 Fifth
Avenue, New York, New York 10020 (212) 830-5280.
2
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following financial information has been audited by Ernst & Young LLP,
Independent Auditors, whose report thereon appears in the Statement of
Additional Information.
<S> <C> <C> <C>
Live Oak General Live Oak U.S. Live Oak Municipal
Money Market Fund Government Fund Money Market Fund
November 16, 1995 November 16, 1995 November 16, 1995
(Commencement of distribution) (Commencement of distribution) (Commencement of distribution)
to March 31, 1996 to March 31, 1996 to March 31, 1996
----------------------------- ------------------------------ ----------------------------
Per Share Operating Performance:
(for a share outstanding throughout the period)
Net asset value, beginning of period.. $1.0000 $1.0000 $1.0000
------- ------- -------
Income from investment operations:
Net investment income............... .0175 .0174 .0110
Net realized and unrealized
gain/(loss) on investments........ .0001 .0001 ( .0001)
------- ------- --------
Total from investment operations...... .0176 .0175 .0109
Less distributions:
Dividends from net investment income ( .0175) ( .0174) ( .0109)
Dividends from net realized gain
on investments.................... -- -- --
------ ------- -------
Total distributions................... ( .0175) ( .0174) ( .0109)
------- ------- --------
Net asset value, end of period........ $1.0001 $1.0001 $1.0000
======= ======= ========
Total Return.......................... 4.78%++ 4.74%++ 2.96%++
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $351,030 $47,328 $49,663
Ratios to average net assets:
Expenses............................ 0.97%++* .89%++* .96%++*
Net investment income............... 4.68%++ 4.64%++ 2.91%++
* Distribution support and service fee of .02% of average net assets was
waived during the period ended March 31, 1996 for Live Oak General Money
Market Fund shares. Distribution support and service fee of .11% of average
net net assets was waived during the period ended March 31, 1996 for Live
Oak U.S. Government Fund shares. Distribution support and service fee of
.03% of average net assets was waived during the period ended March 31,
1996 for Live Oak Municipal Money Market Fund shares.
++ Annualized
</TABLE>
3
<PAGE>
HOW TO PURCHASE SHARES
General Information on Purchases
Shares of each Fund may be purchased through Interstate/Johnson Lane, 121 West
Trade Street, Charlotte, North Carolina 28201. Orders for purchase of shares are
accepted only on a "business day of the Company" which means any day on which
both the New York Stock Exchange and Investors Fiduciary Trust Company (the
"Custodian"), the Company's custodian, are open for business. It is expected
that the New York Stock Exchange and/or the Custodian will be closed on
Saturdays and Sundays, New Year's Day, Martin Luther King, Jr.'s Birthday,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving Day and Christmas. The minimum initial
purchase made directly through the Company may be as low as $1,000 and
subsequent purchases will be accepted in any amount.
An order to purchase Fund shares is effective only when it is received in proper
form and payment in the form of Federal Funds (member bank deposits with the
Federal Reserve Bank) is received by the Company for investment. The Company
reserves the right to reject any order for the purchase of shares. Fund shares
are purchased or exchanged at the net asset value next determined after receipt
of the order. Net asset value is normally determined at 12 noon and 4:15 p.m.
Eastern time on each business day of the Company. Because the Company uses the
amortized cost method of valuing the securities held by each Fund and rounds
each Fund's per share net asset value to the nearest whole cent, it is
anticipated that the net asset value of the shares of each Fund will remain
constant at $1.00 per share. However, the Company makes no assurance that it can
maintain a $1.00 net asset value per share. In order to earn dividends the next
day, purchase orders must be received before 4:15 p.m. Eastern time; otherwise,
the purchase of shares will occur the following business day. Payments
transmitted by check are normally converted into Federal Funds within two
business days and are accepted subject to collection at full face amount. The
Company will not issue share certificates but will record investor holdings on
the books of the Company in noncertificate form and regularly advise the
shareholder of his ownership position.
There is no sales charge to the investor on Fund purchases placed directly with
the Company. However, the costs of distributing Fund shares are borne in part by
the Company and in part by Reich & Tang Asset Management L.P. (the "Manager").
Purchases may be made by following the procedures specified below. If these
purchase procedures are not followed, the processing of orders may be delayed.
Purchases Through Interstate/Johnson Lane
Investors may submit their initial and subsequent investments directly through
Interstate/Johnson Lane. For an initial investment, investors should submit
payment and, if required, a completed Investor Application to Interstate/Johnson
Lane, who will transmit such payment to the Company on behalf of the investor
and supply the Company with required account information. Investors may have
their "free-credit" cash balances automatically invested in Fund shares on a
daily basis depending upon which Fund has been designated by the investor as the
primary Fund for his account. Automatic purchases and redemptions of Fund shares
are treated on the same basis as direct purchases and redemptions from the
Company. "Free-credit" cash balances begin to earn dividends on the first day
following the date that the share purchase or exchange order is effected and
through the date that a redemption order is effected. For further information
and for details concerning the automatic purchase and redemption of Fund shares,
contact Interstate/Johnson Lane. The Company is not responsible for any delay
caused by Interstate/Johnson Lane in forwarding an order
4
<PAGE>
to the Company. Interstate/Johnson Lane has a responsibility to transmit orders
promptly.
Purchases From the Company
You may purchase Fund shares by wire and by mail. The Company will only accept
direct orders from investors through the Distributor or through
Interstate/Johnson Lane. The initial purchase must be accompanied by a completed
Investor Application available from the Distributor or from Interstate/Johnson
Lane.
Initial Purchase of Shares
Mail
Investors may send a check made payable to "Reich & Tang Funds" along with a
completed subscription order form to :
Mutual Funds Group
P.O. Box 16815
Newark, NJ 07101
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member bank of the Federal Reserve
System can normally be converted into Federal Funds within two business days
after receipt of the check. Checks drawn on a nonmember bank may take
substantially longer to convert into Federal Funds and to be invested in Fund
shares. An investor's subscription will not be accepted until the Fund receives
Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, an investor should first obtain a new account number from
Interstate/Johnson Lane and then instruct a member commercial bank to wire money
immediately to:
Investors Fiduciary Trust Company
ABA# 101003621
Reich & Tang Funds
DDA# 890752-954-6
The investor should then promptly complete and mail the subscription order form.
An investor planning to wire funds should instruct his bank to wire before 12
noon, New York City time, on the same day. There may be a charge by the
investor's bank for transmitting the money by bank wire, and there also may be a
charge for use of Federal Funds. The Fund does not charge investors in the Fund
for its receipt of wire transfers. Payment in the form of a "bank wire" received
prior to 12 noon, New York City time, on a Fund Business Day will be treated as
a Federal Funds payment received on that day.
Personal Delivery
Deliver a check made payable to "Reich & Tang Funds" along with a completed
subscription order form to:
Reich & Tang Funds
600 Fifth Avenue, 9th Floor
New York, New York 10020
Subsequent Purchases of Shares
There is a $50 minimum for each subsequent purchase. All payments should clearly
indicate the shareholder's account number. Provided that the information on the
subscription order form on file with the Fund is still applicable, a shareholder
may reopen an account without filing a new subscription order form at any time
during the year the shareholder's account is closed or during the following
calendar year.
Subsequent purchases can be made either by bank wire or by personal delivery, as
indicated above or by mailing a check to the Fund's transfer agent at:
Mutual Funds Group
P.O. Box 16815
Newark, New Jersey 07101-6815
Electronic Funds Transfers (EFT)
and Direct Deposit Privilege
You may purchase Fund shares (minimum of $50) by having salary, dividend
payments, interest
5
<PAGE>
payments or any other payments designated by you, or by having federal salary,
social security, or certain veteran's, military or other payments from the
federal government, automatically deposited into your account. You may deposit
as much of such payments as you elect. To enroll in this program, you must file
with the Company a completed EFT Application and/or a Direct Deposit Sign-Up
Form for each type of payment that you desire to include in the privilege. The
appropriate form may be obtained from Interstate/Johnson Lane or the Company.
Death or legal incapacity will terminate your participation in the privilege.
You may elect at any time to terminate your participation by notifying in
writing the appropriate depositing entity and/or federal agency. Further, the
Company may terminate your participation upon 30 days' notice to you.
HOW TO REDEEM SHARES
You may redeem your shares, in whole or in part, on any day on which the Fund's
net asset value is calculated. Shares are redeemed at the net asset value next
determined after receipt of proper notice of redemption. If you redeem all of
your shares, you will receive payment of all dividends declared but unpaid
through the date of redemption. If you redeem only a portion of the shares in
your account, the dividends declared but unpaid on the shares redeemed will not
be distributed to you until the next regular dividend payment date. If your
redemption order is received prior to 12 noon Eastern time, the redemption will
be effective on that day and the Company will endeavor to transmit payment that
same business day. If the notice of redemption is received after 12 noon and
prior to 4:15 p.m. Eastern time, the redemption will be at the 4:15 p.m. net
asset value and payment will be made on the next business day.
Some of the redemption procedures described below may require you to complete
and file an authorization form in advance. If purchases are made by check,
redemption of those shares by wire, by check redemption or by telephone are
restricted for fifteen calendar days following the purchase of shares. Under
certain circumstances the Company may redeem accounts of less than $500 or
impose a monthly service charge of not more than $10 on such accounts.
Redemptions Through Interstate/Johnson Lane
Shareholders may redeem shares by instructing Interstate/Johnson Lane to effect
their redemption transactions. Interstate/Johnson Lane will transmit the
required redemption information to the Company and the proceeds from that
redemption will be transmitted to Interstate/Johnson Lane for the account of the
shareholder. Interstate/Johnson Lane may impose redemption minimums, service
fees or other requirements. Interstate/Johnson Lane has a responsibility to
transmit redemption requests promptly.
Redemptions by Check
Shareholders may use checks to effect redemptions. The standard checking allows
checks to be drawn in any amount of $250 or more. Checks drawn in amounts of
less than $250 may be returned to the payee or a $15 fee will be imposed for
such checks paid.
Shareholders may elect to establish a Key Account. A Key Account provides draft
checking services which is part of a range of cash management services provided
by the Manager and/or its affiliates. The account entitles shareholders to write
checks in any amount that will clear through an agent bank. SHAREHOLDERS WHO ARE
INTERESTED IN PARTICIPATING IN THE KEY ACCOUNT PROGRAM SHOULD CONSIDER THE
INFORMATION AVAILABLE FROM INTERSTATE/JOHNSON LANE WITH RESPECT TO THE KEY
ACCOUNT, INCLUDING THE FEES RELATED THERETO.
The payee of a check may cash or deposit it in the same way as an ordinary bank
check. When a check is presented to the agent bank for payment, the agent bank
will cause the Company to redeem a sufficient number of shares to cover the
amount of the check. Shareholders are entitled to dividends on the shares
redeemed up until the day on which
6
<PAGE>
the check is presented to the agent bank for payment. Checks drawn on
insufficient funds will be returned to the payee and a fee (currently $16) will
be imposed. Additionally, a fee (currently $20) will be imposed for stop payment
orders.
Preauthorized Redemptions
Shareholders may make preauthorized redemptions by contacting the Company by:
(a) calling (212) 830-5280 if calling from New Jersey, Alaska or Hawaii or
(b) calling toll free at (800) 433-1918 if calling from elsewhere in the
continental United States or
(c) sending a telegram or letter to Reich & Tang, 600 Fifth Avenue, New York,
New York 10020
and have the proceeds mailed or wired only to Interstate/Johnson Lane or a
previously designated bank account if (a) shares were paid for in Federal Funds
or were purchased by check and have been on the Company's books at least fifteen
calendar days and (b) a telephone redemption authorization included in the
Investor Application is on file with the Company before the redemption request
is placed. This authorization requires designation of a brokerage or bank
account to which the redemption payment is to be sent. The proceeds will not be
mailed or wired to other than the designated account. Redemptions of $10,000 or
more will be sent by bank wire if requested. Smaller amounts will normally be
mailed to the designated account.
The Company will employ procedures to confirm that telephone redemption
instructions are genuine, and will require that shareholders electing such
option provide a form of personal identification. The failure by the Company to
employ such procedures may cause the Company to be liable for any losses
incurred by investors due to telephone redemptions based upon unauthorized or
fraudulent instructions.
Redemptions by Letter of Instruction
Shareholders may redeem shares by a letter of instruction sent directly to Reich
& Tang Funds, 600 Fifth Avenue, New York, New York 10020, containing:
(a) your Interstate/Johnson Lane account number
(b) your redemption Fund choice
(c) your name and telephone number
(d) the dollar amount or number of shares to be redeemed or a statement that
all shares in the account are to be redeemed
(e) payment instructions (normally redemption proceeds will be mailed to the
shareholder's address as registered with the Company)
(f) signature(s) of the registered shareholder(s)
(g) signature(s) guaranteed stamped under the signature and signed and
guaranteed by an eligible guarantor institution which includes a domestic
bank, a domestic savings and loan institution, a domestic credit union, a
member bank of the Federal Reserve System or a member firm of a national
securities exchange, pursuant to the Company's standards and procedures.
The proceeds of redemption are sent to the shareholder's bank or the
shareholder's address as it appears in the Company's records. In order to change
such designation, the shareholder must submit a written notification to the
Company with the signature guarantee(s) described above.
Exchanges
Shares of each Fund may be exchanged at net asset value for shares of any of the
other Funds without charge by instructions to Interstate/Johnson Lane or by
mail. The value of the shares being exchanged must meet the minimum initial
investment requirements of the Fund. Mail exchange orders should be addressed
and sent as shown under the heading "Redemptions by Letter of Instruction" and
must contain:
* your Interstate/Johnson Lane account number
* your name and telephone number
7
<PAGE>
* the amount of shares to be exchanged (or, if all shares are to be
exchanged, a statement to this effect)
* the Fund shares to be exchanged
* the Fund shares to be acquired
* any change in dividend election
INVESTMENT PROGRAMS
Investment Objectives
The Live Oak General Fund and the Live Oak Government Fund seek to provide as
high a level of current income as is consistent with the preservation of capital
and liquidity. The Live Oak Municipal Fund seeks to provide as high a level of
current income exempt from federal income taxes as is consistent with the
preservation of capital and liquidity. For purposes of this Prospectus and the
Statement of Additional Information, interest which is "tax-exempt" or "exempt"
from federal income tax means interest which is excluded from gross income for
federal income tax purposes, but which may constitute an item of tax preference
and which may therefore give rise to a federal alternative minimum tax liability
for individual shareholders. The investment objectives of each Fund are
fundamental policies, which may not be changed without the approval of the
shareholders of the respective Funds.
Investment Policies
Each Fund invests only in U.S. dollar-denominated securities which are rated in
one of the two highest rating categories for debt obligations by at least two
nationally recognized statistical rating organizations ("NRSROs") (or one NRSRO
if the instrument was rated by only one such organization) or, if unrated, are
of comparable quality as determined in accordance with procedures established by
the Board of Directors. The NRSROs currently rating instruments of the type one
or more of the Funds may purchase are Moody's Investors Service, Inc., Standard
& Poor's Corporation, Duff and Phelps, Inc., Fitch Investors Service, Inc., IBCA
Limited and IBCA Inc. (See the Statement of Additional Information for
information with respect to rating criteria for each NRSRO.)
Investments in rated securities not rated in the highest category by at least
two NRSROs (or one NRSRO if the instrument was rated by only one such
organization), and unrated securities not determined by the Board of Directors
to be comparable to those rated in the highest category, will be limited to 5%
of a Fund's total assets, with the investment in any such issuer being limited
to not more than the greater of 1% of a Fund's total assets or $1 million. A
Fund may invest in obligations issued or guaranteed by the U.S. Government
without any such limitation.
Each Fund invests in such high quality debt obligations with relatively short
maturities. Each Fund seeks to achieve its objective by investing in different
types of securities, as described below. Unless otherwise stated, the investment
policies and restrictions set forth below and in the Statement of Additional
Information are not fundamental policies, and may be changed by the Board of
Directors, with notice to shareholders.
Live Oak Government Fund
The Live Oak Government Fund endeavors to achieve its objective by investing at
least 65% of its total assets in short-term "U.S. Government Obligations." U.S.
Government Obligations consist of marketable securities and instruments issued
or guaranteed by the U.S. Government or by its agencies or instrumentalities.
Direct obligations are issued by the U.S. Treasury and include bills,
certificates of indebtedness, notes and bonds. Obligations of U.S. Government
agencies and instrumentalities ("Agencies") are issued by government-sponsored
agencies and enterprises acting under authority of Congress. Although
obligations of federal agencies and instrumentalities are not debts of the U.S.
Treasury, in some cases payment of interest and principal on such
8
<PAGE>
obligations is guaranteed by the U.S. Government, e.g., obligations of the
Federal Housing Administration, the Export-Import Bank of the United States, the
Small Business Administration, the Government National Mortgage Association, the
General Services Administration and the Maritime Administration; in other cases
payment of interest and principal is not guaranteed, e.g., obligations of the
Federal Home Loan Bank System and the Federal Farm Credit Bank. The Live Oak
Government Fund will invest in Agencies which are not guaranteed or backed by
the full faith and credit of the U.S. Government only when the Fund's Board of
Directors is satisfied that the credit risk with respect to a particular agency
or instrumentality is minimal.
Live Oak General Fund
The Live Oak General Fund seeks to achieve its objective by investing at least
80% of its assets in U.S. Government Obligations, as defined above, in bank
instruments, in trust instruments, in corporate commercial instruments and in
other corporate instruments maturing in thirteen months or less (collectively,
"Money Market Obligations").
The Live Oak General Fund may invest in bank instruments, which consist mainly
of certificates of deposit, bankers' acceptances and time deposits. The Live Oak
General Fund may also invest in corporate instruments supported by bank letters
of credit. The Live Oak General Fund generally limits investments in bank
instruments to (a) those which are fully insured as to principal by the FDIC or
(b) those issued by banks which at the date of their latest public reporting
have total assets in excess of $1.5 billion. However, the total assets of a bank
will not be the sole factor determining the Fund's investment decisions, and the
Fund may invest in bank instruments issued by institutions which the Board of
Directors believes present minimal credit risk.
The Live Oak General Fund may invest up to 100% of its assets in obligations
issued by banks, and up to 10% of its assets in obligations issued by any one
bank, subject to the provisions of Rule 2a-7 of the Investment Company Act of
1940 (the "1940 Act"). If the bank is a domestic bank, it must be a member of
the FDIC. The Live Oak General Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks or foreign branches of
foreign banks ("Eurodollar" obligations) and domestic branches of foreign banks
("Yankee dollar" obligations). The Live Oak General Fund will limit its
aggregate investments in foreign bank obligations, including Eurodollar
obligations and Yankee dollar obligations, to 25% of its total assets at the
time of purchase, provided that there is no limitation upon the Live Oak General
Fund investments in (a) Eurodollar obligations, if the domestic parent of the
foreign branch issuing the obligation is unconditionally liable in the event
that the foreign branch fails to pay on the Eurodollar obligation for any
reason; and (b) Yankee dollar obligations, if the U.S. branch of the foreign
bank is subject to the same regulation as U.S. banks. Eurodollar, Yankee dollar
and other foreign bank obligations include time deposits, which are
non-negotiable deposits maintained in a bank for a specified period of time at a
stated interest rate. The Live Oak General Fund will limit its purchases of time
deposits to those which mature in seven days or less, and will limit its
purchases of time deposits maturing in two to seven days to 10% of such Fund's
total assets at the time of purchase.
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, that the obligations may
be less marketable than comparable domestic obligations of domestic issuers,
that a foreign jurisdiction might impose withholding taxes on interest income
payable on those obligations, that deposits may be seized or nationalized, that
foreign governmental restrictions such as exchange controls may be adopted which
might adversely affect the payment of principal of
9
<PAGE>
and interest on those obligations, that the selection of foreign obligations may
be more difficult because there may be less information publicly available
concerning foreign issuers, that there may be difficulties in enforcing a
judgment against a foreign issuer or that the accounting, auditing and financial
reporting standards, practices and requirements applicable to foreign issuers
may differ from those applicable to domestic issuers. In addition, foreign banks
are not subject to examination by United States Government agencies or
instrumentalities.
The Live Oak General Fund may invest in short-term corporate obligations and
instruments, including but not limited to corporate commercial paper, notes,
bonds and debentures. Corporate commercial instruments generally consist of
short-term unsecured promissory notes issued by corporations. The Live Oak
General Fund may also purchase variable amount master demand notes, which are
unsecured demand notes that permit investment of fluctuating amounts of money at
variable rates of interest pursuant to arrangements with issuers who meet the
foregoing quality criteria. The interest rate on a variable amount master demand
note is periodically redetermined according to a prescribed formula. Although
there is no secondary market in master demand notes, the payee may demand
payment of the principal and interest upon notice not exceeding five business or
seven calendar days. The Live Oak General Fund may also purchase participation
interests in loans extended by banks to companies, provided that both such banks
and such companies meet the quality standards set forth above. (See the
Statement of Additional Information for information with respect to corporate
commercial instruments and bond ratings.) The Live Oak General Fund may also
invest in fixed or variable rate debt units representing an undivided interest
in a trust's distributions of principal and interest that a trust receives from
an underlying portfolio of bonds issued by a highly rated corporate or U.S.
Government agency issuer and/or payments from re-characterized distributions
made possible by the swap of certain payments due on the underlying bonds. The
Live Oak General Fund's investment will be limited solely to the debt units and
in each case, must meet the credit quality standards under Rule 2a-7 of the 1940
Act. Debt units will be purchased by the Live Oak General Fund as an
institutional accredited investor pursuant to a private placement memorandum.
Sale of debt units will be effected pursuant to Rule 144A or other exemptions
from registration under the Securities Act of 1933, subject to the eligibility
of the purchaser and compliance with trust agreement requirements. The Manager
will monitor the liquidity of the debt units under the supervision of the
Company's Board of Directors.
Live Oak Municipal Fund
The Life Oak Municipal Fund seeks to provide as high a level of current income
that is exempt from federal income taxes as is consistent with the preservation
of capital and liquidity by investing at least 80% of its net assets in a
diversified portfolio of high quality, short-term municipal obligations
("Municipal Securities").
The Live Oak Municipal Fund will invest in the following securities. The Live
Oak Municipal Fund will invest in Municipal Securities which include debt
obligations issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities, the refunding of outstanding
obligations, the obtaining of funds for general operating expenses and lending
such funds to other public institutions and facilities. In addition, certain
types of private activity bonds or industrial development bonds are issued by or
on behalf of public authorities to obtain funds to provide for the construction,
equipment, repair or improvement of privately operated facilities. Such
obligations are considered to be Municipal Securities provided that the interest
paid thereon generally qualifies as exempt from federal income tax in the
opinion of bond counsel. However, interest on Municipal
10
<PAGE>
Securities may give rise to federal alternative minimum tax liability and may
have other collateral federal income tax consequences.
The Live Oak Municipal Fund also may purchase any Municipal Security which
depends on the credit of the U.S. Government and may invest in Municipal
Securities which are not rated if, in the opinion of the Company's investment
advisor, and in accordance with procedures established by the Board of
Directors, such securities possess creditworthiness comparable to those rated
obligations in which the Live Oak Municipal Fund may invest. The Live Oak
Municipal Fund may, from time to time, on a temporary or defensive basis, invest
in short-term, high quality U.S. Government Obligations, Money Market
Obligations and repurchase agreements. Income from any such temporary
investments would be taxable to shareholders as ordinary income. It is the
present policy of the Live Oak Municipal Fund to invest only in securities the
interest on which is tax-exempt. The Fund will endeavor to be invested at all
times in Municipal Securities. It is a fundamental policy of the Live Oak
Municipal Fund that its assets will be invested so that at least 80% of its
income will be exempt from federal income taxes. The Live Oak Municipal Fund may
from time to time hold cash reserves.
All Funds
The securities in which the Funds invest may not yield as high a level of
current income as longer term or lower grade securities, which generally have
less liquidity and greater fluctuation in value. There can be no assurance that
the Funds will achieve their objectives. The values of the securities in which
the Funds invest fluctuate based upon interest rates, the financial stability of
the issuers and market factors.
The Company may enter into the following arrangements with respect to all three
Funds. Repurchase Agreements: under a repurchase agreement, the purchaser (for
example, one of the Funds) acquires ownership of an obligation and the seller
agrees, at the time of the sale, to repurchase the obligation at a mutually
agreed upon time and price, thereby determining the yield during the purchaser's
holding period. This arrangement results in a fixed rate of return insulated
from market fluctuations during such period. Although the underlying collateral
for repurchase agreements may have maturities exceeding one year, a Fund will
not enter into a repurchase agreement if as a result of such investment more
than 10% of such Fund's net assets would be invested in illiquid securities,
including repurchase agreements which expire in more than seven days. A Fund
may, however, enter into "continuing contract" or "open" repurchase agreements
under which the seller is under a continuing obligation to repurchase the
underlying obligation from that Fund on demand and the effective interest rate
is negotiated on a daily basis.
In general, a Fund will enter into repurchase agreements only with domestic
banks with total assets of at least $1.5 billion or with primary dealers in U.S.
Government securities. However, the total assets of a bank will not be the sole
factor determining the Fund's investment decisions, and the Fund may enter into
repurchase agreements with other institutions which the Board of Directors
believes present minimal credit risk. Nevertheless, if the seller of a
repurchase agreement fails to repurchase the obligation in accordance with the
terms of the agreement, the Fund which entered into the repurchase agreement may
incur a loss to the extent that the proceeds it realized on the sale of the
underlying obligation are less than the repurchase price. Repurchase agreements
may be considered loans to the seller of the underlying security. Income with
respect to repurchase agreements is not tax-exempt.
Securities purchased pursuant to a repurchase agreement are held by the Fund's
Custodian and (i) are recorded in the name of the Fund with the Federal Reserve
Book-Entry System, or (ii) the
11
<PAGE>
Fund receives daily written confirmation of each purchase of a security and a
receipt from the Custodian. The Funds purchase securities subject to a
repurchase agreement only when the purchase price of the security acquired is
equal to or less than its market price at the time of purchase.
A Fund may also enter into reverse repurchase agreements which involve the sale
by a Fund of a portfolio security at an agreed upon price, date and interest
payment. A Fund will enter into reverse repurchase agreements for temporary or
defensive purposes to facilitate the orderly sale of portfolio securities to
accommodate abnormally heavy redemption requests should they occur, or in some
cases as a technique to enhance income. A Fund will use reverse repurchase
agreements when the interest income to be earned from the investment of the
proceeds of the transaction is greater than the interest expense of the reverse
repurchase transaction. A Fund will enter into reverse repurchase agreements
only in amounts up to 10% of the value of its total assets at the time of
entering into such agreements. Reverse repurchase agreements involve the risk
that the market value of securities retained by a Fund in lieu of liquidation
may decline below the repurchase price of the securities sold by the Fund which
it is obligated to repurchase. This risk, if encountered, could cause a
reduction in the net asset value of a Fund's shares. Reverse repurchase
agreements are considered to be borrowings under the 1940 Act. See "Investment
Restrictions" in the Statement of Additional Information for percentage
limitations on borrowings.
Delayed delivery agreements are commitments by any of the Funds to dealers or
issuers to acquire securities beyond the customary same-day settlement for money
market instruments. These commitments fix the payment price and interest rate to
be received on the investment. Delayed delivery agreements will not be used as a
speculative or leverage technique. Rather, from time to time, the Funds'
investment advisor can anticipate that cash for investment purposes will result
from scheduled maturities of existing portfolio instruments or from net sales of
shares of a Fund; therefore, to assure that a Fund will be as fully invested as
possible in instruments meeting that Fund's investment objective, a Fund may
enter into delayed delivery agreements, but only to the extent of anticipated
funds available for investment during a period of not more than five business
days.
Money Market Obligations and Municipal Securities are sometimes offered on a
"when-issued" basis, that is, the date for delivery of and payment for the
securities is not fixed at the date of purchase, but is set after the securities
are issued (normally within forty-five days after the date of the transaction).
The payment obligation and the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A Fund
will only make commitments to purchase such Money Market Instruments or
Municipal Securities with the intention of actually acquiring such securities,
but a Fund may sell these securities before the settlement date if it is deemed
advisable.
If a Fund enters into a delayed delivery agreement or purchases a when-issued
security, that Fund will direct the Company's custodian bank to place cash or
other high grade securities (including Money Market Obligations and Municipal
Securities) in a segregated account of such Fund in an amount equal to its
delayed delivery agreements or when-issued commitments. If the market value of
such securities declines, additional cash or securities will be placed in the
account on a daily basis so that the market value of the account will equal the
amount of such Fund's delayed delivery agreements and when-issued commitments.
To the extent that funds are in a segregated account, they will not be available
for new investment or to meet redemptions. Investment in securities on a
when-issued basis and use of delayed delivery agreements may increase a Fund's
exposure to market fluctuation; may increase the possibility that the Live Oak
Municipal Fund will incur a
12
<PAGE>
short-term gain subject to federal taxation; or may increase the possibility
that a Fund will incur a short-term loss, if the Fund must engage in portfolio
transactions in order to honor a when-issued commitment or accept delivery of a
security under a delayed delivery agreement. The Funds will employ techniques
designed to minimize these risks.
No additional delayed delivery agreements or when-issued commitments will be
made if more than 25% of a Fund's net assets would become so committed. The
Funds will enter into when-issued and delayed delivery transactions only when
the time period between trade date and settlement date is at least 30 days and
not more than 120 days.
The Live Oak Municipal Fund may attempt to improve its portfolio liquidity by
assuring same-day settlements on portfolio sales (and thus facilitate the
same-day payment of redemption proceeds) through the acquisition of "Stand-by
Commitments." A Stand-by Commitment is a right of the Live Oak Municipal Fund,
when it purchases Municipal Securities for its portfolio from a broker, dealer
or other financial institution, to sell the same principal amount of such
securities back to the seller, at the Live Oak Municipal Fund's option, at a
specified price. Stand-by Commitments are also sometimes known as "puts." The
Live Oak Municipal Fund will acquire Stand-by Commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition or exercisability of a Stand-by Commitment by
the Live Oak Municipal Fund will not affect the valuation or the average
weighted maturity of its underlying portfolio securities. See "Investment
Programs and Restrictions - Stand-by Commitments" in the Statement of Additional
Information for additional information with respect to Stand-by Commitments.
Investment Restrictions
The Funds' investment programs are subject to a number of investment
restrictions which reflect self-imposed standards as well as federal and state
regulatory limitations. The most significant of these restrictions provide that
each Fund will not: (1) purchase securities of any issuer (other than
obligations of the U.S. Government, its agencies or instrumentalities,
repurchase agreements fully secured by such obligations and any Municipal
Securities guaranteed by the U.S. Government) if as a result more than 5% of a
Fund's total assets would be invested in the securities of such issuer, except
that in the case of certificates of deposit and bankers' acceptances, up to 25%
of the value of a Fund's total assets may be invested without regard to such 5%
limitation, but shall instead be subject to a 10% limitation (in each case,
subject to the provisions of Rule 2a-7 of the 1940 Act); (2) purchase any
corporate commercial instruments which would cause 25% of the value of the Live
Oak General Fund's total assets at the time of such purchase to be invested in
securities of one or more issuers conducting their principal business activities
in the same industry; (3) borrow money or pledge, mortgage or hypothecate its
assets except for temporary or emergency purposes (except to secure reverse
repurchase agreements and then only in an amount not exceeding 15% of the value
of a Fund's total assets) except that each Fund may purchase delayed delivery
and when-issued securities consistent with its investment objective and policies
(such Fund will not make additional investments while borrowings other than
when-issued and delayed delivery purchases are outstanding); or (4) lend money
or securities except to the extent that the investments of a Fund may be
considered loans.
Additionally, the Live Oak Municipal Fund will not: (1) purchase any securities
which would cause more than 25% of the value of the Live Oak Municipal Fund's
net assets at the time of such purchase to be invested in (i) securities of one
or more issuers conducting their principal activities in the same state, (ii)
securities, the interest upon which is paid from revenues of projects with
similar
13
<PAGE>
characteristics, or (iii) industrial development bonds issued by issuers in the
same industry; provided that there is no limitation with respect to investments
in U.S. Treasury Bills, other obligations issued or guaranteed by the U. S.
Government and its agencies or instrumentalities, certificates of deposit of and
guarantees of Municipal Securities by domestic branches of U.S. banks; or (2)
purchase or sell puts, calls, straddles, spreads or combinations thereof, except
that the Live Oak Municipal Fund may purchase Stand-by Commitments.
The foregoing restrictions are matters of fundamental policy and may not be
changed without the affirmative vote of a majority of the outstanding shares of
each Fund affected by such change.
Maturities
Consistent with the objective of stability of principal, each Fund attempts to
maintain a constant net asset value per share of $1.00 and, to this end, values
its assets by the amortized cost method and rounds its per share net asset value
to the nearest whole cent in compliance with applicable rules and regulations.
Accordingly, the Funds invest in Money Market Obligations and Municipal
Securities having remaining maturities of thirteen months or less and maintain a
weighted average maturity for each Fund of 90 days or less. However, there can
be no assurance that a Fund's net asset value per share of $1.00 will be
maintained.
DIVIDENDS AND TAXES
Qualification as Regulated Investment Company
Dividends
It is the policy of the Company, with respect to each Fund, to declare dividends
from the net investment income earned by each Fund daily; such dividends are
distributed to each Fund's shareholders in the form of additional Fund shares on
the subsequent business day. Dividends from net realized capital gain, offset by
capital loss carryovers, if any, are generally declared and paid when realized.
However, to the extent that a net realized capital gain is deemed necessary to
offset future capital losses, such gain will not be distributed at that time. A
shareholder may, by letter to the Company, elect to have dividends paid by
check. Any such election or revocation thereof must be made in writing to Reich
& Tang Funds, 600 Fifth Avenue, New York, New York 10020. Shareholders whose
dividends are being reinvested will receive a summary of their accounts at least
quarterly indicating the reinvestment of dividends.
Taxes
Each Fund is treated as a separate taxable entity for federal income tax
purposes. Each Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). It is each Fund's policy to distribute to shareholders all of its net
investment income and any capital gains (net of capital losses) in accordance
with the timing requirements imposed by the Code, so that each Fund will satisfy
the distribution requirement of Subchapter M and not be subject to federal
income taxes or the 4% excise tax. So long as the Funds qualify for this tax
treatment, the Funds will not be subject to federal income tax on amounts
distributed to shareholders.
If the Funds fail to satisfy any of the Code requirements for qualification as a
regulated investment company, they will be taxed at regular corporate tax rates
on all of their taxable income (including capital gains) without any deduction
for distributions to shareholders, and distributions will be taxable to
shareholders as ordinary dividends (even if derived from the Funds' net
long-term capital gains) to the extent of the Funds' current and accumulated
earnings and profits.
Shareholders of the Live Oak Municipal Fund will not be required to include the
"exempt-interest" portion of dividends paid by the Fund in their gross
14
<PAGE>
income for federal income tax purposes. However, shareholders will be required
to report the receipt of exempt-interest dividends and other tax-exempt interest
on their federal income tax returns. Moreover, exempt-interest dividends may be
subject to state income taxes, may give rise to a federal alternative minimum
tax liability, may affect the amount of social security benefits subject to
federal income tax, may affect the deductibility of interest on certain
indebtedness of the shareholder and may have other collateral federal income tax
consequences. The Live Oak Municipal Fund may purchase without limitation
Municipal Securities the interest on which constitutes an item of tax preference
and which may therefore give rise to a federal alternative minimum tax liability
for individual shareholders. For additional information concerning the
alternative minimum tax and certain collateral tax consequences of the receipt
of exempt-interest dividends, see the Statement of Additional Information.
The Live Oak Municipal Fund may invest in securities the interest on which is
(and the dividends paid by the Fund derived from such interest are) subject to
federal income tax, but such taxable securities will not exceed 20% of the value
of the Live Oak Municipal Fund's total assets. The percentage of dividends which
constitute exempt-interest dividends, and the percentage thereof (if any) which
constitutes an item of tax preference, will be determined annually and will be
applied uniformly to all dividends of the Live Oak Municipal Fund declared
during that year. These percentages may differ from the actual percentages for
any particular day.
Shareholders of the Live Oak Government Fund and the Live Oak General Fund will
be subject to federal income taxes and any applicable state income taxes on
amounts distributed as dividends unless such shareholders are otherwise exempt.
It is not expected that any portion of taxable dividends paid by the Funds will
qualify for the federal dividends-received deduction for corporations.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether the shareholder elects to receive them in cash or
reinvest them in additional shares. In general, shareholders take distributions
into account in the year in which they are made. However, shareholders are
required to treat certain distributions made during January as having been paid
and received on December 31 of the preceding year. A statement setting forth the
federal income tax status of all distributions made (or deemed made) during the
year, will be sent to shareholders promptly after the end of each year.
To avoid being subject to a 31% federal backup withholding on taxable dividends
and redemption payments, shareholders must furnish the Company with their
taxpayer identification number and certify, under penalties of perjury, that it
is correct and that they are not subject to backup withholding for any reason.
The foregoing discussion of federal income tax consequences is based on tax laws
and regulations in effect on the date of this Prospectus, and is subject to
change by legislation or administrative action. As the foregoing discussion is
for general information only, shareholders should also review the more detailed
discussion of federal income tax considerations relevant to the Funds that is
contained in the Funds' Statement of Additional Information. Shareholders are
advised to consult with their tax advisors concerning the application of state,
local and foreign taxes on investments in the Company which may differ from the
federal income tax consequences described above.
MANAGEMENT
Board of Directors
The overall management of the business and affairs of the Company is vested with
the Board of Directors. The Board of Directors approves all significant
agreements between the Funds and persons or companies furnishing services to the
15
<PAGE>
Funds, including the Funds' agreements with the manager, the investment advisor,
the distributor, and the custodian. The day-to-day operations of each Fund are
delegated to the Company's officers, and the manager, subject always to the
objective and policies of each Fund and to the general supervision of the
Company's Board of Directors. The manager also furnishes or procures on behalf
of the Company at the manager's expense all services necessary for the proper
conduct of each Fund's business. Some of the Company's officers and directors
are officers or employees of the manager. A majority of the members of the Board
of Directors of the Company have no affiliation with the manager.
Manager and Investment Advisor
Reich & Tang Asset Management L.P. is a Delaware limited partnership, with its
principal offices at 600 Fifth Avenue, New York, New York 10020, serves as the
manager and investment advisor of the Company and its three Funds pursuant to
agreements with the Funds dated October 1, 1994 (the "Management/Investment
Advisory Agreements"). Under the Management/Investment Advisory Agreements,
Reich & Tang Asset Management L.P. (the "Manager") provides, either directly or
indirectly through contracts with others, all services required for the
management of the Company. The Manager bears all ordinary operating expenses
associated with the Company's operation except: (a) the fees of the Directors
who are not "interested persons" of the Company, as defined by the 1940 Act, and
the travel and related expenses of the Directors incident to their attending
shareholders', directors' and committee meetings, (b) interest, taxes and
brokerage commissions (which are expected to be insignificant), (c)
extraordinary expenses, if any, including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto, (d)
shareholder service or distribution fees payable by the Company under the plans
of distribution described under the heading "Distributor" below, and (e)
membership dues of any industry association. Additionally, the Manager has
assumed all expenses associated with organizing the Company and all expenses of
registering or qualifying the Company's shares under federal and state
securities laws.
The Funds pay the Manager an annual fee, calculated daily and paid monthly, of
.80% of the first $500 million of the Company's average daily net assets, plus
.775% of the next $500 million of the Company's average daily net assets, plus
.750% of the next $500 million of the Company's average daily net assets, plus
.725% of the Company's average daily net assets in excess of $1.5 billion. The
Company's comprehensive fee is higher than most other money market mutual funds
which do not offer services that the Company offers. However, most other funds
bear expenses that are being borne for the Company by the Manager. During the
fiscal year ended March 31, 1996, the Company paid the Manager fees which
represented 0.77% of the Cortland General Portfolio's average daily net assets,
0.77% of the Government Portfolio's average daily net assets and 0.77% of the
Municipal Portfolio's average daily net assets, respectively, on an annualized
basis.
The Manager was at April 30, 1996 investment manager, advisor or supervisor with
respect to assets aggregating in excess of $9.09 billion. The Manager currently
acts as investment manager or administrator of 15 other investment companies and
also advises pension trusts, profit sharing trusts and endowments. New England
Investment Companies, L.P. ("NEICLP") is the limited partner and owner of a
99.5% interest in the limited partnership, Reich & Tang Asset Management L.P.,
the Manager. Reich & Tang Asset Management, Inc. (a wholly-owned subsidiary of
NEICLP) is the general partner and owner of the remaining .5% interest of the
Manager. Reich & Tang Asset Management L.P. has succeeded NEICLP as the Manager
of the Fund.
16
<PAGE>
New England Investment Companies, Inc. ("NEIC"), a Massachusetts corporation,
serves as the sole general partner of NEICLP. The New England Mutual Life
Insurance Company ("The New England") owns approximately 55.9% of the total
partnership units outstanding of NEICLP, and Reich & Tang, Inc. owns
approximately 17.6% of the outstanding partnership units of NEICLP. In addition,
NEIC is a wholly-owned subsidiary of The New England which may be deemed a
"controlling person" of the Manager. NEIC is a holding company offering a broad
array of investment styles across a wide range of asset categories through ten
investment advisory/management affiliates and two distribution subsidiaries.
These include, in addition to the Manager, Loomis, Sayles & Company, L.P.;
Copley Real Estate Advisors, Inc.; Back Bay Advisors, L.P.; Marlborough Capital
Advisors, L.P.; Westpeak Investment Advisors, L.P.; Draycott Partners, Ltd,; TNE
Investment Services, L.P.; New England Investment Associates, Inc.; Harris
Associates; and an affiliate, Capital Growth Management Limited Partnership.
These affiliates in the aggregate are investment advisors or managers to 42
other registered investment companies.
Pursuant to the terms of the Management/ Investment Advisory Agreements, the
Manager manages the investments of each of the Funds, subject at all times to
the policies and control of the Company's Board of Directors. The Manager
obtains and evaluates economic, statistical and financial information to
formulate and implement investment policies for the Funds. The Manager shall not
be liable to the Funds or to their shareholders except in the case of the
Manager's willful misfeasance, bad faith, gross negligence or reckless disregard
of duty.
The New England and Metropolitan Life Insurance Company ("MetLife") have entered
into an agreement to merge, with MetLife to be the survivor of the merger. The
merger is conditioned upon, among other things, approval by the policyholders of
The New England and MetLife and receipt of certain regulatory approvals. The
merger is not expected to occur until after June 30, 1996.
The merger of The New England into MetLife is expected to constitute an
"assignment" of the existing Management/Investment Advisory Agreements relating
to the Company's Funds. Under the 1940 Act, such an "assignment" will result in
the automatic termination of the Management/Investment Advisory Agreements
effective at the time of the merger. Shareholders of the Funds have approved the
new Management/Investment Advisory Agreements intended to take effect at the
time of the merger. The new agreements are substantially identical to the
existing agreements.
Fee Waivers
In order to increase the yield to investors, the Manager may, from time to time,
waive or reduce its fees on assets held by each of the Funds. When instituted,
the Manager will continue these fee
17
<PAGE>
waivers in effect or charge reduced fees until further notice to the Board of
Directors. Fee waivers or reductions, other than those set forth in the
Management/Investment Advisory Agreements, may be rescinded, however, at any
time without further notice to investors.
Distributor
Each of the Portfolios has entered into a distribution agreement dated September
15, 1993 (the "Distribution Agreements") with Reich & Tang Distributors L.P.
(the "Distributor"), 600 Fifth Avenue, New York, New York 10020. Reich & Tang
Asset Management L.P. is the sole general partner of the Distributor. The
Distributor, which was organized on January 4, 1991, has the exclusive right to
enter into dealer agreements with securities dealers who sell shares of the
Funds and with financial institutions which may furnish services to shareholders
on behalf of the Company. Pursuant to plans of distribution (the "Plans")
approved by the Funds' Boards on November 9, 1995, each of the Funds may make
distribution related payments in an amount not to exceed on an annualized basis
.20% of the value of the Fund's assets. Securities dealers and other financial
institutions may receive distribution payments directly or indirectly from the
Funds for services that may include payments for opening shareholder accounts,
processing investor purchase and redemption orders, responding to inquiries from
shareholders concerning the status of their accounts and operations of their
Fund and communications with the Company on behalf of Fund shareholders.
Additionally, the Distributor may pay for advertisements, promotional materials,
sales literature and printing and mailing of prospectuses to other than Fund
shareholders and other services to support distribution pursuant to the Plans.
The Distributor may also make payments to securities dealers and financial
institutions, such as banks, out of the investment management fee the Manager
receives from the Funds, out of its past profits or from any other source
available to the Distributor.
The Plans will only make payments for expenses actually incurred by the
Distributor. The Plans will not carry over expenses from year to year and if a
Plan is terminated in accordance with its terms, the obligations of a Fund to
make payments to the Distributor pursuant to the Plan will cease and the Fund
will not be required to make any payments past the date the Plan terminates.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Funds, broker-dealer selection and negotiation of commission rates. Since
purchases and sales of portfolio securities by the Funds are usually principal
transactions, the Funds incur little or no net brokerage commissions. Portfolio
securities are normally purchased directly from the issuer or from a market
maker for the securities. The purchase price paid to dealers serving as market
makers may include a spread between the bid and asked prices. The Funds may also
purchase securities from underwriters at prices which include a concession paid
by the issuer to the underwriter.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed to be in
the best interest of shareholders of the Funds rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price.
YIELD INFORMATION
Each Fund will provide yield quotations based on its daily dividends. Yield is
computed in accordance with a standardized formula described in the Statement of
Additional Information and can be expected to fluctuate substantially over time.
The Live Oak Municipal Fund also may purchase any Municipal Security which
or marketing the
18
<PAGE>
Funds' shares, including data from industry publications.
GENERAL INFORMATION
Organization of the Company and Description of Shares
The Company is an open-end, diversified investment company. The Company was
organized as a Massachusetts business trust on October 31, 1984, but had no
operations prior to May 9, 1985. On July 31, 1989, the Company reorganized and
became a Maryland corporation. The shares of the Company are divided into three
Portfolios, each of which represent shares of common stock of the par value of
$.001. The Cortland General Money Market Fund Portfolio's shares are classified
into three classes - the Cortland General Money Market Fund Class, the Live Oak
General Money Market Fund Class and the Pilgrim America General Money Market
Shares. The U.S. Government Fund Portfolio's shares are classified into two
classes - the U.S. Government Fund Class and the Live Oak U.S. Government Fund
Class. The Municipal Money Market Fund Portfolio's shares are classified into
two classes - the Municipal Money Market Fund Class and the Live Oak Municipal
Money Market Fund Class. Classes of shares of the Company's Portfolios offered
through other prospectuses have different maximum distribution plan payments and
may have different other expenses which may affect performance. Investors may
call their securities dealer or the Company at (212) 830-5280 to obtain more
information concerning the other classes.
Shares of the Company have equal rights with respect to voting, except that the
holders of shares of a particular Portfolio or Fund will have the exclusive
right to vote on matters affecting only the rights of the holders of such
Portfolio or Fund. For example, holders of a particular Portfolio will have the
exclusive right to vote on any investment advisory agreement or investment
restriction that relates only to such Portfolio. The holders of each Fund have
distinctive rights with respect to dividends and redemptions which are more
fully described in this Prospectus and the Statement of Additional Information.
In the event of dissolution or liquidation, holders of each Fund will receive
pro rata, subject to the rights of creditors, (a) the proceeds of the sale of
the assets held in the respective portfolio to which the shares of the Fund
relate, less (b) the liabilities of the Company attributable to the respective
portfolio or allocated between the portfolios based on the respective
liquidation value of each portfolio. There will not normally be annual
shareholders' meetings. Shareholders may remove directors from office by a
majority of votes entitled to be cast at a meeting of shareholders. Shareholders
holding 10% or more of the Company's outstanding stock may call a special
meeting of shareholders.
There are no preemptive or conversion rights (other than the exchange privileges
set forth in this Prospectus) applicable to any of the Company's shares. The
Company's shares when issued, will be fully paid, non-assessable and
transferrable. The Board of Directors may increase the number of authorized
shares or create additional series or classes of the Company shares without
shareholder approval.
Legal Matters
The law firm of Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York,
New York 10022, serves as counsel to the Company and has passed upon the
legality of the shares offered pursuant to this Prospectus.
Custodian and Transfer Agent
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, acts as custodian for each Portfolio's securities and cash. The Company
acts as its own transfer agent for the Company's shares.
19
<PAGE>
Shareholder Inquiries
Shareholder inquiries concerning the status of an account should be directed to
your securities dealer or to the Company at (212) 830-5280 or toll free at (800)
433-1918.
TABLE OF CONTENTS
Table of Fees and Expenses........................2
How to Purchase Shares............................3
How to Redeem Shares..............................5
Investment Programs...............................7
Dividends and Taxes..............................13
Management.......................................14
Portfolio Transactions...........................17
Yield Information................................17
General Information..............................18
20
<PAGE>
[GRAPHIC LOGO OMITTED]
LIVE OAK
SHARES
GENERAL
MONEY MARKET FUND
U.S.
GOVERNMENT FUND
MUNICIPAL MONEY
MARKET FUND
May 15, 1996
[GRAPHIC LOGO OMITTED]
Interstate/Johnson
Member New York Stock Exchange, Inc.
Member SIPC
Corporate Headquarters
Interstate Tower
121 West Trade Street
Charlotte, North Carolina 28202
<PAGE>
- --------------------------------------------------------------------------------
LIVE OAK 600 Fifth Avenue, New York, NY 10020
SHARES (212) 830-5280
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
May 15, 1996
Relating to the Live Oak Shares Prospectus
dated May 15, 1996
This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with a Prospectus which may be obtained from your securities
dealer or by writing to Reich & Tang Distributors L.P., 600 Fifth Avenue, New
York, New York 10020 or toll free at (800) 433-1918.
<TABLE>
<CAPTION>
Table of Contents
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Introduction.........................................2 Qualification as a Regulated
General Information about the Company................2 Investment Company..........................12
The Company and Its Shares........................2 Excise Tax on Regulated
Directors and Officers............................3 Investment Companies........................13
Compensation Table................................5 Portfolio Distributions........................13
Manager and Investment Advisor.......................5 Sale or Redemption of Portfolio Shares.........14
Expenses.............................................7 Foreign Shareholders.............................15
Distributor and Plans of Distribution................8 Effect of Future Legislation and
Custodian........................................10 Local Tax Considerations....................15
Transfer Agent...................................10 Yield Information.................................15
Sub-Accounting...................................10 Investment Programs and Restrictions..............16
Principal Holders of Securities..................10 Investment Programs............................16
Reports..........................................10 When-Issued Securities.........................19
Share Purchases and Redemptions.....................10 Stand-by Commitments...........................19
Purchases and Redemptions........................10 Municipal Participations.......................20
Net Asset Value Determination....................10 Investment Restrictions........................20
Dividends and Tax Matters...........................11 Portfolio Transactions............................21
Dividends........................................11 Investment Ratings................................23
Tax Matters......................................12 Financial Statements..............................26
</TABLE>
<PAGE>
INTRODUCTION
The Company, Cortland Trust, Inc., is a money market mutual fund. The rules and
regulations of the United States Securities and Exchange Commission (the "SEC")
require all mutual funds to furnish prospective investors certain information
concerning the activities of the company being considered for investment. This
information is included in a Prospectus dated May 15, 1996, relating to each of
the three money market portfolios comprising the Company, which may be obtained
without charge from Reich & Tang Distributors L.P. (the "Distributor").
Investors may also contact securities dealers authorized by the Distributor to
distribute the Company's shares in order to obtain a Prospectus. Some of the
information required to be in this Statement of Additional Information is also
included in the current Prospectus of the Company; and, in order to avoid
repetition, reference will be made to sections of the Prospectus. Additionally,
the Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the SEC. Copies
of the registration statement, including items omitted from the Prospectus and
this Statement of Additional Information, may be obtained from the SEC by paying
the charges prescribed under its rules and regulations.
Incorporated herein by reference is the Company's statement of additional
information dated August 1, 1995 contained in Post-Effective Amendment No. 18 to
the Company's Registration Statement on Form N-1A (File Nos. 2-94935 and
811-4179) filed with the SEC on July 28, 1995. It is available upon request and
without charge by writing or calling the Company at 600 Fifth Avenue, New York,
New York 10020 (212) 830-5280.
GENERAL INFORMATION ABOUT THE COMPANY
The Company and Its Shares
The Company is a no-load, open-end diversified investment company. The Company
was initially organized as a Massachusetts business trust pursuant to an
Agreement and Declaration of Trust dated October 31, 1984, but had no operations
prior to May 9, 1985. On July 31, 1989, the Company was reorganized from a
Massachusetts business trust into a Maryland corporation, pursuant to an
Agreement and Plan of Reorganization approved by the shareholders on July 31,
1989. The shares of the Company are divided into three portfolios constituting
separate portfolios of investments, with various investment objectives and
policies (the "Portfolios") and, in turn, each Portfolio is divided into classes
(each such class is referred to herein as a "Fund" and collectively as the
"Funds"):
Live Oak General Money Market Fund
Live Oak U.S. Government Fund
Live Oak Municipal Money Market Fund
Each Portfolio issues shares of common stock in the Company. Shares of the
Company have equal rights with respect to voting, except that the holders of
shares of a particular Portfolio will have the exclusive right to vote on
matters affecting only the rights of the holders of such Portfolio. Each share
of a Portfolio bears equally the expenses of such Portfolio.
As used in the Prospectus, the term "majority of the outstanding shares" of the
Company or of a particular Portfolio means, respectively, the vote of the lesser
of (i) 67% or more of the shares of the Company or such Portfolio present at a
meeting, if the holders of more than 50% of the outstanding shares of the
Company or such Portfolio are present or represented by proxy or (ii) more than
50% of the outstanding shares of the Company or such Portfolio.
Shareholders of the Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of the Company
voting together for the election of directors may elect all of the members of
the Board of Directors. In such event, the remaining holders cannot elect any
members of the Board of Directors.
The Board of Directors may classify or reclassify any unissued shares to create
a new class or classes in addition to those already authorized by setting or
changing in any one or more respects, from time to time, prior to the issuance
of such shares, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption, of such shares. Any such classification or
reclassification will comply with the provisions of the Investment Company Act
of 1940, as amended (the "1940 Act").
The Articles of Incorporation, as supplemented, permit the Directors to issue
the following number of full and fractional shares, par value $.001, of the
Portfolios: 2,000,000,000 shares of the Cortland General Money Market Fund (of
which 100,000,000 shares are classified as the Pilgrim America Shares and
400,000,000 shares are classified as Live Oak General Money Market Fund Shares);
600,000,000 shares of the U.S. Government Fund (of which 100,000,000 shares are
classified as Live Oak U.S. Government Fund Shares); and 600,000,000 shares of
the Municipal Money Market Fund (of which 100,000,000 shares are classified as
Live Oak Municipal Money Market Fund Shares). Each Fund
2
<PAGE>
share is entitled to participate pro rata in the dividends and distributions
from that Fund. Additional information concerning the rights of share ownership
is set forth in each Prospectus.
The assets received by the Company for the issue or sale of shares of each
Portfolio and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of creditors, are allocated to that Portfolio, and
constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio are segregated and are charged with the expenses with respect to
that Portfolio and with a share of the general expenses of the Company as
described below under "Expenses." While the expenses of the Company are
allocated to the separate books of account of each Portfolio, certain expenses
may be legally chargeable against the assets of all three Portfolios. Also,
certain expenses may be allocated to a particular class of a Portfolio. See
"Expenses."
The Articles of Incorporation provide that to the fullest extent that
limitations on the liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of the Company shall
have any liability to the Company or to its shareholders for damages.
The Articles of Incorporation further provide that the Company shall indemnify
and advance expenses to its currently acting and its former directors to the
fullest extent that indemnification of directors is permitted by the Maryland
General Corporation Law; that the Company shall indemnify and advance expenses
to its officers to the same extent as its directors and to such further extent
as is consistent with law and that the Board of Directors may through By-law,
resolution or agreement make further provisions for indemnification of
directors, officers, employees and agents to the fullest extent permitted by the
Maryland General Corporation Law. However, nothing in the Articles of
Incorporation protects any director or officer of the Company against any
liability to the Company or to its shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
As described in each Prospectus, the Company will not normally hold annual
shareholders' meetings. Under Maryland law and the Company's By-laws, an annual
meeting is not required to be held in any year in which the election of
directors is not required to be acted upon under the 1940 Act. At such time as
less than a majority of the directors have been elected by the shareholders, the
directors then in office will call a shareholders' meeting for the election of
directors.
Except as otherwise disclosed in each Prospectus and in this Statement of
Additional Information, the directors shall continue to hold office and may
appoint their successors.
Directors and Officers
The directors and executive officers of the Company and their principal
occupations during the last five years are set forth below. Unless otherwise
noted, the address of each director and officer is 600 Fifth Avenue, New York,
New York 10020.
Steven W. Duff, 42 - President of the Company, is President of the Mutual Funds
Division of the Manager since September 1994. Mr. Duff was formerly Director of
Mutual Fund Administration at NationsBank which he was associated with from June
1981 to August 1994. Mr. Duff is President and a Director of California Daily
Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily
Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., Inc.,
North Carolina Daily Municipal Income Fund, Inc. and Short Term Income Fund,
President and a Trustee of Florida Daily Municipal Income Fund, Institutional
Daily Income Fund, Pennsylvania Daily Municipal Income Fund, President of
Michigan Daily Tax Free Income Fund, Inc., New York Daily Tax Free Income Fund,
Inc., Executive Vice President and a Director of Reich & Tang Equity Fund, Inc.,
and President and Chief Executive Officer of Tax Exempt Proceeds Fund, Inc.
Owen Daly II, 71 - Chairman and Director of the Company, Six Blythewood Road,
Baltimore, Maryland 21210. Director, CF&I Steel Corporation and Director/Trustee
of the AIM Group of Mutual Funds, formerly Chairman of the Board of the
Equitable Bancorporation.
3
<PAGE>
Albert R. Dowden, 54 - Director of the Company, and of Volvo North America
Corporation, 535 Madison Avenue, New York, NY 10022. President of Volvo North
America Corporation.
David C. Melnicoff, 76 - Director of the Company, 1919 Chestnut Street,
Philadelphia, Pennsylvania 19103. President, Samuel S. Fels Fund and Lecturer in
Finance, Temple University. Formerly Executive Vice President, Investment
Division, Philadelphia Savings Fund Society. Prior thereto, Managing Director
for Operations and Supervision of the Board of Governors of the Federal Reserve
System.
James L. Schultz, 59 - Director of the Company, Cherrington Corporate Center,
Bldg. One, 1700 Beaver Grade Road, Coraopolis, Pennsylvania 15108. President,
Treasurer and Director of Computer Research, Inc.
Richard De Sanctis, 39 - Vice President and Treasurer of the Company, is
Assistant Treasurer of NEIC since September 1993. Mr. De Sanctis was formerly
Controller of Reich & Tang, Inc. from January 1991 to September 1993 and Vice
President and Treasurer of Cortland Financial Group, Inc. and Vice President of
Cortland Distributors, Inc. from 1989 to December 1990 and Treasurer of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Florida
Daily Municipal Income Fund, Institutional Daily Income Fund, Michigan Daily Tax
Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York
Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income Fund,
Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc.,
Short Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc.
Ronda Feldman, 49 - Vice President of the Company, is Vice President of Reich ^
Tang Services, L.P. since March 1992. Ms. Feldman was formerly Director of
Client Relations, Supervised Service Company from 1987 to 1992.
Molly Flewharty, 45 - Vice President of the Company, is Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. which she was associated with from
December 1977 to September 1993. Ms. Flewharty is also Vice President of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Florida
Daily Municipal Income Fund, Institutional Daily Income Fund, Inc., Michigan
Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc.,
New York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., Short Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc.
Dana E. Messina, 39 - Vice President of the Company, is Executive Vice President
of the Mutual Funds Division of the Manager since January 1995 and was Vice
President from September 1993 to January 1995. Ms. Messina was formerly Vice
President of Reich & Tang, Inc. which she was associated with from December 1980
to September 1993. Ms. Messina is also Vice President of California Daily Tax
Free Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax
Free Income Fund, Inc., Delafield Fund, Inc., Florida Daily Municipal Income
Fund, Institutional Daily Income Fund, Michigan Daily Tax Free Income Fund,
Inc., New York Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal
Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc., and Tax Exempt Proceeds Fund, Inc.
Ruben Torres, 46 - Vice President of the Company, Vice President of Operations
of Reich & Tang Services L.P. since January 1991. Mr. Torres was formerly Vice
President and Assistant Treasurer of Cortland Financial Group, Inc.
Bernadette N. Finn, 48 - Secretary of the Company, is Vice President and
Assistant Secretary of the Reich & Tang Mutual Funds Division of the Manager
since September 1993. Ms. Finn was formerly Vice President and Assistant
Secretary of Reich & Tang, Inc. which she was associated with from September
1970 to September 1993. Ms. Finn is also Secretary of California Daily Tax Free
Income Fund, Inc., Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free
Income Fund, Inc., Florida Daily Municipal Income Fund, Michigan Daily Tax Free
Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York Daily
Tax Free Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pennsylvania Daily Municipal Income Fund and Tax Exempt Proceeds Fund, Inc.;
Vice President and Secretary of Delafield Fund, Inc., Institutional Daily Income
Fund, Reich & Tang Equity Fund, Inc. and Short Term Income Fund, Inc.
Each director who is not an "interested person" receives an annual fee from the
Company of $10,000 for his services as a director and a fee of $1,250 for each
Board meeting attended, and all directors are reimbursed by the Company for
expenses incurred in connection with attendance at meetings of the Board of
Directors.
4
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Name of Person, Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation from
Position from Registrant for Benefits Accrued as Benefits upon Fund and Fund Complex
Fiscal Year Part of Fund Expenses Retirement Paid to Directors*
Owen Daly II, $12,500 0 0 $12,500 (1 Fund)
Director
Albert R. Dowden, $12,500 0 0 $12,500 (1 Fund)
Director
David C. Melnicoff, $12,500 0 0 $12,500 (1 Fund)
Director
James L. Schultz $12,500 0 0 $12,500 (1 Fund)
Director
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ending March 31, 1996 and, with respect to certain of the
funds in the Fund Complex, estimated to be paid during the fiscal year ending
March 31, 1996. The parenthetical number represents the number of investment
companies (including the Fund) from which such person receives compensation
that are considered part of the same Fund complex as the Fund, because, among
other things, they have a common investment advisor.
</TABLE>
MANAGER AND INVESTMENT ADVISOR
Reich & Tang Asset Management L.P. with its principal offices at 600 Fifth
Avenue, New York, New York 10020 (the "Manager"), serves as the Manager and
Investment Advisor of the Company pursuant to Management/Investment Advisory
Agreements with respect to each of the Portfolios between the Company and the
Manager dated October 1, 1994.
New England Investment Companies, L.P. ("NEICLP") is the limited partner and
owner of a 99.5% interest in the newly created limited partnership, Reich & Tang
Asset Management L.P., the Manager. Reich & Tang Asset Management, Inc. (a
wholly-owned subsidiary of NEICLP) is the general partner and owner of the
remaining .5% interest of the Manager. Reich & Tang Asset Management L.P. has
succeeded NEICLP as the Manager of the Company.
New England Investment Companies, Inc. ("NEIC"), a Massachusetts corporation,
serves as the sole general partner of NEICLP. The New England Mutual Life
Insurance Company ("The New England") owns approximately 55.9% of the total
partnership units outstanding of NEICLP, and Reich & Tang, Inc. owns
approximately 17.6% of the outstanding partnership units of NEICLP. In addition,
NEIC is a wholly-owned subsidiary of The New England which may be deemed a
"controlling person" of the Manager. NEIC is a holding company offering a broad
array of investment styles across a wide range of asset categories through ten
investment advisory/management affiliates and three distribution subsidiaries.
These include Loomis, Sayles & Company, L.P.; Copley Real Estate Advisors, Inc.;
Back Bay Advisors, L.P.; Marlborough Capital Advisors, L.P.; Westpeak Investment
Advisors, L.P.; Draycott Partners, Ltd.; TNE Investment Services, L.P.; New
England Investment Associates, Inc., Harris Associates, and an affiliate,
Capital Growth Management Limited Partnership. These affiliates in the aggregate
are investment advisors or managers to 42 other registered investment companies.
Under the Management/Investment Advisory Agreements, the Manager: (a) supervises
and manages all aspects of the Company's operations and the operations of each
of the Company's three Portfolios; (b) furnishes the Company with such office
space, heat, light, utilities, equipment and personnel as may be necessary for
the proper operation of the Portfolios and the Company's principal executive
office; (c) monitors the performance by all other persons furnishing services to
the Company on behalf of each Portfolio and the shareholders thereof and
periodically reports on such performance to the Board of Directors; (d)
investigates, selects and conducts relationships on behalf of the Company with
custodians, depositories, accountants, attorneys, underwriters, brokers and
dealers, insurers, banks, printers and other service providers and entities
performing services to the Portfolios and their shareholders; (e) furnishes the
Portfolios with all necessary accounting services; and (f) reviews and
supervises the preparation of all financial, tax and
5
<PAGE>
other reports and regulatory filings. The expenses of furnishing the foregoing
are borne by the Manager. See "Expenses" below.
In consideration of the services to be provided by the Manager and the expenses
to be borne by the Manager under the Management/Investment Advisory Agreements,
the Manager receives annual fees from each of the Portfolios, calculated daily
and paid monthly, of 0.800% of the first $500 million of the Company's average
daily net assets, 0.775% of the average daily net assets of the Company in
excess of $500 million but less than $1 billion, 0.750% of the average daily net
assets of the Company in excess of $1 billion but less than $1.5 billion, plus
0.725% of the Company's average daily net assets in excess of $1.5 billion. The
Company's comprehensive fee is higher than most other money market mutual funds
which do not offer services that the Company offers. However, most other funds
bear certain expenses that are borne by the Manager. During the fiscal years
ended March 31, 1996, March 31, 1995 and March 31, 1994 the Company paid to the
Manager the management fees set forth in the table below:
Fiscal Year Management Fees
1994 Payable Waived Paid
Cortland General $7,117,006 $0 $7,117,006
U.S. Government 1,862,259 0 1,862,259
Municipal 1,776,734 6,388 1,770,346
Fiscal Year Management Fees
1995 Payable Waived Paid
Cortland General $7,188,114 $124,695 $7,063,419
U.S. Government 1,704,092 17,874 1,686,218
Municipal 1,755,183 0 1,755,183
Fiscal Year Management Fees
1996 Payable Waived Paid
Cortland General $9,878,992 $0 $9,878,992
U.S. Government 1,964,097 0 1,964,097
Municipal 1,981,507 0 1,918,507
The Management/Investment Advisory Agreements were approved by the Board of
Directors, including a majority of directors who are not interested persons (as
defined in the 1940 Act), of the Portfolios or the Manager, effective October 1,
1994. The new Management/Investment Advisory Agreements were last approved for
continuance on August 29, 1995 and will continue thereafter if they are
specifically approved at least annually by the Board of Directors and by the
affirmative vote of a majority of the directors who are not parties to such
Management/Investment Advisory Agreements or "interested persons" of any such
party by votes cast in person at a meeting called for such purpose. The
Portfolios or the Manager may terminate the Management/Investment Advisory
Agreements on 60 days' written notice without penalty. Each
Management/Investment Advisory Agreement terminates automatically in the event
of its "assignment," as defined in the 1940 Act. The Manager shall not be liable
to the Portfolios or to their shareholders for any act or omission by the
Manager or for any loss sustained by a Fund or its shareholders except in the
case of the Manager's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty. The Company's (Portfolios') right to use the name
"Cortland" in its name in any form or combination may terminate upon termination
of the Manager as the Company's (Portfolios') investment manager.
The Manager also serves as the Portfolios' investment advisor. The Manager was
at April 30, 1996 investment manager, advisor or supervisor with respect to
assets aggregating approximately $9.09 billion. In addition to the Portfolios,
the Manager acts as investment manager or administrator of fifteen other
investment companies and also advises pension trusts, profit sharing trusts and
endowments.
Pursuant to the terms of the Management/Investment Advisory Agreements, the
Manager: (a) provides the Company with certain executive, administrative and
clerical services as are deemed advisable by the Board of Directors; (b)
arranges, but does not pay for, the periodic updating of prospectuses and
statements of additional information and supplements thereto, proxy materials,
tax returns, reports to each Portfolio's shareholders and reports to and filings
with the SEC and state Blue Sky authorities; (c) provides the Board of Directors
on a regular basis with financial reports and analyses of the Portfolios'
operations and the operation of comparable investment companies; (d) obtains and
evaluates pertinent information about significant developments and economic,
statistical and financial data, domestic, foreign or otherwise, whether
affecting the economy generally or any of the Portfolios and whether concerning
the
6
<PAGE>
individual issuers whose securities are included in the portfolios of the
Company's three Portfolios; (e) determines which issuers and securities shall be
represented in the Portfolios' portfolios and regularly reports thereon to the
Company's Board of Directors; (f) formulates and implements continuing programs
for the purchases and sales of securities for the Portfolios; and (g) takes, on
behalf of the Portfolios, all actions which appear to be necessary to carry into
effect such purchase and sale programs, including the placing of orders for the
purchase and sale of portfolio securities. Any investment program undertaken by
the Manager will at all times be subject to the policies and control of the
Board of Directors. The Manager shall not be liable to the Portfolios or to
their shareholders for any act or omission by the Manager or for any loss
sustained by a Portfolio or its shareholders except in the case of the Manager's
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
EXPENSES
Pursuant to the Management/Investment Advisory Agreements, the Manager
furnishes, without cost to the Company, the services of the President, Secretary
and one or more Vice Presidents of the Company and such other personnel as are
required for the proper conduct of the Portfolios' affairs and to carry out
their obligations under the Management/Investment Advisory Agreements. Pursuant
to the Management/Investment Advisory Agreements, the Manager maintains, at its
expense and without cost to the Portfolios, a trading function in order to carry
out its obligations to place orders for the purchase and sale of portfolio
securities for the Portfolios. The Manager, on behalf of its affiliate, Reich &
Tang Distributors L.P. (the "Distributor"), pays out of the management fees from
each of the Funds and payments under a Plan of Distribution (see "Distributor
and Plans of Distribution") the expenses of printing and distributing
prospectuses and statements of additional information and any other promotional
or sales literature used by the Distributor or furnished by the Distributor to
purchasers or dealers in connection with the public offering of the Portfolios'
shares, the expenses of advertising in connection with such public offering and
all legal expenses in connection with the foregoing.
Except as set forth below, the Manager pays all expenses of the Portfolios,
including, without limitation: the charges and expenses of any registrar, any
custodian or depository appointed by the Company for the safekeeping of its
cash, portfolio securities and other property, and any stock transfer, dividend
or accounting agent or agents appointed by the Company; all fees payable by the
Company to federal, state or other governmental agencies; the costs and expenses
of engraving or printing certificates representing shares of the Company (the
Company does not issue share certificates at the present time); all costs and
expenses in connection with the registration and maintenance of registration of
the Portfolios and their shares with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting, and distributing
prospectuses and statements of additional information of the Company and
supplements thereto to the Company's shareholders and to potential shareholders
of the Portfolios; all expenses of shareholders' meetings and of preparing,
printing and mailing of proxy statements and reports to shareholders; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Portfolios' shares; routine fees and expenses of
legal counsel and of independent accountants, in connection with any matter
relating to the Company; postage; insurance premiums on property or personnel
(including officers and directors) of the Company which inure to its benefit;
and all other charges and costs of the Portfolios' operations unless otherwise
explicitly assumed by the Company. The Company is responsible for payment of the
following expenses not borne by the Manager: (a) the fees of the directors who
are not "interested persons" of the Company, as defined by the 1940 Act, and
travel and related expenses of the directors for attendance at meetings, (b)
interest, taxes and brokerage commissions (which can be expected to be
insignificant), (c) extraordinary expenses, if any, including, but not limited
to, legal claims and liabilities and litigation costs and any indemnification
related thereto, (d) any shareholder service or distribution fee payable by the
Company under the plan of distribution described below, and (e) membership dues
of any industry association.
Expenses which are attributable to any of the Company's Portfolios are charged
against the income of such Portfolio in determining net income for dividend
purposes. Expenses of the Company which are not directly attributable to the
operations of any single Portfolio are allocated among the Portfolios based upon
the relative net assets of each Portfolio.
The Manager has agreed to reduce its aggregate fees for any fiscal year, or to
reimburse each Portfolio, to the extent required so that the amount of the
ordinary expenses of each Portfolio (excluding brokerage commissions, interest,
taxes and extraordinary expenses such as litigation costs) paid or incurred by
any of the Portfolios do not exceed the expense limitations applicable to the
Portfolios imposed by the securities laws or regulations of those states or
jurisdictions in which such Portfolio's shares are registered or qualified for
sale. Currently, the most restrictive of such expense limitations would require
the Manager to reduce its respective fees to the extent required so that
ordinary expenses of a Portfolio (excluding interest, taxes, brokerage
commissions and extraordinary expenses) for any fiscal year do not exceed 2 1/2%
of the first $30 million of the Portfolio's average daily net assets, plus 2% of
the next $70 million of the Portfolio's average daily net assets, plus 1 1/2% of
the Portfolio's average daily net assets in excess of $100
7
<PAGE>
million. Expense reductions under state securities laws are unlikely because
most of the expenses of the Company can be expected to be borne by the Manager.
DISTRIBUTOR AND PLANS OF DISTRIBUTION
The Distributor serves as the principal underwriter of the Company's shares
pursuant to Distribution Agreements dated September 15, 1993. The Distributor
has an office located at 600 Fifth Avenue, New York, New York 10020.
Pursuant to the Distribution Agreements, the Distributor: (a) solicits and
receives orders for the purchase of shares of the Portfolios, accepts or rejects
such orders on behalf of the Company in accordance with the Company's currently
effective Prospectuses and transmits such orders as are accepted to the Company
as promptly as possible; (b) receives requests for redemptions and transmits
such redemption requests to the Company as promptly as possible; (c) responds to
inquiries from shareholders concerning the status of their accounts and the
operation of the Company; and (d) provides daily information concerning yields
and dividend rates to shareholders. The Distributor shall not be liable to the
Company or to its shareholders for any act or omission or any loss sustained by
the Company or its shareholders except in the case of the Distributor's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Distributor receives no compensation from the Company for its services.
On November 9, 1995, the Distributor entered into a Primary Dealer Agreement
with Interstate Johnson/ Lane in order to provide for the offer and sale of the
Funds.
Each Portfolio has adopted a plan of distribution under Rule 12b-1 of the 1940
Act (the "Plans") with respect to the Funds. Pursuant to the Funds' Plans, the
Distributor may pay certain promotional and advertising expenses and may
compensate certain registered securities dealers (including Interstate
Johnson/Lane) and financial institutions for services provided in connection
with the processing of orders for purchase or redemption of the shares of the
Company and furnishing other shareholder services. Payments by the Distributor
are paid out of the management fees and distribution plan payments received by
the Manager and/or its affiliates from each of the Funds, out of past profits or
from any other source available to the Distributor. Interstate Johnson/Lane may
enter into shareholder processing and service agreements (the "Shareholder
Service Agreements") with any securities dealer who is registered under the
Securities Exchange Act of 1934 and a member in good standing of the National
Association of Securities Dealers, Inc., and with banks and other financial
institutions which may wish to establish accounts or sub-accounts on behalf of
their customers ("Shareholder Service Agents"). For processing investor purchase
and redemption orders, responding to inquiries from Fund shareholders concerning
the status of their accounts and operations of the Funds and communicating with
Interstate Johnson/Lane and the Distributor, the Company may pay each such
Shareholder Service Agent (or if no Shareholder Service Agent provides services,
the Distributor, to cover expenditures for advertising, sales literature and
other promotional materials on behalf of the Company) an amount not to exceed on
an annual basis 0.20% of the aggregate average daily net assets that such
Shareholder Service Agent's customers maintain with the Funds during the term of
any Shareholder Service Agreement. During the fiscal year ended March 31, 1996,
the Company paid $217,333, $15,330 and $30,979 for expenses incurred pursuant to
the Live Oak distribution plans for the Cortland General Money Market Fund
Class, the U.S. Government Fund Class and the Municipal Money Market Fund Class,
respectively, all of which amounts were spent in payment to financial
intermediaries in connection with the distribution of such portfolio's shares.
The Company also offers other classes of shares of the Portfolios with different
distribution arrangements designed for institutional and other categories of
investors.
The Distributor, under the Plans, may also make payments to Interstate
Johnson/Lane and/or Shareholder Service Agents out of the investment management
fees received by the Manager from each of the Funds, out of its past profits or
from any other source available to the Distributor.
The fees payable to Shareholder Service Agents under Shareholder Service
Agreements are negotiated by the Distributor. The Distributor will report
quarterly to the Board of Directors on the rate to be paid under each such
agreement and the amounts paid or payable under such agreements. The rate of
payment will be based upon the Distributor's analysis of: (1) the contribution
that the Shareholder Service Agent makes to each of the Portfolios by increasing
assets under management and reducing expense ratios; (2) the nature, quality and
scope of services being provided by the Shareholder Service Agent; (3) the cost
to the Company if shareholder services were provided directly by the Company or
other authorized persons; (4) the costs incurred by the Shareholder Service
Agent in connection with providing services to shareholders; and (5) the need to
respond to competitive offers of others, which could result in assets being
withdrawn from a Portfolio and an increase in the expense ratio for any of the
Portfolios.
The Distribution Agreements for each of the Funds were last approved by the
Board of Directors on June 15, 1995, to provide for the distribution of the
shares of each of the Funds. The Distribution Agreements will continue in effect
from year to year if specifically approved at least annually by the Board of
Directors and the affirmative vote of a majority of the directors who are not
parties to the Distribution Agreements or any Shareholder Service Agreement or
"interested persons" of any such party by votes cast in person at a meeting
called for such purpose. In approving the Plans, the directors determined, in
the exercise of their business judgment and in light of their fiduciary duties
as directors of the Company, that there was a reasonable likelihood that the
Plans would benefit the Funds and their shareholders. The
8
<PAGE>
Plans may only be renewed if the directors make a similar determination for each
subsequent year. The Plans may not be amended to increase the maximum amount of
payments by the Company or the Manager to its Shareholder Service Agents without
shareholder approval, and all material amendments to the provisions of the Plans
must be approved by the Board of Directors and by the directors who have no
direct or indirect financial interest in the Plans, by votes cast in person at a
meeting called for the purpose of such vote. Each Fund or the Distributor may
terminate the Distribution Agreements on 60 days' written notice without
penalty. The Distribution Agreements terminate automatically in the event of
their "assignment," as defined in the 1940 Act. The services of the Distributor
to the Funds are not exclusive, and it is free to render similar services to
others. The Plans may also be terminated by each of the Funds or by the Manager
or in the event of their "assignment," as defined in the 1940 Act, on the same
basis as the Distribution Agreements.
Although it is a primary objective of the Plans to reduce expenses of the
Portfolios by fostering growth in the Portfolios' net assets, there can be no
assurance that this objective of the Plans will be achieved; however, based on
the data and information presented to the Board of Directors by the Manager and
the Distributor, the Board of Directors determined that there is a reasonable
likelihood that the benefits of growth in the size of the Portfolios can be
accomplished under the Plans.
When the Board of Directors approved the Distribution Agreements, the Primary
Dealer Agreement, the forms of Shareholder Service Agreement and the Plans, the
Board of Directors requested and evaluated such information as they deemed
reasonably necessary to make an informed determination that the Distribution
Agreements, Plans and related agreements should be approved. They considered and
gave appropriate weight to all pertinent factors necessary to reach the good
faith judgment that the Distribution Agreements, Plans and related agreements
would benefit the Portfolios and their respective shareholders.
The Board of Directors reviewed, among other things, (1) the nature and extent
of the services to be provided by the Manager, the Distributor, Interstate
Johnson/Lane and the Shareholder Service Agents, (2) the value of all benefits
received by the Manager, (3) the overhead expenses incurred by the Manager
attributable to services provided to the Company's shareholders, and (4)
expenses of the Company being assumed by the Manager.
In connection with the approval of the Plans, the Board of Directors also
determined that the Portfolios would be expected to receive at least the
following benefits:
1) The Distributor and Shareholder Service Agents will furnish rapid access by a
shareholder to his Portfolio account for the purpose of effecting executions
of purchase and redemption orders.
2) The Distributor and Shareholder Service Agents will provide prompt, efficient
and reliable responses to inquiries of a shareholder concerning his account
status.
3) The Company's ability to sustain a relatively predictable flow of cash for
investment purposes and to meet redemptions facilitates more successful,
efficient portfolio management and the achievement of each of the Portfolios'
fundamental policies and objectives of providing stability of principal,
liquidity, and, consistent with the foregoing, the highest possible current
income, is enhanced by a stable network of distribution.
4) A successful distribution effort will assist the Manager in maintaining and
increasing the organizational strength needed to serve the Company.
5) The establishment of an orderly system for processing sales and redemptions
is also important to the Company's goal of maintaining the constant net asset
value of each Portfolio's shares, which most shareholders depend upon. By
identifying potential investors whose needs are served by the objectives of
the Portfolio, a well-developed, dependable network of Shareholder Service
Agents may help to curb sharp fluctuations in rates of redemptions and sales,
thereby reducing the chance that an unanticipated increase in net redemptions
could adversely affect the ability of the Portfolios to stabilize their net
asset values per share.
6) The Company expects to share in the benefits of growth in the Portfolios' net
assets by achieving certain economies of scale based on a reduction in the
management fees, although the Manager will receive a larger fee if net assets
grow.
The Plans will only make payments for expenses actually incurred by the
Distributor. The Plans will not carry over expenses from year to year and if a
Plan is terminated in accordance with its terms, the obligations of a Portfolio
to make payments to the Distributor pursuant to the Plan will cease and the
Portfolio will not be required to make any payments past the date the Plan
terminates.
The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit federally chartered or supervised banks from engaging in the business
of underwriting, selling or distributing securities. Accordingly, the
Distributor will engage banks as shareholder service agents only to perform
administrative and shareholder servicing functions. While the matter is not free
from doubt, the management of the Company believes that such laws should not
preclude a bank from acting as a shareholder service agent. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the
9
<PAGE>
permissible activities of banks or their subsidiaries or affiliates, could
prevent a bank from continuing to perform all or a part of its servicing
activities. If a bank were prohibited from so acting, shareholder clients of
such bank would be permitted to remain Fund shareholders and alternate means for
continuing the servicing of such shareholders would be sought. In such event,
changes in the operation of Fund might occur and shareholders serviced by such
bank might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer any adverse financial consequences as a result of any
of these occurrences.
State law may, in some jurisdictions, differ from the foregoing discussion of
the Glass-Steagall Act and from other applicable federal law. Prior to entering
into shareholder servicing agreements with banks in Texas, the Distributor will
obtain a representation from such banks that they are either registered as
dealers in Texas, or that they will not engage in activities that would
constitute acting as dealers under Texas State law.
Custodian
Investors Fiduciary Trust Company acts as custodian for the Company's portfolio
securities and cash. Investors Fiduciary Trust Company receives such
compensation from the Manager for its services in such capacity as is agreed to
from time to time by Investors Fiduciary Trust Company and the Manager. The
address of Investors Fiduciary Trust Company is 127 West 10th Street, Kansas
City, Missouri 64105.
Transfer Agent
The Company acts as its own transfer agent with respect to the Funds. All costs
associated with performing such services are borne by the Manager.
Sub-Accounting
The Manager, at its expense, will provide sub-accounting services to all
shareholders and maintain information with respect to underlying owners.
Principal Holders of Securities
On April 30, 1996 there were 2,101,796,870 shares of the Portfolios outstanding.
As of April 30, 1996 the amount of shares owned by all officers and directors of
the Portfolios as a group was less than 1% of the outstanding shares of the
Portfolios. To the best of the knowledge of the company, no person or entity
held 5% or more of the outstanding voting securities of any of the Portfolios.
Reports
The Company furnishes shareholders with semi-annual reports containing
information about the Portfolios and their operations, including a schedule of
investments held by the Portfolios and the financial statements for each
Portfolio. The annual financial statements are audited by the Company's
independent auditors. The Board of Directors has selected Ernst & Young LLP, 787
Seventh Avenue, New York, NY 10019, as the Company's independent auditors to
audit the Portfolios' financial statements and to review the Portfolios' tax
returns.
SHARE PURCHASES AND REDEMPTIONS
Purchases and Redemptions
A complete description of the manner in which the Company's shares may be
purchased, redeemed or exchanged appears in the Prospectus under the captions
"How to Purchase Shares," "How to Redeem Shares," and "Exchange Privilege."
The possibility that shareholders who maintain accounts of less than $500 in
value will be subject to mandatory redemption is also described under the
caption "How to Redeem Shares." If the Board of Directors authorizes mandatory
redemption of such small accounts, the holders of shares with a value of less
than $500 will be notified that they must increase their investment to $500 or
their shares will be redeemed on or after the 60th day following such notice or
pay a fee. Involuntary redemptions will not be made if the decline in value of
the account results from a decline in the net asset value of a share of any of
the Portfolios. The Company does not presently redeem such small accounts and
does not currently intend to do so.
The right of redemption may be suspended or the date of payment postponed when
(a) trading on the New York Stock Exchange is restricted, as determined by
applicable rules and regulations of the SEC, (b) the New York Stock Exchange is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposal of portfolio securities or the valuation of the net
assets of a Portfolio not reasonably practicable.
Net Asset Value Determination
The net asset values of the Portfolios are determined twice daily as of 12 noon
and 4:15 p.m. Eastern time on each day the New York Stock Exchange and the
Company's custodian are open for business.
10
<PAGE>
For the purpose of determining the price at which shares of the Portfolios are
issued and redeemed, the net asset value per share is calculated immediately
after the daily dividend declaration by: (a) valuing all securities and
instruments of a Portfolio as set forth below; (b) deducting such Portfolio's
liabilities; (c) dividing the resulting amount by the number of shares
outstanding of such Portfolio; and (d) rounding the per share net asset value to
the nearest whole cent. As discussed below, it is the intention of the Company
to maintain a net asset value per share of $1.00 for each of the Portfolios.
The debt instruments held in each of the Portfolio's portfolios are valued on
the basis of amortized cost. This method involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price a Portfolio would receive if it sold the entire
portfolio. During periods of declining interest rates, the daily yield for a
Portfolio, computed as described under the caption "Dividends and Tax Matters"
below, may be higher than a similar computation made by a fund with identical
investments utilizing a method of valuation based upon market prices and
estimates of market prices for all of its portfolio instruments. Thus, if the
use of amortized cost by a Portfolio results in a lower aggregate portfolio
value for such Portfolio on a particular day, a prospective investor in the
Portfolio would be able to obtain a somewhat higher yield than would result from
an investment in a fund utilizing solely market values, and existing investors
in such Portfolio would receive less investment income. The converse would apply
in a period of rising interest rates.
As it is difficult to evaluate the likelihood of exercise or potential benefit
of a Stand-by Commitment, described under the caption "Investment Program -
Stand-by Commitments," such commitments will be considered to have no value,
regardless of whether any direct or indirect consideration is paid for such
commitments. Where the Municipal Money Market Portfolio has paid for a Stand-by
Commitment, its cost will be reflected as unrealized depreciation for the period
during which the commitment is held.
The valuation of the portfolio instruments based upon their amortized cost, the
calculation of each Portfolio's per share net asset value to the nearest whole
cent and the concomitant maintenance of the net asset value per share of $1.00
for each of the Portfolios is permitted in accordance with applicable rules and
regulations of the SEC, which require the Portfolios to adhere to certain
conditions. Each Portfolio maintains a dollar-weighted average portfolio
maturity of 90 days or less, purchases only instruments having remaining
maturities of thirteen months or less and invests only in securities determined
by the Manager to be of high quality with minimal credit risk. The Board of
Directors is required to establish procedures designed to stabilize, to the
extent reasonably possible, each Portfolio's price per share at $1.00 as
computed for the purpose of sales and redemptions. Such procedures include
review of a Portfolio's portfolio holdings by the Board of Directors, at such
intervals as they may deem appropriate, to determine whether the net asset value
calculated by using available market quotations or other reputable sources for a
Portfolio deviates from $1.00 per share and, if so, whether such deviation may
result in material dilution or is otherwise unfair to existing holders of the
shares of the Portfolio. In the event the Board of Directors determines that
such a deviation exists for a Portfolio, it will take such corrective action as
the Board of Directors deems necessary and appropriate, including the sale of
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten the average portfolio maturity; the withholding of dividends; redemption
of shares in kind; or the establishment of a net asset value per share by using
available market quotations.
DIVIDENDS AND TAX MATTERS
Dividends
All of the net income earned by each Portfolio is declared daily as dividends to
the respective holders of record of each Portfolio. Net income for each of the
Portfolios for dividend purposes (from the time of the immediately preceding
determination thereof) consists of (a) interest accrued and discount earned, if
any, on the assets of each Portfolio and any general income of the Company
prorated to such Portfolio based on the relative net assets of such Portfolio,
less (b) amortization of premium and accrued expenses for the applicable
dividend period attributable directly to such Portfolio and general expenses of
the Company prorated to such Portfolio based on the relative net assets of such
Portfolio. The amount of discount or premium on instruments in each Portfolio's
portfolio is fixed at the time of purchase of the instruments. See "Net Asset
Value Determination" above. Realized gains and losses on portfolio securities
held by each Portfolio will be reflected in the net asset value of such
Portfolio. Each Portfolio expects to distribute any net realized short-term
gains of such Portfolio at least once each year, although it may distribute them
more frequently if necessary in order to maintain such Portfolio's net asset
value at $1.00 per share. The Portfolios do not expect to realize net long-term
capital gains.
Should any of the Portfolios incur or anticipate any unusual expense, loss or
depreciation which would adversely affect the net asset value per share or net
income per share of a Portfolio for a particular period, the Board of Directors
would at that time consider whether to adhere to the present dividend policy
described above or to revise it in light of then prevailing circumstances. For
example, if the net asset value per share of a Portfolio were reduced, or was
anticipated
11
<PAGE>
to be reduced, below $1.00, the Board of Directors may suspend further dividend
payments with respect to that Portfolio until the net asset value per share
returns to $1.00. Thus, such expense or loss or depreciation might result in a
shareholder receiving no dividends for the period during which he held shares of
the Portfolio and/or in his receiving upon redemption a price per share lower
than the price which he paid.
Dividends on a Portfolio's shares are normally payable on the first day
following the date that a share purchase or exchange order is effective and on
the date that a redemption order is effective. The net income of a Portfolio for
dividend purposes is determined as of 12:00 noon Eastern time on each "business
day" of the Company, as defined in the Prospectus and immediately prior to the
determination of each Portfolio's net asset value on that day. Dividends are
declared daily and reinvested in the form of additional full and fractional
shares of each Portfolio at net asset value. A shareholder may elect to have the
aggregate dividends declared and paid monthly to him by check.
Tax Matters
The following is only a summary of certain additional tax considerations
generally affecting the Portfolios and their shareholders that are not described
in the Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of each Portfolio or its shareholders, and the discussions here
and in the Prospectus are not intended as substitutes for careful tax planning.
Qualification as a Regulated Investment Company
Each Portfolio has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, each Portfolio is not subject to federal income
tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) and at least 90% of
its tax-exempt income (net of expenses allocable thereto) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by a Portfolio made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated investment
company must: (1) derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (the "Income Requirement"); and (2) derive less than 30% of its gross
income (exclusive of certain gains on designated hedging transactions that are
offset by realized or unrealized losses on offsetting positions) from the sale
or other disposition of stock, securities or foreign currencies (or options,
futures or forward contracts thereon) held for less than three months (the
"Short-Short Gain Test"). For purposes of these calculations, gross income of
the Municipal Money Market Portfolio includes tax-exempt income. However,
foreign currency gains, including those derived from options, futures and
forwards, will not in any event be characterized as Short-Short Gain if they are
directly related to the regulated investment company's investments in stock or
securities (or options or futures thereon). Because of the Short-Short Gain
Test, a Portfolio may have to limit the sale of appreciated securities that it
has held for less than three months. However, the Short-Short Gain Test will not
prevent a Portfolio from disposing of investments at a loss, since the
recognition of a loss before the expiration of the three-month holding period is
disregarded for this purpose. Interest (including original issue discount)
received by a Portfolio at maturity or upon the disposition of a security held
for less than three months will not be treated as gross income derived from the
sale or other disposition of such security within the meaning of the Short-Short
Gain Test. However, income that is attributable to realized market appreciation
will be treated as gross income from the sale or other disposition of securities
for this purpose.
In general, gain or loss recognized by a Portfolio on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including municipal obligations) purchased by
a Portfolio at a market discount (generally, at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of the
market discount which accrued during the period of time the Portfolio held the
debt obligation.
Treasury Regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) for any taxable year,
to elect (unless it has made a taxable year election for excise tax purposes as
discussed below) to treat all or any part of any net capital loss, any net
long-term capital loss or any net foreign currency loss incurred after October
31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, each Portfolio must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each
Portfolio's
12
<PAGE>
taxable year, at least 50% of the value of the Portfolio's assets must consist
of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which the
Portfolio has not invested more than 5% of the value of the Portfolio's total
assets in securities of such issuer and as to which the Portfolio does not hold
more than 10% of the outstanding voting securities of such issuer), and no more
than 25% of the value of its total assets may be invested in the securities of
any one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which the Portfolio
controls and which are engaged in the same or similar trades or businesses. For
purposes of asset diversification testing, obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government such as the Federal
Agricultural Mortgage Corporation, the Farm Credit System Financial Assistance
Corporation, a Federal Home Loan Bank, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Government National
Mortgage Corporation, and the Student Loan Marketing Association are treated as
U.S. Government securities.
If for any taxable year a Portfolio does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Portfolio's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to at least the sum of
98% of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or, at
the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
(Tax-exempt interest on municipal obligations is not subject to the excise tax.)
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. For purposes of the excise tax, a regulated
investment company shall: (1) reduce its capital gain net income (but not below
its net capital gain) by the amount of any net ordinary loss for the calendar
year; and (2) exclude foreign currency gains and losses incurred after October
31 of any year (or after the end of its taxable year if it has made a taxable
year election) in determining the amount of ordinary taxable income for the
current calendar year (and, instead, include such gains and losses in
determining ordinary taxable income for the succeeding calendar year).
Each Portfolio intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that a Portfolio may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
Portfolio Distributions
Each Portfolio anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they will not qualify for the 70% dividends-received deduction
for corporate shareholders.
Each Portfolio may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Portfolio currently intends to distribute any
such amounts. If net capital gain is distributed and designated as a capital
gain dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Portfolio prior to the date on which the
shareholder acquired his shares.
Conversely, if a Portfolio elects to retain its net capital gain, the Portfolio
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If a Portfolio elects to retain its
net capital gain, it is expected that the Portfolio also will elect to have
shareholders of record on the last day of its taxable year treated as if each
received a distribution of his pro rata share of such gain, with the result that
each shareholder will be required to report his pro rata share of such gain on
his tax return as long-term capital gain, will receive a refundable tax credit
for his pro rata share of tax paid by the Portfolio on the gain, and will
increase the tax basis for his shares by an amount equal to the deemed
distribution less the tax credit.
The Municipal Money Market Portfolio intends to qualify to pay exempt-interest
dividends by satisfying the requirement that at the close of each quarter of the
Municipal Money Market Portfolio's taxable year at least 50% of the Portfolio's
total assets consists of tax-exempt municipal obligations. Distributions from
the Municipal Money Market Portfolio will constitute exempt-interest dividends
to the extent of the Portfolio's tax-exempt interest income (net of expenses and
amortized bond premium). Exempt-interest dividends distributed to shareholders
of the Municipal Money Market
13
<PAGE>
Portfolio are excluded from gross income for federal income tax purposes.
However, shareholders required to file a federal income tax return will be
required to report the receipt of exempt-interest dividends on their returns.
Moreover, while exempt-interest dividends are excluded from gross income for
federal income tax purposes, they may be subject to alternative minimum tax
("AMT") in certain circumstances and may have other collateral tax consequences
as discussed below. Distributions by the Municipal Money Market Portfolio of any
investment company taxable income or of any net capital gain will be taxable to
shareholders as discussed above.
AMT is imposed in addition to, but only to the extent it exceeds, the regular
tax and is computed at a maximum marginal rate of 28% for noncorporate taxpayers
and 20% for corporate taxpayers on the excess of the taxpayer's alternative
minimum taxable income ("AMTI") over an exemption amount. In addition, under the
Superfund Amendments and Reauthorization Act of 1986, a tax is imposed for
taxable years beginning after 1986 and before 1996 at the rate of 0.12% on the
excess of a corporate taxpayer's AMTI (determined without regard to the
deduction for this tax and the AMT net operating loss deduction) over $2
million. Exempt-interest dividends derived from certain "private activity"
municipal obligations issued after August 7, 1986 will generally constitute an
item of tax preference includable in AMTI for both corporate and noncorporate
taxpayers. In addition, exempt-interest dividends derived from all municipal
obligations, regardless of the date of issue, must be included in adjusted
current earnings, which are used in computing an additional corporate preference
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMT net
operating loss deduction)) includable in AMTI.
Exempt-interest dividends must be taken into account in computing the portion,
if any, of social security or railroad retirement benefits that must be included
in an individual shareholder's gross income and subject to federal income tax.
Further, a shareholder of the Municipal Money Market Portfolio is denied a
deduction for interest on indebtedness incurred or continued to purchase or
carry shares of the Municipal Money Market Portfolio. Moreover, a shareholder
who is (or is related to) a "substantial user" of a facility financed by
industrial development bonds held by the Municipal Money Market Portfolio will
likely be subject to tax on dividends paid by the Municipal Money Market
Portfolio which are derived from interest on such bonds. Receipt of
exempt-interest dividends may result in other collateral federal income tax
consequences to certain taxpayers, including financial institutions, property
and casualty insurance companies and foreign corporations engaged in a trade or
business in the United States. Prospective investors should consult their own
tax advisers as to such consequences.
Investment income that may be received by the Cortland General Money Market
Portfolio from sources within foreign countries may be subject to foreign taxes
withheld at the source. The United States has entered into tax treaties with
many foreign countries which entitle the Cortland General Money Market Portfolio
to a reduced rate of, or exemption from, taxes on such income. It is impossible
to determine the effective rate of foreign tax in advance since the amount of
the Cortland General Money Market Portfolio's assets to be invested in various
countries is not known.
Distributions by a Portfolio that do not constitute ordinary income dividends,
exempt-interest dividends or capital gain dividends will be treated as a return
of capital to the extent of (and in reduction of) the shareholder's tax basis in
his shares; any excess will be treated as gain from the sale of his shares, as
discussed below. Distributions by a Portfolio will be treated in the manner
described above regardless of whether such distributions are paid in cash or
reinvested in additional shares of the Portfolio (or of another fund).
Shareholders receiving a distribution in the form of additional shares will be
treated as receiving a distribution in an amount equal to the fair market value
of the shares received, determined as of the reinvestment date. In addition, if
the net asset value at the time a shareholder purchases shares of the Portfolio
reflects undistributed net investment income or recognized capital gain net
income, or unrealized appreciation in the value of the assets of the Portfolio,
distributions of such amounts will be taxable to the shareholder in the manner
described above, although such distributions economically constitute a return of
capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Portfolio into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Portfolio) on December
31 of such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
Each Portfolio will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Portfolio that it is not subject to backup withholding or that it
is a corporation or other "exempt recipient."
14
<PAGE>
Sale or Redemption of Portfolio Shares
Each Portfolio seeks to maintain a stable net asset value of $1.00 per share;
however, there can be no assurance that the Portfolios will do this. In such a
case, a shareholder will recognize gain or loss on the sale or redemption of
shares of a Portfolio in an amount equal to the difference between the proceeds
of the sale or redemption and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of a Portfolio within 30 days before or after
the sale or redemption. In general, any gain or loss arising from (or treated as
arising from) the sale or redemption of shares of a Portfolio will be considered
capital gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. However, any capital loss arising from the
sale or redemption of shares held for six months or less will be disallowed to
the extent of the amount of exempt-interest dividends received on such shares
and (to the extent not disallowed) will be treated as a long-term capital loss
to the extent of the amount of capital gain dividends received on such shares.
For this purpose, the special holding period rules of Code Section 246(c)(3) and
(4) generally will apply in determining the holding period of shares. Long-term
capital gains of noncorporate taxpayers are currently taxed at a maximum rate
11.6% lower than the maximum rate applicable to ordinary income. Capital losses
in any year are deductible only to the extent of capital gains plus, in the case
of a noncorporate taxpayer, $3,000 of ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from a Portfolio is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Portfolio is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends paid to
a foreign shareholder will be subject to U.S. withholding tax at the rate of 30%
(or lower treaty rate) upon the gross amount of the dividend. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of a Portfolio, capital gain dividends and
exempt-interest dividends and amounts retained by the Portfolio that are
designated as undistributed capital gains.
If the income from a Portfolio is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Portfolio will be subject to U.S. federal income tax at the rates applicable to
U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Portfolio may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Portfolio with proper notification of its
foreign status. The tax consequences to a foreign shareholder entitled to claim
the benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a
Portfolio, including the applicability of foreign taxes.
Effect of Future Legislation and Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends, exempt-interest
dividends and capital gain dividends from regulated investment companies often
differ from the rules for U.S. federal income taxation described above.
Shareholders are urged to consult their tax advisers as to the consequences of
these and other state and local tax rules affecting investment in a Portfolio.
YIELD INFORMATION
The yield for each Portfolio can be obtained by calling your securities dealer
or the Distributor at (212) 830-5280 if calling from New Jersey, Alaska or
Hawaii, or by calling toll free at (800) 433-1918 if calling from elsewhere in
the continental U.S. Quotations of yield on the Portfolios may also appear from
time to time in the financial press and in advertisements.
The current yields quoted will be the net average annualized yield for an
identified period, usually seven consecutive calendar days. Yield for a
Portfolio will be computed by assuming that an account was established with a
single share of such Portfolio (the "Single Share Account") on the first day of
the period. To arrive at the quoted yield, the net change in the value of that
Single Share Account for the period (which would include dividends accrued with
respect to the share, and dividends declared on shares purchased with dividends
accrued and paid, if any, but would not include realized gains and losses or
unrealized appreciation or depreciation) will be multiplied by 365 and then
divided by the number of days in the period, with the resulting figure carried
to the nearest hundredth of 1%. The Company may also
15
<PAGE>
furnish a quotation of effective yield for each Portfolio that assumes the
reinvestment of dividends for a 365 day year and a return for the entire year
equal to the average annualized yield for the period, which will be computed by
compounding the unannualized current yield for the period by adding 1 to the
unannualized current yield, raising the sum to a power equal to 365 divided by
the number of days in the period, and then subtracting 1 from the result.
Historical yields are not necessarily indicative of future yields. Rates of
return will vary as interest rates and other conditions affecting money market
instruments change. Yields also depend on the quality, length of maturity and
type of instruments in each Portfolio's portfolio and each Portfolio's operating
expenses. Quotations of yields will be accompanied by information concerning the
average weighted maturity of the Portfolios. Comparison of the quoted yields of
various investments is valid only if yields are calculated in the same manner
and for identical limited periods. When comparing the yield for one of the
Portfolios with yields quoted with respect to other investments, shareholders
should consider (a) possible differences in time periods, (b) the effect of the
methods used to calculate quoted yields, (c) the quality and average-weighted
maturity of portfolio investments, expenses, convenience, liquidity and other
important factors, and (d) the taxable or tax-exempt character of all or part of
dividends received.
INVESTMENT PROGRAMS AND RESTRICTIONS
Investment Programs
Information concerning the fundamental investment objectives of the Company and
each Portfolio is set forth in the Prospectus, respectively, under the captions
"Investment Programs" or "Investment Program." The principal features of the
investment programs and the primary risks associated with those investment
programs of the Company and the Portfolios are discussed in the Prospectus under
the aforementioned captions.
The following is a more detailed description of the portfolio instruments
eligible for purchase by the Portfolios which augments the summary of the
Company's and the Portfolios' investment programs which appears in the
Prospectus, under the aforementioned captions. The Company seeks to achieve its
objectives by investing in portfolios of short-term instruments rated high
quality by a major rating service or determined to be of high quality by the
Manager under the supervision of the Board of Directors.
Subsequent to its purchase by a Portfolio, a particular issue of Money Market
Obligations or Municipal Securities, as defined in the Prospectus under the
aforementioned captions may cease to be rated, or its rating may be reduced
below the minimum required for purchase by the Portfolios. Neither event
requires the elimination of such obligation from a Portfolio's portfolio, but
the Manager will consider such an event to be relevant in its determination of
whether the Portfolio should continue to hold such obligation in its portfolio.
To the extent that the ratings accorded by a nationally recognized statistical
rating organization ("NRSRO") for Money Market Obligations or Municipal
Securities may change as a result of changes in these rating systems, the
Company will attempt to use comparable ratings as standards for its investments
in Money Market Obligations and Municipal Securities in accordance with the
investment policies contained herein.
The Municipal Money Market Fund may, from time to time, on a temporary or
defensive basis, invest in U.S. Government Obligations, Money Market Obligations
and repurchase agreements. The Municipal Money Market Fund may invest in these
temporary investments, for example, due to market conditions or pending
investment of proceeds from sales of shares or proceeds from the sale of
portfolio securities or in anticipation of redemptions. Although interest earned
from such temporary investments will be taxable as ordinary income, the
Municipal Money Market Fund intends to minimize taxable income through
investment, when possible, in short-term tax-exempt securities, which may
include shares of investment companies whose dividends are tax-exempt. (See
"Investment Programs and Restrictions - Investment Restrictions" for limitations
on the Municipal Money Market Fund's investment in repurchase agreements and
shares of other investment companies.) It is a fundamental policy of the
Municipal Money Market Fund that the Municipal Money Market Fund's assets will
be invested so that at least 80% of the Municipal Money Market Fund's income
will be exempt from federal income taxes. However, there is no limitation on the
percentage of such income which may constitute an item of tax preference and
which may therefore give use to an alternative minimum tax liability for
individual shareholders. The Municipal Money Market Fund may hold cash reserves
pending the investment of such reserves in Municipal Securities or short-term
tax-exempt securities.
The investment objectives and policies of the Company are "fundamental" only
where noted. Fundamental policies may only be changed by a vote of the majority
of the outstanding shares of the affected Portfolios. (See "General Information
About the Company - The Company and its Shares.") There can be no assurance that
the Portfolios' objectives will be achieved.
The following is a more detailed description of the portfolio instruments
eligible for purchase by the Company's three Portfolios which augments the
summary of each Portfolio's investment program which appears in the Prospectus
under the captions "Investment Programs" or "Investment Program," respectively.
The Company seeks to achieve the objectives of its Portfolios by investing in
money market instruments.
The U.S. Government Fund limits investments to U.S. Government Obligations
consisting of marketable securities and instruments issued or guaranteed by the
U.S. Government or by certain of its agencies or instrumentalities. Direct
16
<PAGE>
obligations are issued by the U.S. Treasury and include bills, certificates of
indebtedness, notes and bonds. Obligations of U.S. Government agencies and
instrumentalities ("Agencies") are issued by government-sponsored agencies and
enterprises acting under authority of Congress. Certain Agencies are backed by
the full faith and credit of the U.S. Government, and others are not.
The Cortland General Money Market Fund's investments may include, in addition to
direct U.S. Government Obligations, the following investments:
Agencies that are not backed by the full faith and credit of the U.S.
Government, such as obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank.
Bank Instruments which consist mainly of certificates of deposit, bankers'
acceptances and time deposits. Certificates of deposit represent short-term
interest-bearing deposits of commercial banks and against which certificates
bearing fixed rates of interest are issued. Bankers' acceptances are short-term
negotiable drafts endorsed by commercial banks, which arise primarily from
international commercial transactions. Time deposits are non-negotiable deposits
maintained in a bank for a specified period of time at a stated interest rate.
The Cortland General Money Market Fund limits investments to bank instruments
described in each Prospectus under the captions "Investment Programs" and
"Investment Program."
Corporate Commercial Instruments which consist of short-term unsecured
promissory notes issued by corporations to finance short-term credit needs. (See
"Investment Program and Restrictions - Investment Ratings" herein for
information with respect to commercial paper ratings.) Among the instruments
that the Cortland General Money Market Fund may purchase are variable amount
master demand notes, which are unsecured demand notes that permit investment of
fluctuating amounts of money at variable rates of interest pursuant to
arrangements between the issuer and the payee or its agent whereby the
indebtedness on the notes may vary and the interest rate is periodically
redetermined.
In addition, the Cortland General Money Market Fund may purchase loan
participation certificates, which consist of interests in loans made by banks to
corporations, where both the bank and the corporation meet the Company's credit
standards. The Cortland General Money Market Portfolio generally purchases loan
participation certificates maturing in seven days or less.
The Municipal Money Market Fund endeavors to achieve its objective by investing
in the following securities. Municipal Securities in which the Municipal Money
Market Fund may invest include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Securities may be issued include the refunding of
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In addition,
certain types of industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide for the construction, equipment,
repair or improvement of privately operated housing facilities, airport, mass
transit, industrial, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. The interest paid on such bonds may be exempt
from federal income tax, although current federal tax laws place substantial
limitations on the purposes and size of such issues. Such obligations are
considered to be Municipal Securities, provided that the interest paid thereon
qualifies as exempt from federal income tax in the opinion of bond counsel.
However, interest on Municipal Securities may give rise to a federal alternative
minimum tax liability and may have other collateral federal income tax
consequences. (See "Dividends and Tax Matters - Tax Matters" herein.)
The two major classifications of Municipal Securities are bonds and notes. Bonds
may be further categorized as "general obligation" or "revenue" issues. General
obligation bonds are secured by the issuer's pledge of its faith, credit, and
taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Tax-exempt
industrial development bonds are in most cases revenue bonds and do not
generally carry the pledge of the credit of the issuing municipality. Notes are
short-term instruments which usually mature in less than two years. Most notes
are general obligations of the issuing municipalities or agencies and are sold
in anticipation of a bond sale, collection of taxes or receipt of other
revenues. There are, of course, variations in the risks associated with
Municipal Securities, both within a particular classification and between
classifications. The Municipal Money Market Fund's assets may consist of any
combination of general obligation bonds, revenue bonds, industrial revenue bonds
and notes. The percentage of such securities in the Municipal Money Market
Fund's portfolio will vary from time to time.
For the purpose of diversification, the identification of the issuer of
Municipal Securities depends on the terms and conditions of the security. When
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating the
subdivision and the security is backed only by the assets and revenues of the
subdivision, such subdivision would be deemed to be the sole issuer. Similarly,
in the case
17
<PAGE>
of an industrial development bond, if that bond is backed only by the assets and
revenues of the non-governmental user, then such non-governmental user would be
deemed to be the sole issuer. If, however, in either case, the creating
government or some other entity guarantees a security, such a guarantee would be
considered a separate security and will be treated as an issue of such
government or other agency. Certain Municipal Securities may be secured by the
guarantee or irrevocable letter of credit of a major banking institution. In
such case, the Municipal Money Market Fund reserves the right to invest up to
10% of its total assets in Municipal Securities guaranteed or secured by the
credit of a single bank. Furthermore, if the primary issuer of a Municipal
Security or some other non-governmental user which guarantees the payment of
interest on and principal of a Municipal Security possesses credit
characteristics which qualify an issue of Municipal Securities for a high
quality rating from a major rating service (or a determination of high quality
by the Manager and the Board of Directors of the Company) without reference to
the guarantee or letter of credit of a banking institution, the banking
institution will not be deemed to be an issuer for the purpose of applying the
foregoing 10% limitation.
From time to time, various proposals to restrict or eliminate the federal income
tax exemption for interest on Municipal Securities have been introduced before
Congress. Similar proposals may be introduced in the future, and if enacted, the
availability of Municipal Securities for investment by the Municipal Money
Market Fund could be adversely affected. In such event, the Board of Directors
would reevaluate the investment objective and policies and submit possible
changes in the structure of the Municipal Money Market Fund for the
consideration of shareholders.
The Company may enter into the following arrangements with respect to all three
Portfolios:
1) Repurchase Agreements under which the purchaser (for example, one of the
Portfolios) acquires ownership of an obligation (e.g., a debt instrument or
time deposit) and the seller agrees, at the time of the sale, to repurchase
the obligation at a mutually agreed upon time and price, thereby determining
the yield during the purchaser's holding period. This arrangement results in
a fixed rate of return insulated from market fluctuations during such period.
Although the underlying collateral for repurchase agreements may have
maturities exceeding one year, a Portfolio will not enter into a repurchase
agreement if as a result of such transaction more than 10% of a Portfolio's
total assets would be invested in illiquid securities, including repurchase
agreements expiring in more than seven days. A Portfolio may, however, enter
into a "continuing contract" or "open" repurchase agreement under which the
seller is under a continuing obligation to repurchase the underlying
obligation from the Portfolio on demand and the effective interest rate is
negotiated on a daily basis. In general, the Portfolios will enter into
repurchase agreements only with domestic banks with total assets of at least
$1.5 billion or with primary dealers in U.S. Government securities, but total
assets will not be the sole determinative factor, and the Portfolios may
enter into repurchase agreements with other institutions which the Board of
Directors believes present minimal credit risks. Nevertheless, if the seller
of a repurchase agreement fails to repurchase the debt instrument in
accordance with the terms of the agreement, the Portfolio which entered into
the repurchase agreement may incur a loss to the extent that the proceeds it
realizes on the sale of the underlying obligation are less than the
repurchase price. Repurchase agreements are considered to be loans by the
Company under the 1940 Act.
2) Reverse Repurchase Agreements involving the sale of money market instruments
held by a Portfolio, with an agreement that the Portfolio will repurchase the
instruments at an agreed upon price and date. A Portfolio will employ reverse
repurchase agreements when necessary to meet unanticipated net redemptions so
as to avoid liquidating other money market instruments during unfavorable
market conditions, or in some cases as a technique to enhance income, and
only in amounts up to 10% of the value of a Portfolio's total assets at the
time it enters into a reverse repurchase agreement. At the time it enters
into a reverse repurchase agreement, the Portfolio will place in a segregated
custodial account high-quality debt securities having a dollar value equal to
the repurchase price. A Portfolio will utilize reverse repurchase agreements
when the interest income to be earned from portfolio investments which would
otherwise have to be liquidated to meet redemptions is greater than the
interest expense incurred as a result of the reverse repurchase transactions.
3) Delayed Delivery Agreements involving commitments by a Portfolio to dealers
or issuers to acquire securities or instruments at a specified future date
beyond the customary same-day settlement for money market instruments. These
commitments may fix the payment price and interest rate to be received on the
investment. Delayed delivery agreements will not be used as a speculative or
leverage technique. Rather, from time to time, the Manager can anticipate
that cash for investment purposes will result from scheduled maturities of
existing portfolio instruments or from net sales of shares of the Portfolio.
To assure that a Portfolio will be as fully invested as possible in
instruments meeting that Portfolio's investment objective, a Portfolio may
enter into delayed delivery agreements, but only to the extent of anticipated
funds available for investment during a period of not more than five business
days. Until the settlement date, that Portfolio will set aside in a
segregated account high-quality debt securities of a dollar value sufficient
at all times to make payment for the delayed delivery securities. Not more
than 25% of a Portfolio's total assets will be committed to delayed delivery
agreements and when-issued securities, as described below. The delayed
delivery securities, which will not begin to accrue interest until the
settlement date, will be recorded as an asset of the Portfolio and will be
subject to the risks of market fluctuation. The purchase price of the delayed
delivery
18
<PAGE>
securities is a liability of the Portfolio until settlement. Absent
extraordinary circumstances, the Portfolio will not sell or otherwise
transfer the delayed delivery securities prior to settlement. If cash is not
available to the Portfolio at the time of settlement, the Portfolio may be
required to dispose of portfolio securities that it would otherwise hold to
maturity in order to meet its obligation to accept delivery under a delayed
delivery agreement. The Board of Directors has determined that entering into
delayed delivery agreements does not present a materially increased risk of
loss to shareholders, but the Board of Directors may restrict the use of
delayed delivery agreements if the risk of loss is determined to be material
or if it affects the constant net asset value of any of the Portfolios.
When-Issued Securities
Many new issues of Money Market Obligations and Municipal Securities are offered
on a "when-issued" basis, that is, the date for delivery of and payment for the
securities is not fixed at the date of purchase, but is set after the securities
are issued (normally within forty-five days after the date of the transaction).
The payment obligation and the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A
Portfolio will only make commitments to purchase such Money Market Obligations
and Municipal Securities with the intention of actually acquiring such
securities, but such Portfolio may sell these securities before the settlement
date if it is deemed advisable. No additional when-issued commitments will be
made if as a result more than 25% of such Portfolio's net assets would become
committed to purchases of when-issued securities and delayed delivery
agreements.
If one of the Portfolios purchases a when-issued security, it will direct its
custodian bank to collateralize the when-issued commitment by establishing a
segregated account in the same fashion as required for a Delayed Delivery
Agreement. The special custody account will likewise be marked-to-market, and
the amount in the special custody account will be increased if necessary to
maintain adequate coverage of the when-issued commitments.
Securities purchased on a when-issued basis and the securities held in a
Portfolio's portfolio are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and changes in the
level of interest rates (which will generally result in all of those securities
changing in value in the same way, i.e., all those securities experiencing
appreciation when interest rates rise). Therefore, if, in order to achieve
higher interest income, a Portfolio is to remain substantially fully invested at
the same time that it has purchased securities on a when-issued basis, there
will be a possibility that the market value of such Portfolio's assets will
fluctuate to a greater degree. Furthermore, when the time comes for such
Portfolio to meet its obligations under when-issued commitments, the Portfolio
will do so by using then-available cash flow, by sale of the securities held in
the separate account, by sale of other securities or, although it would not
normally expect to do so, by directing the sale of the when-issued securities
themselves (which may have a market value greater or less than the Portfolio's
payment obligation).
A sale of securities to meet such obligations carries with it a greater
potential for the realization of net short-term capital gains, which are not
exempt from federal income taxes. The value of when-issued securities on the
settlement date may be more or less than the purchase price.
Stand-by Commitments
The Municipal Money Market Fund may attempt to improve its portfolio liquidity
by assuring same-day settlements on portfolio sales (and thus facilitate the
same-day payment of redemption proceeds) through the acquisition of "Stand-by
Commitments." A Stand-by Commitment is a right of the Municipal Money Market
Fund, when it purchases Municipal Securities for its portfolio from a broker,
dealer or other financial institution, to sell the same principal amount of such
securities back to the seller, at the Municipal Money Market Fund's option, at a
specified price. The Municipal Money Market Fund will acquire Stand-by
Commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes, and the acquisition or
exercisability of a Stand-by Commitment will not affect the valuation of its
underlying portfolio securities, which will continue to be valued in accordance
with the method described under "Share Purchases and Redemptions - Net Asset
Value Determination." The weighted average maturity of the Municipal Money
Market Fund's portfolio will not be affected by the acquisition of a Stand-by
Commitment.
The Stand-by Commitments acquired by the Municipal Money Market Fund will
generally have the following features: (1) they will be in writing and will be
physically held by the Municipal Money Market Fund's custodian; (2) they may be
exercised by the Municipal Money Market Fund at any time prior to the underlying
security's maturity; (3) they will be entered into only with dealers, banks and
broker-dealers who in the Manager's opinion present a minimal risk of default;
(4) the Municipal Money Market Fund's right to exercise them will be
unconditional and unqualified; (5) although the Stand-by Commitments will not be
transferable, Municipal Securities purchased subject to such commitments could
be sold to a third party at any time, even though the commitment was
outstanding; and (6) their exercise price will be (i) the Municipal Money Market
Fund's acquisition cost of the Municipal Securities which are subject to the
commitment (excluding any accrued interest which the Municipal Money Market Fund
paid on their acquisition), less any amortized market premium or plus amortized
market or original issue discount during the period the securities were owned by
the Municipal Money Market Fund, plus (ii) all interest accrued on the
securities since the last interest payment date. Since the Municipal Money
Market Fund values its portfolio securities on the amortized cost basis, the
amount payable under a Stand-by Commitment will be substantially the same as the
value of the underlying security.
19
<PAGE>
The Company expects that Stand-by Commitments generally will be available
without the payment of any direct or indirect compensation. However, if
necessary and advisable, the Municipal Money Market Fund will pay for Stand-by
Commitments, either separately in cash or by paying higher prices for portfolio
securities which are acquired subject to the commitments. As a matter of policy,
the total amount "paid" in either manner for outstanding Stand-by Commitments
held by the Municipal Money Market Fund will not exceed 1/2 of 1% of the value
of its total assets calculated immediately after any Stand-by Commitment is
acquired. The Municipal Money Market Fund expects to refrain from exercising
Stand-by Commitments to avoid imposing a loss on a dealer and jeopardizing the
Company's business relationship with that dealer, except when necessary to
provide liquidity. The Municipal Money Market Fund will not acquire a Stand-by
Commitment unless immediately after the acquisition, with respect to 75% of the
total amortized cost value of its assets, not more than 5% of such Portfolio's
total amortized cost value of its assets will be invested in Stand-by
Commitments with the same institution.
The acquisition of a Stand-by Commitment would not affect the valuation or
assumed maturity of the underlying Municipal Securities which, as noted, would
continue to be valued in accordance with the amortized cost method. Stand-by
Commitments acquired by the Municipal Money Market Fund would be valued at zero
in determining net asset value. Where the Municipal Money Market Fund paid any
consideration directly or indirectly for a Stand-by Commitment, its cost would
be reflected as unrealized depreciation for the period during which the Stand-by
Commitment was held by such Fund.
Municipal Participations
The Municipal Money Market Fund may invest in participation agreements with
respect to Municipal Securities under which the Municipal Money Market Fund
acquires an undivided interest in the Municipal Security and pays a bank which
sells the participation a servicing fee. The participation agreement will have a
variable rate of interest and may be terminated by the Municipal Money Market
Fund on seven days' notice, in which event such Fund receives from the issuer of
the participation the par value of the participation plus accrued interest as of
the date of termination. Before entering into purchases of participation the
Company will obtain an opinion of counsel (generally, counsel to the issuer of
the participation) or a letter ruling from the Internal Revenue Service to the
effect that interest earned with respect to municipal participation qualifies as
exempt-interest income under the Code. The Company has been advised that it is
the present policy of the Internal Revenue Service not to issue private letter
rulings relating to municipal participation. In the absence of an opinion of
counsel or a letter ruling from the Internal Revenue Service, the Municipal
Money Market Fund will refrain from investing in participation agreements.
Investment Restrictions
The most significant investment restrictions applicable to the Company's
investment programs are set forth in the Prospectus under the caption "Three
Investment Programs Investment Restrictions". Additionally, as a matter of
fundamental policy which may not be changed without a majority vote of
shareholders (as that term is defined in the Prospectus under the caption
"General Information - Organization of the Trust and Description of Shares"),
none of the Portfolios will:
1) purchase any Money Market Obligation or Municipal Security, if, as a result
of such purchase, more than 5% of a Portfolio's total assets would be
invested in securities of issuers, which, with their predecessors, have been
in business for less than three years;
2) invest in shares of any other investment company, other than in connection
with a merger, consolidation, reorganization or acquisition of assets; except
that the Municipal Money Market Fund may invest up to 10% of its assets in
securities of other investment companies (which also charge investment
advisory fees) and then only for temporary purposes in investment companies
whose dividends are tax-exempt, provided that the Municipal Money Market Fund
will not invest more than 5% of its assets in securities of any one
investment company nor purchase more than 3% of the outstanding voting stock
of any investment company;
3) invest more than 10% of the value of a Portfolio's total assets in illiquid
securities, including variable amount master demand notes (if such notes
provide for prepayment penalties) and repurchase agreements with remaining
maturities in excess of seven days;
4) invest in companies for the purpose of exercising control;
5) underwrite any issue of securities, except to the extent that the purchase of
securities, either directly from the issuer or from an underwriter for an
issuer, and the later disposition of such securities in accordance with the
Portfolios' investment programs, may be deemed an underwriting;
6) purchase or sell real estate, but this shall not prevent investments in
securities secured by real estate or interests therein;
7) sell securities short or purchase any securities on margin, except for such
short-term credits as are necessary for the clearance of transactions;
20
<PAGE>
8) purchase or retain securities of an issuer if, to the knowledge of the
Company, the directors and officers of the Company and the Manager, each of
whom owns more than 1/2 of 1% of such securities, together own more than 5%
of the securities of such issuer;
9) mortgage, pledge or hypothecate any assets except to secure permitted
borrowings and reverse repurchase agreements and then only in an amount up to
15% of the value of any Portfolio's total assets at the time of borrowing or
entering into a reverse repurchase agreement; or
10)purchase or sell commodities or commodity futures contracts or interests in
oil, gas or other mineral exploration or development program (a Portfolio
may, however, purchase and sell securities of companies engaged in the
exploration, development, production, refining, transporting and marketing of
oil, gas or minerals).
In order to permit the sale of the Portfolios' shares in certain states, the
Company may make commitments more restrictive than the restrictions described
above. Should the Company determine that any such commitment is no longer in the
best interest of the Portfolios and their shareholders it will revoke the
commitment by terminating sales of its shares in the state(s) involved. Pursuant
to one such commitment, the Company has agreed that the Cortland General Money
Market Fund will not invest in: (i) warrants; (ii) real estate limited
partnerships; or (iii) oil, gas or mineral leases.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values or assets
will not constitute a violation of such restriction.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Company, broker-dealer selection and negotiation of commission rates. Since
purchases and sales of portfolio securities by the Company are usually principal
transactions, the Portfolios incur little or no brokerage commissions. Portfolio
securities are normally purchased directly from the issuer or from a market
maker for the securities. The purchase price paid to dealers serving as market
makers may include a spread between the bid and asked prices. The Company may
also purchase securities from underwriters at prices which include a commission
paid by the issuer to the underwriter.
The Company does not seek to profit from short-term trading, and will generally
(but not always) hold portfolio securities to maturity. However, the Manager may
seek to enhance the yield of the Portfolios by taking advantage of yield
disparities or other factors that occur in the money market. For example, market
conditions frequently result in similar securities trading at different prices.
The Manager may dispose of any portfolio security prior to its maturity if such
disposition and reinvestment of proceeds are expected to enhance yield
consistent with the Manager's judgment as to desirable portfolio maturity
structure or if such disposition is believed to be advisable due to other
circumstances or conditions. Each Portfolio is required to maintain an average
weighted portfolio maturity of 90 days or less and purchase only instruments
having remaining maturities of 13 months or less. Both may result in relatively
high portfolio turnover, but since brokerage commissions are not normally paid
on U.S. Government Obligations, Agencies, Money Market Obligations and Municipal
Securities, the high rate of portfolio turnover is not expected to have a
material effect on the Portfolios' net income or expenses.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed to be in
the best interest of shareholders of the Company rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price.
The Manager and its affiliates manage several other investment accounts, some of
which may have objectives similar to the Portfolios'. It is possible that at
times, identical securities will be acceptable for one or more of such
investment accounts. However, the position of each account in the securities of
the same issue may vary and the length of time that each account may choose to
hold its investment in the securities of the same issue may likewise vary. The
timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities consistent with the
investment policies of the Portfolios and one or more of these accounts is
considered at or about the same time, transactions in such securities will be
allocated in good faith among the Portfolios and such accounts in a manner
deemed equitable by the Manager. The Manager may combine such transactions, in
accordance with applicable laws and regulations, in order to obtain the best net
price and most favorable execution. The allocation and combination of
simultaneous securities purchases on behalf of the three Portfolios will be made
in the same way that such purchases are allocated among or combined with those
of other Reich & Tang accounts. Simultaneous transactions could adversely affect
the ability of a Portfolio to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
Provisions of the 1940 Act and rules and regulations thereunder have also been
construed to prohibit the Portfolios' purchasing securities or instruments from
or selling securities or instruments to, any holder of 5% or more of the voting
securities of any investment company managed by the Manager. The Portfolios have
obtained an order of exemption from the SEC which would permit the Portfolios to
engage in transactions with such a 5% holder, if the 5% holder is one of the 50
largest U.S. banks measured by deposits. Purchases from these 5% holders will be
subject to quarterly
21
<PAGE>
review by the Board of Directors including those directors who are not
"interested persons" of the Company. Additionally, such purchases and sales will
be subject to the following conditions: (1) the Company will maintain and
preserve a written copy of the internal control procedures for the monitoring of
such transactions, together with a written record of any such transactions
setting forth a description of the security purchased or sold, the identity of
the purchaser or seller, the terms of the purchase or sale transaction and the
information or materials upon which the determinations to purchase or sell each
security were made; (2) each security to be purchased or sold by a Portfolio
will be: (i) consistent with such Portfolio's investment policies and
objectives; (ii) consistent with the interests of shareholders of such
Portfolio; and (iii) comparable in terms of quality, yield, and maturity to
similar securities purchased or sold during a comparable period of time; (3) the
terms of each transaction will be reasonable and fair to shareholders of the
Portfolios and will not involve overreaching on the part of any person; and (4)
each commission, fee, spread or other remuneration received by a 5% holder will
be reasonable and fair compared to the commission, fee, spread or other
remuneration received by other brokers or dealers in connection with comparable
transactions involving similar securities purchased or sold during a comparable
period of time and will not exceed the limitations set forth in Section 17(e)(2)
of the 1940 Act.
22
<PAGE>
INVESTMENT RATINGS
The following is a description of the two highest commercial paper, bond,
municipal bond and other short- and long-term categories assigned by Standard &
Poor's Corporation ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch
Investors Service, Inc. ("Fitch"), Duff and Phelps ("Duff"), and IBCA Inc. and
IBCA Limited ("IBCA"):
Commercial Paper and Short-Term Ratings
The designation A-1 by S&P indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and ordinarily will be evidenced by leading
market positions in well established industries, high rates of return of funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings 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.
Issues rated Prime-2 (P-2) have a strong capacity for repayment of short-term
promissory obligations. This ordinarily will 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.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by
Fitch. Paper rated Fitch-1 is regarded as having the strongest degree of
assurance for timely payment. The rating Fitch-2 (Very Good Grade) is the second
highest commercial paper rating assigned by Fitch which reflects an assurance of
timely payment only slightly less in degree than the strongest issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper
rated Duff-1 is regarded as having very high certainty of timely payment with
excellent liquidity factors which are supported by ample asset protection. Risk
factors are minor. Paper rated Duff-2 is regarded as having good certainty of
timely payment, good access to capital markets and sound liquidity factors and
company fundamentals. Risk factors are small.
The designation A1 by IBCA indicates that the obligation is supported by a very
strong capacity for timely repayment. Those obligations rated A1+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are supported
by a strong capacity for timely repayment, although such capacity may be
susceptible to adverse changes in business, economic or financial conditions.
Bond and Long-Term Ratings
Bonds rated AAA are considered by S&P to be the highest grade obligations and
possess an extremely strong capacity to pay principal and interest. Bonds rated
AA by S&P are judged by S&P to have a very strong capacity to pay principal and
interest, and in the majority of instances, differ only in small degrees from
issues rated AAA.
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Bonds Rated Aa by Moody's are judged by Moody's 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 Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger. Moody's applies numerical modifiers 1, 2
and 3 in the Aa rating category. The modifier 1 indicates a ranking for the
security in the higher end of this rating category, the modifier 2 indicates a
mid-range ranking, and the modifier 3 indicates a ranking in the lower end of
the rating category.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions and
are liable to but slight market fluctuation other than through changes in the
money rate. The prime feature of an AAA bond is a showing of earnings several
times or many times interest requirements, with such stability of applicable
earnings that safety is beyond reasonable question whatever changes occur in
conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety
virtually beyond question and are readily salable, whose merits are not unlike
those of the AAA class, but whose margin of safety is less strikingly broad. The
issue may be the obligation of a small company, strongly secured but influenced
as to rating by the lesser financial power of the enterprise and more local type
market.
Bonds rated Duff-1 are judged by Duff to be of the highest credit quality with
negligible risk factors; only slightly more than U.S. Treasury debt. Bonds rated
Duff-2, 3 and 4 are judged by Duff to be of high credit quality with strong
protection factors. Risk is modest but may vary slightly from time to time
because of economic conditions.
23
<PAGE>
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA by IBCA. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk albeit not very
significantly.
Municipal Bond Ratings
S&P's Municipal Bond Ratings cover obligations of states and political
subdivisions. Ratings are assigned to general obligation and revenue bonds.
General obligation bonds are usually secured by all resources available to the
municipality and the factors outlined in the rating definitions below are
weighed in determining the rating. Because revenue bonds in general are payable
from specifically pledged revenues, the essential element in the security for a
revenue bond is the quantity of the pledged revenues available to pay debt
service.
Although an appraisal of most of the same factors that bear on the quality of
general obligation bond credit is usually appropriate in the rating analysis of
a revenue bond, other facts are also important, including particularly the
competitive position of the municipal enterprise under review and the basic
security covenants. Although a rating reflects S&P's judgment as to the issuer's
capacity for the timely payment of debt service, in certain circumstances it may
also reflect a mechanism or procedure for an assured and prompt cure of a
default, should one occur, i.e., an insurance program, federal or state
guaranty, or the automatic withholding and use of state aid to pay the default
debt service.
AAA
These are obligations of the highest quality. They have the strongest capacity
for timely payment of debt service.
General Obligation Bonds - In a period of economic stress, the issuers will
suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior. Revenue Bonds - Debt service coverage has been, and
is expected to remain, substantial. Stability of the pledged revenues is also
exceptionally strong, due to the competitive position of the municipal
enterprise or to the nature of the revenues. Basic security provisions
(including rate covenants, earning tests for issuance of additional bonds, and
debt service reserve requirements) are rigorous. There is evidence of superior
management.
AA
The investment characteristics of general obligation and revenue bonds in this
group are only slightly less marked than those of the AAA category. Bonds rated
"AA" have the second strongest capacity for payment of debt service. S&P's bond
letter ratings may be modified by the addition of a plus (+) or a minus (-) sign
which designates a bond's relative quality within the major rating categories,
except in the AAA category.
S&P Tax-Exempt Demand Bonds Ratings
S&P assigns "dual" ratings to all long-term debt issues that have as part of
their provisions a demand feature.
The first rating addresses the likelihood of repayment of principal and interest
as due, and the second rating addresses only the demand feature. The long-term
debt rating symbols are used for bonds to denote the long-term maturity, and the
commercial paper rating symbols are used to denote the put option (e.g.,
"AAA/A-1+").
Moody's Municipal Bond Ratings
Aaa
Bonds which are judged to be of the highest quality are rated "Aaa." They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be anticipated are most unlikely to impair
the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as "high
grade" bonds. They are rated lower than the Aaa bonds because margins of
protection may not be as large as the Aaa securities or the fluctuation of
protective elements may be of greater amplitude, or other elements may be
present which make the long-term risks appear somewhat larger than in Aaa
securities.
24
<PAGE>
Moody's State and Municipal Short-Term Ratings
Moody's assigns state and municipal notes, as well as other short-term
obligations, a Moody's Investment Grade ("MIG") rating. Factors affecting the
liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in evaluating bond
risk may be less important over the short run.
MIG 1
Notes bearing this designation are of the best quality. The notes enjoy strong
"protection" by established cash flows, superior liquidity support or a
demonstrated broad-based access to the market for refinancing.
MIG 2
Notes bearing this designation are of high quality. Margins of protection are
ample although not as large as in the preceding group.
Moody's Tax-Exempt Demand Ratings
Moody's assigns issues which have demand features (i.e., variable rate demand
obligations) a VMIG symbol. This symbol reflects such characteristics as payment
upon periodic demand rather than fixed maturity, and payment relying on external
liquidity. The VMIG rating is modified by the numbers 1, 2 or 3. VMIG1
represents the best quality in the VMIG category and VMIG2 represents high
quality.
International and U.S. Bank Ratings
An IBCA bank rating represents IBCA's current assessment of the strength of the
bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent IBCA's assessment of a
bank's economic merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support from state
authorities or its owners.
25
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
================================================================================
Shareholders and Board of Directors
Cortland Trust, Inc.
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of Cortland Trust, Inc. (comprising,
respectively, the Cortland General Money Market Fund, the U.S. Government Fund
and the Municipal Money Market Fund) as of March 31, 1996, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights (Note 5) for each of the years indicated therein. These financial
statements and financial highlights are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1996, by correspondence with the custodian and brokers. 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 each
of the respective funds constituting Cortland Trust, Inc. at March 31, 1996, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and the financial
highlights (Note 5) for each of the indicated years, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
April 25, 1996
New York, New York
26
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- -------- ------- ------
Banker's Acceptance (2.29%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 35,085,839 Trust Company Bank of Atlanta 06/28/96 5.34% $ 34,633,855 P1 A1+
----------- -----------
35,085,839 Total Banker's Acceptance 34,633,855
----------- -----------
<CAPTION>
Commercial Paper (36.85%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 16,000,000 Asset Securization Corporation 04/18/96 5.20% $ 15,961,089 P1 A1+
10,000,000 Australia New Zealand Bank 05/03/96 5.15 9,954,756 P1 A1
25,000,000 Banque International A Luxembourg (Oil International) 04/23/96 5.37 24,919,028 P1 A1+
15,000,000 Banque International A Luxembourg (Oil International) 05/02/96 5.17 14,934,125 P1 A1+
15,000,000 Banque Paribas 05/23/96 5.16 14,889,500 P1 A1
25,000,000 Bear Stearns Company, Incorporated 05/16/96 5.16 24,841,250 P1 A1
10,000,000 Caisse Centrale Desjardins de Quebec 04/24/96 5.76 9,964,222 P1 A1+
10,000,000 Caisse Centrale Desjardins de Quebec 04/24/96 5.79 9,964,094 P1 A1+
10,000,000 Compagnie Bancaire 04/30/96 5.74 9,955,050 P1 A1
10,600,000 Compagnie Bancaire 05/02/96 5.18 10,553,266 P1 A1
15,000,000 Compagnie Bancaire 05/31/96 5.17 14,872,500 P1 A1
15,000,000 Compagnie Bancaire 05/31/96 5.16 14,872,500 P1 A1
15,000,000 Compagnie Bancaire 06/04/96 5.36 14,858,400 P1 A1
11,000,000 GTE (b) 05/02/96 5.56 10,947,619
20,000,000 General Motors Acceptance Corporation (b) 05/01/96 5.41 19,910,333
30,000,000 General Motors Acceptance Corporation (b) 05/09/96 5.44 29,829,000
15,000,000 International Lease Finance Corporation 04/16/96 5.31 14,967,000 P1 A1
20,000,000 International Lease Finance Corporation 04/26/96 5.38 19,925,694 P1 A1
10,000,000 Kingdom of Sweden 04/04/96 5.68 9,995,375 P1 A1+
20,000,000 Kingdom of Sweden 05/01/96 5.33 19,912,500 P1 A1+
45,000,000 Merrill Lynch & Company, Incorporated 04/17/96 5.43 44,893,000 P1 A1+
20,000,000 Merrill Lynch & Company, Incorporated 04/29/96 5.38 19,916,778 P1 A1+
30,000,000 Morgan Stanley Group Incorporated 05/13/96 5.21 29,819,400 P1 A1+
10,000,000 Ranger Funding Corporation 04/22/96 5.43 9,968,792 P1 A1
20,000,000 Receivables Capital Corporation 04/30/96 5.28 19,916,061 P1 A1
16,131,000 Receivables Capital Corporation 05/16/96 5.23 16,026,753 P1 A1
10,000,000 Sherwood Medical Company
(American Home Products) (b) 05/10/96 5.25 9,943,667 P1
15,000,000 Svenska Handelsbanken 04/17/96 5.25 14,965,200 P1 A1
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
27
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- -------- ------- ------
Commercial Paper (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 75,000,000 Union Bank of Switzerland Finance, Delaware 04/01/96 5.50% $ 75,000,000 P1 A1+
----------- -----------
558,731,000 Total Commercial Paper 556,476,952
----------- -----------
<CAPTION>
Letter of Credit Commercial Paper (24.58%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 11,000,000 Banco Boavista S.A.
LOC Bayerische Vereinsbank, A.G. 04/24/96 5.30% $ 10,962,964 P1 A1+
15,000,000 Banco Bradesco S.A. (Grand Cayman)
LOC Barclays Bank PLC 06/04/96 5.11 14,865,600 P1 A1+
10,000,000 Banco Bradesco S.A. (Grand Cayman)
LOC Barclays Bank PLC 06/06/96 5.59 9,900,083 P1 A1+
20,000,000 Banco Mercantil del Norte, S.A.
LOC Bayerische Vereinsbank, A.G. 08/13/96 5.64 19,596,511 P1 A1+
20,000,000 Banco Nacional de Comerico Exterior
LOC Societe Generale 07/12/96 5.37 19,703,633 P1 A1+
20,000,000 Banco Rio de La Plata
LOC Bayerische Vereinsbank, A.G. 08/23/96 5.03 19,608,000 P1 A1+
10,000,000 Bancomer S.A.
LOC Bank of Montreal 08/13/96 5.65 9,798,255 P1 A1+
10,000,000 Bancomer S.A.
LOC Bank of Montreal 09/30/96 5.37 9,739,133 P1 A1+
15,000,000 Bancomer S.A.
LOC Bank of Montreal 09/30/96 5.38 14,607,563 P1 A1+
20,000,000 Beal Cayman Limited
LOC Westdeutsche Landesbank Girozentrale 06/06/96 5.20 19,812,083 P1 A1+
10,000,000 Beal Cayman Limited
LOC Westdeutsche Landesbank Girozentrale 06/13/96 5.18 9,896,381 P1 A1+
10,000,000 Beal Cayman Limited
LOC Westdeutsche Landesbank Girozentrale 07/03/96 5.38 9,863,083 P1 A1+
20,000,000 Cemex, S.A.
LOC Credit Suisse 04/12/96 5.45 19,967,183 P1 A1+
15,000,000 Cemex, S.A.
LOC Credit Suisse 04/26/96 5.23 14,946,042 P1 A1+
10,000,000 Corporacion Andina de Fomento
LOC Barclays Bank PLC 04/25/96 5.40 9,964,200 P1 A1+
5,000,000 Guangong Enterprise Limited
LOC Credit Suisse 05/29/96 5.32 4,957,950 P1 A1+
15,000,000 Guangong Enterprise Limited
LOC Credit Suisse 08/30/96 5.15 14,684,158 P1 A1+
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
28
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- -------- ------- ------
Letter of Credit Commercial Paper (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 14,000,000 James River Cogeneration
LOC Banque Paribas 04/19/96 5.37% $ 13,962,550 P1 A1
14,000,000 James River Cogeneration
LOC Banque Paribas 04/25/96 5.38 13,950,067 P1 A1
15,000,000 Pemex Capital, Incorporated
LOC Swiss Bank Corp. 04/16/96 5.41 14,966,625 P1 A1+
25,000,000 Petroleo Brasileiro S.A.
LOC Barclays Bank PLC 05/21/96 5.66 24,809,028 P1 A1+
15,000,000 Petroleo Brasileiro S.A.
LOC Barclays Bank PLC 08/19/96 5.08 14,710,667 P1 A1+
16,000,000 SCI Systems
LOC ABN AMRO Bank N.V. 04/25/96 5.39 15,942,827 P1 A1+
10,000,000 Sinochem American Holdings Incorporated
LOC Credit Suisse 05/22/96 5.38 9,924,492 P1 A1+
15,000,000 Unibanco - Uniao de Bancos Grand Cayman
LOC Westdeutsche Landesbank Girozentrale 04/01/96 5.69 15,000,000 P1 A1+
15,100,000 Vehicle Services of America
LOC Nations Bank 04/16/96 5.25 15,067,283 P1 A1
----------- -----------
375,100,000 Total Letter of Credit Commercial Paper 371,206,361
----------- -----------
<CAPTION>
U.S. Government Agency (0.33%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ 5,000,000 Federal Home Loan Bank (c) 11/18/97 5.75% $ 5,000,000
----------- -----------
5,000,000 Total U.S. Government Agency 5,000,000
----------- -----------
<CAPTION>
Master Notes (3.64%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ 25,000,000 Donaldson, Lufkin & Jenrette, Inc. (d) 02/06/97 5.36% $ 25,000,000
30,000,000 Morgan (J.P.) Securities Incorporated (e) 10/11/96 5.44 30,000,000
----------- -----------
55,000,000 Total Master Notes 55,000,000
----------- -----------
<CAPTION>
Medium Term Notes (4.64%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 50,000,000 First U.S.A.Credit Master Trust-Series 1995-96
Class A (Steers) (f) 12/10/96 5.33% $ 50,000,000 Aaa AAA
20,000,000 Royal Bank of Canada (g) 09/25/96 5.43 19,998,066 P1 A1+
----------- -----------
70,000,000 Total Medium Term Notes 69,998,066
----------- -----------
<CAPTION>
Other Notes (8.57%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 10,000,000 City of New York GO Municipal,
NY (Fiscal 1996) - Series A-2
LOC Societe Generale 08/21/96 5.35% $ 10,000,000 A1+
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
29
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
---------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- -------- ------- ------
Other Notes (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 33,900,000 City of New York Taxable Municipal,
NY (Fiscal 1996) - Series A-2
LOC Societe Generale 08/14/96 5.20% $ 33,900,000 A1+
24,700,000 General Electric Engine Receivables 1995-1
Trust VR Guaranteed Notes (h)
LOC General Electric Capital Corp. 02/14/00 5.51 24,700,000 P1 A1+
8,000,000 Mississippi Business Finance Corporation IDRB
(Howard Industries, Inc.) - Series 1995 (h)
LOC National Bank of Detroit 06/01/10 5.65 8,000,000 P1
19,000,000 State of Missouri HEFA
(SSM Health Care System) 1995 - Series D (h)
MBIA Insured 06/01/24 5.50 19,000,000 Aaa AAA
26,000,000 State of Oregon Taxable Economic Development RB
(Georgia-Pacific Corporation) - Series 1995B
LOC Commerzbank A.G. 04/15/96 5.38 26,000,000 P1 A1+
7,800,000 Stone Creek, L.L.C. Taxable VR Securities - Series 1995 (h)
LOC Columbus Bank & Trust Company 08/01/20 5.65 7,800,000 P1
----------- -----------
129,400,000 Total Other Notes 129,400,000
----------- -----------
<CAPTION>
Repurchase Agreements, Overnight (5.50%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ 83,000,000 Donaldson, Lufkin & Jenrette, Inc., dated 3/29/96
(Collateralized by:
$42,235,000 U.S.Treasury Bills,0.000%,due 4/18/96 to 6/13/96
$42,654,000 U.S.Treasury Notes,5.625%,due 11/30/00
$ 155,000 U.S.Treasury Bonds,12.000%,due 8/15/13);
proceeds - $83,037,212 04/01/96 5.38% $ 83,000,000
----------- -----------
83,000,000 Total Repurchase Agreements, Overnight 83,000,000
----------- -----------
<CAPTION>
U.S. Government Obligations (0.27%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ 803,981 Small Business Administration Variable Rate Loan 08/25/99 6.63% $ 803,981
341,089 Small Business Administration Variable Rate Loan 09/25/99 6.38 341,089
2,354,026 Small Business Administration Variable Rate Loan 09/25/02 6.63 2,354,026
644,181 Small Business Administration Variable Rate Loan 10/25/02 6.38 644,181
----------- -----------
4,143,277 Total U.S. Government Obligations 4,143,277
----------- -----------
<CAPTION>
U.S. Treasury Bills (1.30%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ 10,000,000 U.S. Treasury Bills 08/08/96 4.89% $ 9,828,896
10,000,000 U.S. Treasury Bills 07/11/96 5.04 9,861,966
----------- -----------
20,000,000 Total U.S. Treasury Bills 19,690,862
----------- -----------
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
30
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- -------- ------- ------
Eurodollar Certificates of Deposit (5.30%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 15,000,000 Banque Nationale de Paris 08/08/96 5.00% $ 15,002,097 P1 A1+
30,000,000 Morgan Guaranty Trust Company, New York 07/15/96 5.33 30,001,704 P1 A1+
20,000,000 Morgan Guaranty Trust Company, New York 08/20/96 5.00 20,000,764 P1 A1+
15,000,000 Rabobank Nederland 08/22/96 5.02 15,000,000 P1 A1+
----------- -----------
80,000,000 Total Eurodollar Certificates of Deposit 80,004,565
----------- -----------
Yankee Certificates of Deposit (7.61%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 25,000,000 American Express Centurian Bank 04/23/96 5.40% $ 24,999,154 P1 A1
20,000,000 Bank of Nova Scotia 08/06/96 4.97 20,001,734 P1 A1+
20,000,000 Banque Nationale de Paris 06/14/96 5.44 20,003,369 P1 A1+
10,000,000 Canadian Imperial Bank of Commerce 04/04/96 5.35 10,000,000 P1 A1+
20,000,000 Commerzbank A.G. 04/30/96 5.26 20,000,159 P1 A1+
20,000,000 Dresdner Bank A.G. 11/22/96 5.15 19,997,406 P1 A1+
----------- -------------
115,000,000 Total Yankee Certificates of Deposit 115,001,822
----------- -------------
Total Investments (100.88%)(Cost $1,523,555,760+) 1,523,555,760
Liabilities in Excess of Cash and Other Assets (-.88%) ( 13,352,566)
-------------
Net Assets (100.00%) $1,510,203,194
=============
+ Aggregate cost for federal income tax purpose is identical.
FOOTNOTES:
(a) The ratings (which are unaudited) noted for instruments secured by a letter
of credit are those of the holding company of the bank whose letter of
credit secures such instruments. P1 and A1+ are the highest ratings for
commercial paper. Securities that are not rated have been determined by the
Fund's Board of Directors to be of comparable quality to those rated
securities in which the Fund may invest.
(b) These are split rated securities, given the highest ratings by at least two
of the four nationally recognized rating agencies.
(c) This is a variable rate Federal Home Loan Bank Note. The interest rate is
adjusted daily based upon the prime rate minus 2.50 basis points.
(d) This is a Master Note. The interest rate is adjusted monthly based upon the
one month LIBOR rate plus 5 basis points, 30 day put option.
(e) This is a Master Note. The interest rate is adjusted monthly based upon the
one month LIBOR flat, daily put option.
(f) This is a Medium Term Note. The interest rate is reset monthly based upon
the one month LIBOR plus 2 basis points.
(g) This is a Medium Term Note. The interest rate is reset daily based upon the
Federal funds rate plus 10 basis points.
(h) These securities have a 7 day put feature exercisable by the Fund at par
value.
KEY:
<S> <C> <C> <C> <C> <C>
GO = General Obligations MBIA = Municipal Bond Insurance Association
HEFA = Health and Education Facilities Authority RB = Revenue Bond
IDRB = Industrial Development Revenue Bond VR = Variable Rate
LOC = Letter of Credit
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
31
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
U.S. GOVERNMENT FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 2)
------ ---- ----- --------
U.S. Government Agencies (69.42%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ 5,000,000 Federal Farm Credit Bank 04/16/96 5.60% $ 4,988,646
7,600,000 Federal Farm Credit Bank 04/25/96 5.14 7,574,160
5,000,000 Federal Farm Credit Bank 04/29/96 5.13 4,980,205
10,000,000 Federal Farm Credit Bank 05/01/96 5.25 10,000,000
10,000,000 Federal Farm Credit Bank 03/14/97 5.30 10,000,000
10,000,000 Federal Home Loan Bank 05/06/96 5.04 9,951,583
4,360,000 Federal Home Loan Bank 05/06/96 5.06 4,338,763
10,880,000 Federal Home Loan Bank 05/09/96 5.23 10,820,855
10,000,000 Federal Home Loan Bank 06/12/96 4.96 9,902,400
5,000,000 Federal Home Loan Bank 06/19/96 5.29 4,943,493
5,000,000 Federal Home Loan Bank 07/08/96 5.22 4,930,856
5,000,000 Federal Home Loan Bank 07/12/96 5.13 4,929,025
13,515,000 Federal Home Loan Bank 07/17/96 5.13 13,314,152
5,000,000 Federal Home Loan Bank 02/07/97 5.18 4,999,334
5,000,000 Federal Home Loan Mortgage Corporation 04/03/96 5.34 4,998,536
10,000,000 Federal Home Loan Mortgage Corporation 04/22/96 5.30 9,969,258
5,000,000 Federal Home Loan Mortgage Corporation 05/07/96 5.05 4,975,050
5,000,000 Federal Home Loan Mortgage Corporation 06/05/96 5.11 4,954,500
5,000,000 Federal Home Loan Mortgage Corporation 10/01/96 5.31 4,868,596
5,000,000 Federal National Mortgage Association 04/04/96 5.37 4,997,796
5,000,000 Federal National Mortgage Association 04/12/96 5.36 4,991,926
5,000,000 Federal National Mortgage Association 05/24/96 5.31 4,961,796
5,000,000 Federal National Mortgage Association 05/29/96 5.06 4,959,722
5,000,000 Federal National Mortgage Association 06/07/96 5.11 4,953,100
5,000,000 Federal National Mortgage Association 06/12/96 5.13 4,949,700
5,000,000 Federal National Mortgage Association 06/25/96 5.13 4,940,736
5,000,000 Federal National Mortgage Association 09/03/96 5.71 4,998,547
5,000,000 Federal National Mortgage Association 09/20/96 5.28 4,876,972
5,000,000 Federal National Mortgage Association 04/04/97 5.01 4,996,614
5,000,000 Student Loan Marketing Association (a) 08/08/96 5.32 5,000,000
5,000,000 Student Loan Marketing Association (a) 09/12/96 5.27 5,000,000
5,000,000 Student Loan Marketing Association (a) 09/12/96 5.27 5,000,000
5,000,000 Student Loan Marketing Association (a) 10/04/96 5.41 5,000,000
5,000,000 Tennesse Valley Authority 05/08/96 5.22 4,973,381
----------- -----------
211,355,000 Total U.S. Government Agencies 210,039,702
----------- -----------
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
32
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
U.S. GOVERNMENT FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 2)
------ ---- ----- --------
U.S. Treasury Bills (3.20%)
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ 10,000,000 U.S. Treasury Bills 11/14/96 5.03% $ 9,694,180
----------- -----------
10,000,000 Total U.S. Treasury Bills 9,694,180
----------- -----------
<CAPTION>
Repurchase Agreement, Overnight (28.43%)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 86,000,000 Morgan (J.P.) Securities, Inc., dated 3/31/96
(Collateralized by $90,010,000
U.S. Treasury Bill, 0.00%, due 9/26/96);
proceeds - $86,038,700 04/01/96 5.40% $ 86,000,000
----------- -----------
86,000,000 Total Repurchase Agreement, Overnight 86,000,000
----------- -----------
Total Investments (101.05%) (Cost $305,733,882+) 305,733,882
Liabilities, in Excess of Cash and Other Assets(1.05%) ( 3,183,635)
-----------
Net Assets (100.00%) $302,550,247
===========
+ Aggregate cost for federal income tax purposes is identical.
</TABLE>
FOOTNOTE:
(a) This is a variable rate Student Loan Marketing Association Short Term Note.
The interest rate is adjusted weekly based upon the 3-month Treasury Bill
Auction.
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
33
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- -------- ------- ------
Tax Exempt Investments (14.46%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 5,000,000 City of Houston, TX TRAN - Series 1995 06/27/96 3.64% $ 5,009,174 MIG-1 SP-1+
4,415,000 Commonwealth of Kentucky State
Property & Building Commission RRB Project #59 11/01/96 3.88 4,428,673 A+
2,000,000 County of Stark, OH GO 10/18/96 3.86 2,002,306
4,000,000 Dorchester County, SC
Waterworks & Sewer System RB BAN 02/06/97 3.69 4,011,454
1,000,000 Evanston, IL GO 12/01/96 3.13 1,003,543
4,000,000 Greater Cleveland Regional Transit Authority
Capital Improvements BAN - Series 1995 04/10/96 3.69 4,000,333 MIG-1
5,000,000 HEFA State of Missouri School District
GIC Bayerische Landesbank Girozentrale 08/19/96 3.88 5,010,077 SP-1+
5,000,000 Illinois State Revenue Anticipation Certificates 05/10/96 3.75 5,003,630 MIG-1 SP-1+
2,000,000 Michigan Municipal Bond Authority RN - Series 1995B 07/03/96 3.74 2,003,425 SP-1+
5,000,000 Pierce County, WA TAN 12/27/96 3.24 5,007,150
1,000,000 Wapello County, IA Ottumwa Community
School District Anticipatory Note - Series 1995 08/08/96 4.37 1,000,566
--------- -----------
38,415,000 Total Tax Exempt Investments 38,480,331
---------- -----------
<CAPTION>
Variable Rate Demand Instruments (b) (63.47%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 5,010,000 Arlington County, VA IDA (Air Force Association Project)
LOC Central Fidelity Bank 07/01/98 3.63% $ 5,010,000
1,070,000 Auburn, IN EDRB (R.J. Tower Corporation)
LOC Old Kent Bank & Trust Co. 09/01/00 3.70 1,070,000 A1
1,300,000 Brazos River Authority Texas PCRB
(Texas Utilities Electric Company) - Series B
LOC Union Bank of Switzerland 06/01/30 3.85 1,300,000 VMIG-1 A1+
2,200,000 Butler County, KS Texaco Solid Waste Disposal
Facilities Texaco Refining 08/01/24 3.85 2,200,000 VMIG-1 A1
3,000,000 California Higher Education Loan Authority
LOC Student Loan Marketing Association 07/01/02 3.45 3,000,000 VMIG-1 A1+
1,000,000 Carthage, MO IDA IDRB (Leggett & Platt, Inc.)
LOC National Westminster Bank PLC 09/01/30 3.90 1,000,000
1,000,000 Chesapeake, VA Development Authority IDRB (Volvo Project)
LOC Union Bank of Switzerland 12/01/06 3.45 1,000,000
800,000 City of Akron, OH Sanitary Sewer System RB - Series 1994
LOC Credit Suisse 12/01/14 3.50 800,000
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
34
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- -------- ------- ------
Variable Rate Demand Instruments (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 4,000,000 City of Selma, AL IDA RB
(Specialty Minerals, Incorporated Project)
LOC Wachovia Bank & Trust Co., N.A. 11/01/09 3.60% $ 4,000,000 P1
6,000,000 City of Stevenson, AL IDRB Environmental Improvements Bds
(Mead Corp Proj) - Series 1996
LOC Societe Generale 01/01/31 3.95 6,000,000 A1+
2,000,000 County of Alameda, CA IDA (Scientific Technology Project)
LOC Banque Nationale De Paris 08/01/24 3.60 2,000,000 A1+
5,200,000 County of Dekalb, GA MHRB
(Cedar Creek Apartments Project) - Series 1995
LOC GE Capital Corp. 12/01/20 3.85 5,200,000
2,400,000 Cullman, AL Industrial Development Board IDRB
(Pressac Project)
LOC National Bank of Detroit 06/01/02 3.70 2,400,000
1,640,000 Elkhart County, IN EDRB
(Burger Diary Corporation Project)
LOC Old Kent Bank & Trust Co. 12/01/11 3.70 1,640,000 A1
3,120,000 Franklin County, GA Industrial Building Authority (Ross)
LOC Comerica Bank 01/01/07 3.70 3,120,000
2,000,000 Franklin County, IA EDRB (J & J Project) - Series 1995
LOC Fifth Third Bank 05/01/10 3.70 2,000,000
1,470,000 Fulton County, GA RDA (Darby Printing Company)
LOC Wachovia Bank & Trust Co., N.A. 04/01/11 3.70 1,470,000
3,500,000 Graves County, KY IDRB (Seaboard Farms)
LOC Bank of New York 12/01/12 3.60 3,500,000 A1
3,000,000 Greater East, TX Higher Education
Student Loan Authority - Series 1992B
LOC Student Loan Marketing Association 05/01/42 3.45 3,000,000 VMIG-1 A1+
1,000,000 Greensville County, VA Development Authority IDRB
(Perdue Farms Incorporated Project)
LOC Trust Co. Bank of Atlanta 10/01/06 3.55 1,000,000 P1 A1+
1,900,000 Gulf Coast IDA Solid Waste Disposal RB
(Citgo Petroleum Corporation Project) - Series 1995
LOC Nations Bank 05/01/25 3.90 1,900,000 VMIG-1
3,735,000 Hamilton County, OH EDRB (Berman Printing Company)
LOC Fifth Third Bank 12/01/08 3.70 3,735,000
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
35
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- -------- ------- ------
Variable Rate Demand Instruments (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,900,000 Indiana HEFA RB (Community Mental Health)
LOC Marine Midland Bank, N.A.
Wrapped by Hong Kong Shanghai 11/01/20 3.75% $ 1,900,000 A1
2,000,000 Indiana State EDC
(Fischer Enterprise Limited Project) - Series 1989
LOC PNC Bank 12/01/04 3.60 2,000,000
530,000 Jefferson County, KY IDRB (Belknap Incorporation)
LOC Chemical Bank 12/01/14 3.55 530,000 A1
2,500,000 Kentucky Pollution Abatement & Water
Resources Finance Authority RB
(Toyota Motor Manufacturing)
LOC Toyota Motor Credit 08/13/06 3.95 2,500,000
9,800,000 Lexington - Fayette Urban County Airport Corporation
LOC Credit Locale de France 04/01/24 4.05 9,800,000 P1 A1+
3,600,000 Massachusetts IFA (890 Commonwealth Realty Trust)
LOC Bank of New York 12/01/11 3.70 3,600,000
400,000 Meridian, MI EDC
(Hannah Research & Technology Center)
LOC Barclays Bank PLC 11/15/14 3.50 400,000 A1+
870,000 Michigan State Strategic Fund (260 Brown Street)
LOC Comerica Bank 10/01/15 3.35 870,000 VMIG-1
2,000,000 Michigan State Strategic Fund Long Term Obligation RB
(B&G Realty Incorporate Project)
LOC Bank One Milwaukee, N.A. 10/01/01 3.55 2,000,000
3,000,000 Michigan Strategic Fund
(National Rubber Michigan Incorporated Project)
LOC National Bank of Canada 09/01/11 3.60 3,000,000 P1
3,400,000 Mississippi Business Finance Corporation IDRB
(Schuller International, Inc. Project)
LOC Bank of New York 08/01/07 3.70 3,400,000 P1
4,000,000 Mississippi Business Finance Corporation RB
(ED Smith Gem Incorporation Project)
LOC Amsouth Bank N.A. 06/01/04 3.70 4,000,000 P1
2,000,000 Montgomery County, PA Redevelopment Authority MHRB
(Glenmore Associates Project)
FNMA Collateralized 11/15/25 3.45 2,000,000 A1+
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statments.
36
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
---------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- -------- ------- ------
Variable Rate Demand Instruments (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 4,600,000 New Hampshire IDA
(Connecticut Light & Power Company Project) - Series 1986
LOC Deutsche Bank A.G. 11/01/16 3.40% $ 4,600,000 VMIG-1
1,900,000 North Carolina Education Facilities
(Guilford College Project)
LOC Wachovia Bank & Trust Co., N.A. 09/01/23 3.65 1,900,000 VMIG-1 A1+
8,600,000 North Carolina Medical Care Commission (Carol Woods)
LOC Bank of Scotland 04/01/21 3.85 8,600,000 VMIG-1
2,600,000 North Carolina Medical Care Commission HRB
(Pooled Finance Project) - Series 1991A
LOC Nations Bank 10/01/20 3.75 2,600,000 VMIG-1
1,500,000 Orange County, FL IDRB
LOC PNC Bank 12/01/03 3.55 1,500,000
1,900,000 Parish of Calcasieu IDRB RB
(Citgo Petroleum Corporation) - Series 95
LOC Banque Nationale de Paris 03/01/25 3.90 1,900,000 VMIG-1
3,495,000 PeachTree City Refunding RB
(Equitable - PCDC Associates III Project) - Series 1988
LOC Nations Bank 07/01/10 3.40 3,495,000 A1
1,000,000 Pleasant Prairie, WI IDRB (Nucon Corporation Project)
LOC American National Bank & Trust 02/01/22 3.60 1,000,000 A1+
2,200,000 Portland, OR IDRB (Oregon Transfer Company)
LOC US National Bank of Oregon 11/01/01 3.93 2,200,000 A1
2,340,000 Portsmouth, VA Redevelopment & Housing Authority
(Chowan Partners)
LOC Central Fidelity Bank 11/01/05 3.63 2,340,000
3,200,000 Prentice, WI IDRB (Blount Incorporation Project)
LOC Nations Bank 09/01/04 3.70 3,200,000 A1
2,250,000 Redmond, WA IDRB (Integrated Circuits Project)
LOC Security Pacific Bank Washington, N.A. 07/01/03 3.45 2,250,000 VMIG-1
4,000,000 Richmond, VA Redevelopment & Housing Authority
(Tobacco Row)
LOC Bayerische Landesbank Girozentrale 10/01/24 3.60 4,000,000 VMIG-1
2,500,000 Rosebud County, Forsyth, MT PCRB (Pacificorp)
LOC Deutsche Bank A.G. 12/01/16 3.95 2,500,000
3,000,000 Sacramento County, CA MHRB
(Shadowood Apartments Project)
LOC GE Capital Corp. 12/01/22 3.55 3,000,000 A1+
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
37
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- -------- ------- ------
Variable Rate Demand Instruments (b) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,100,000 Savannah, GA MHRB (Somerset Place)
LOC Amsouth Bank N.A. 10/01/13 3.50% $ 2,100,000 A1+
4,000,000 Schuylkill County, PA IDA RRB
(Northeastern Power Company) - Series 1985
LOC Sumitomo Bank, Ltd. 12/01/11 3.90 4,000,000 A1
1,350,000 Sewickley Valley Hospital Authority, PA RN
(D.T. Watson Rehabilitation Hospital)
LOC PNC Bank 10/01/97 4.13 1,350,000
500,000 Shelby County, TN Health Educational & Housing
(Rhodes College)
LOC National Westminster Bank PLC 08/01/10 3.55 500,000 A1+
1,980,000 State of Alabama IDA (Sunshine Homes)
LOC Amsouth Bank N.A. 09/01/04 3.70 1,980,000 P1
940,000 Sterling Heights, MI EDC (Sterling Shopping Center)
LOC National Bank of Detroit 12/01/10 3.50 940,000 A1+
5,750,000 The City of Columbus, IA EDRB
(Rock-Tenn Company, Mill Division, Incorporated Project)
LOC Trust Co. Bank of Atlanta 05/01/15 3.55 5,750,000 P1 A1+
6,000,000 Utah HFA Single Family Mortgage Series 4
GIC - Trinity 07/01/28 3.55 6,000,000 VMIG-1
3,000,000 Vermont State IDA IDRB (Reygate Project)
LOC ABN AMRO Bank N.V. 12/01/15 3.55 3,000,000 VMIG-1
1,500,000 Village of Bolingbrook
LOC LaSalle National Bank 11/01/19 3.50 1,500,000
2,350,000 Whitfield County AMC International
(AMC International Incorporated)
LOC Southtrust Bank of Alabama 02/01/11 3.70 2,350,000 A1
2,000,000 Yakima County, WA Public Corporation (Longview Fibre)
LOC ABN AMRO Bank N.V. 01/01/18 3.70 2,000,000
----------- -----------
168,900,000 Total Variable Rate Demand Instruments 168,900,000
----------- -----------
Put Bonds (c) (10.17%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ 1,930,000 City of Dayton, KY Industrial Building RB
(RADAC Corporation) - Series 1994
LOC Fifth Third Bank 04/01/96 4.20% $ 1,930,000
</TABLE>
-------------------------------------------------------------------------------
See Notes to Financial Statements.
38
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- -------- ------- ------
Put Bonds (c) (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 2,500,000 Greater East, TX Higher Education
Student Loan Authority - Series 1993B
LOC Student Loan Marketing Association 06/03/96 4.10% $ 2,500,000 VMIG-1
6,500,000 Hartford County, MD IDRB (A.O. Smith)
LOC Bank One Milwaukee, N.A. 03/01/97 3.60 6,500,000
4,000,000 New Mexico Mtge Finance Authority
Single Family Mtge Program - Series 1996A
GIC Westdeutsche Landesbank Girozentrale 12/31/96 3.25 4,000,000 SP-1+
3,845,000 New Mexico Mtge Finance Authority
Single Family Mtge Program -Series 1996B-2
FGIC Insured 02/28/97 3.25 3,845,000 SP-1+
2,000,000 Pierce County, WA EDC
(Sea-Land Corporation Project) - Series 1984
LOC Deutsche Bank A.G. 11/01/96 3.90 2,000,000
2,000,000 Putnam County, FL Developement Authority
(Seminole Electric) - Series H-3
LOC National Rural Utilities 03/15/97 3.25 2,000,000 VMIG-1 A1+
3,060,000 Vermont State Educational & Health Building Finance Agency
(Middlebury College) 11/01/96 3.80 3,060,000 A1+
1,230,000 Washington State Housing Finance Commission
Single - Family Program Bonds - Series 1995A
FGIC Insured 06/01/96 4.10 1,230,000 P1 A1+
----------- -----------
27,065,000 Total Put Bonds 27,065,000
----------- -----------
<CAPTION>
Tax Exempt Commercial Paper (4.66%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 1,200,000 Beaver County, PA IDA PCRB
(Duquesne Light Company)
LOC Union Bank of Switzerland 06/27/96 3.30% $ 1,200,000 VMIG-1 A1+
1,000,000 Beaver County, PA IDA PCRB
(Duquesne Light Company) - Series 1990C
LOC Union Bank of Switzerland 05/15/96 3.15 1,000,000 VMIG-1 A1+
1,500,000 Burke County, GA
(Oglethorpe Power Corporation) Project A
LOC Credit Suisse 06/12/96 3.20 1,500,000 VMIG-1 A1+
2,200,000 Business Finance Authority State of New Hampshire Bonds
(New England Power Co. Project) 05/15/96 3.35 2,200,000 A1
3,000,000 Cook County, IL Health County Hospital 04/03/96 3.20 3,000,000 VMIG-1 SP-1
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
39
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Ratings (a)
----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- -------- ------- ------
Tax Exempt Commercial Paper (Continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 1,500,000 Mashantucket (Western) Pequot Tribe - Series 1996
LOC Bank of America 10/24/96 3.40% $ 1,500,000 P1 A1+
2,000,000 Venango County, PA IDA RRB
(Scrubgrass Project) - Series A
LOC National Westminster Bank PLC 08/08/96 3.25 2,000,000 P1 A1+
----------- -----------
12,400,000 Total Tax Exempt Commercial Paper 12,400,000
----------- -----------
<CAPTION>
Variable Rate Demand Instruments - Participations (b) (5.13%)
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 5,185,000 El Paso Housing Finance Corporation MHRB 1993
LOC GE Capital Corp. 09/01/96 4.25% $ 5,185,000 A1+
1,050,000 Jefferson County, MO IDA IDRB (Holley Partnership)
LOC Chemical Bank 12/01/04 5.36 1,050,000 P1 A1
1,000,000 New Jersey State EDA IDRB
(Hartz Mountain Industries Project)
LOC Chemical Bank 01/01/02 5.36 1,000,000 P1 A1
1,000,000 New Jersey State EDA IDRB
(Harrison Riverside)
LOC Chemical Bank 01/01/02 5.36 1,000,000 P1 A1
991,493 New Jersey State EDA IDRB (Heary Modelle & Company)
LOC Chemical Bank 09/01/00 5.36 991,493 P1 A1
383,378 Northhampton County, PA IDA IDRB
(East Industrial Affiliates)
LOC Chemical Bank 01/01/00 5.36 383,378 P1 A1
1,400,000 Tyler House Certificate Trust Variable Rate
Certificates of Participation - Series 1995A
LOC PNC Bank 08/01/25 3.70 1,400,000 VMIG-1
2,375,000 York County, PA IDA IDRB
(Manor Care of Kingston Court Incorporated)
LOC Chemical Bank 12/01/08 5.36 2,375,000 P1 A1
----------- -----------
13,384,871 Total Variable Rate Demand Instruments - Participations 13,384,871
----------- -----------
260,164,871 Total Investments (97.79%) (Cost 260,230,202+) 260,230,202
-----------
Cash and Other Assets, Net of Liabilities (2.21%) 5,889,165
-----------
Net Assets (100.00%) $266,119,367
===========
+ Aggregate cost for federal income tax purpose is identical.
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
40
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1996
===============================================================================
FOOTNOTES:
(a) Unless the variable rate demand instruments are assigned their own ratings,
the ratings noted (unaudited) are the highest ratings assigned for tax
exempt commercial paper. Securities that are not rated have been determined
by the Fund's Board of Directors to be of comparable quality to those rated
securities in which the Fund invests.
(b) Securities payable on demand at par including accrued interest (usually
with seven days notice) and where indicated are unconditionally secured as
to principal and interest by a bank letter of credit. The interest rates
are adjustable and are based on bank prime rates or other interest rate
adjustment indices. The rate shown is the rate in effect at the date of
this statement.
(c) Maturity dates of these securities are the next available put dates.
Interest rates adjust periodically.
<TABLE>
KEY:
<S> <C> <C> <C> <C> <C>
BAN = Bond Anticipation Note IFA = Industrial Financing Authority
EDA = Economic Development Authority LOC = Letter of Credit
EDC = Economic Development Corporation MHRB = Multi-Family Housing Revenue Bond
EDRB = Economic Development Revenue Bond PCRB = Pollution Control Revenue Bond
FGIC = Financial Guaranteed Insurance Company RB = Revenue Bond
GIC = Guaranteed Investment Contract RDA = Revenue Development Authority
GO = General Obligation RRB = Resource Recovery Bonds
HRB = Hospital Revenue Bond RN = Revenue Note
HEFA = Health Facility Finance Authority TAN = Tax Anticipation Note
IDA = Industrial Development Authority TRAN = Tax and Revenue Anticipation Note
IDRB = Industrial Development Revenue Bond
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
41
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Cortland General U.S. Government Municipal Money
Money Market Fund Fund Market Fund
----------------- ------------------ --------------------
ASSETS:
<S> <C> <C> <C>
Investments in securities*........... $ 1,523,555,760 $ 305,733,882 $ 260,230,202
Cash................................. 27,544 1,826,808 418,276
Interest receivable.................. 3,283,157 421,489 1,842,403
Receivable for securities sold....... -- -- 4,002,705
Receivable for principal paydown..... 112,558 -- --
------------------ ----------------- -------------------
Total Assets..................... 1,526,979,019 307,982,179 266,493,586
<CAPTION>
LIABILITIES:
<S> <C> <C> <C>
Dividends payable.................... 548,226 106,908 59,203
Management fee payable............... 978,587 189,874 174,761
Payable for securities purchased..... 14,858,400 4,996,613 --
Other accounts payable............... 390,612 138,537 140,255
------------------ ----------------- ------------------
Total Liabilities................ 16,775,825 5,431,932 374,219
------------------ ----------------- ------------------
NET ASSETS............................. $ 1,510,203,194 $ 302,550,247 $ 266,119,367
================== ================= ==================
<CAPTION>
NET ASSET VALUE:
<C> <C> <C> <C>
Offering and Redemption price per share:
Cortland Shares
($1,159,172,914 / 1,161,457,996 shares) $ 1.00
========
($ 255,221,963 / 255,893,045 shares) $ 1.00
=======
($ 216,456,286 / 216,469,263 shares) $ 1.00
========
Live Oak Shares
($ 351,030,280 / 350,984,639 shares) $ 1.00
========
($ 47,328,284 / 47,325,295 shares) $ 1.00
=======
($ 49,663,081 / 49,660,294 shares) $ 1.00
========
* Including repurchase agreements amounting to $83,000,000 and $86,000,000
for the Cortland General Money Market Fund and U.S. Government Fund,
respectively.
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
42
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 1996
===============================================================================
<TABLE>
<CAPTION>
Cortland General U.S. Government Municipal Money
Money Market Fund Fund Market Fund
----------------- --------------- ---------------
INVESTMENT INCOME
<S> <C> <C> <C>
Interest Income......................... $ 75,588,025 $ 14,707,862 $ 10,442,208
---------------- --------------- ----------------
Expenses:
Management fee--Note 3(a)............ 9,878,992 1,964,097 1,981,507
Distribution support and services
----Note 3(c):
Cortland shares.................. 2,925,712 599,069 600,822
Live Oak shares.................. 237,121 33,086 36,175
Directors' fees and expenses
----Note 3(b)........................ 18,996 18,996 18,996
Other expenses....................... 137,341 31,133 20,836
---------------- --------------- ----------------
Total Expenses................... 13,198,162 2,646,381 2,658,336
Expenses waived by
Manager--Note 3(a) and (c).......... ( 19,788) ( 17,756) ( 5,196)
---------------- --------------- ----------------
Net Expenses..................... 13,178,374 2,628,625 2,653,140
---------------- --------------- ----------------
Net Investment Income................... 62,409,651 12,079,237 7,789,068
<CAPTION>
NET REALIZED GAIN (LOSS)
ON INVESTMENTS
<S> <C> <C> <C>
Net realized gain (loss) on investments. 182,364 ( 22,060) 2,754
---------------- --------------- ----------------
Increase in net assets from operations.. $ 62,592,015 $ 12,057,177 $ 7,791,822
================ =============== ================
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
43
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
STATEMENTS OF CHANGES IN NET ASSETS
===============================================================================
<TABLE>
<CAPTION>
Cortland General U.S. Government Municipal Money
Money Market Fund Fund Market Fund
---------------------------- ---------------------------- ----------------------------
For the Year Ended March 31, For the Year Ended March 31, For the Year Ended March 31,
1996 1995 1996 1995 1996 1995
------------ ----------- ------------ ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income... $62,409,651 $35,643,987 $12,079,237 $8,199,294 $7,789,068 $5,736,792
Net realized gain (loss) on
investments......... 182,364 (7,013,370) ( 22,060) (2,047,537) 2,754 ( 754)
----------- ---------- --------- --------- ----------- ---------
Increase in net assets
from operations..... 62,592,015 28,630,617 12,057,177 6,151,757 7,791,822 5,736,038
Distributions
to shareholders from:
Net investment income:
Cortland shares....... (56,739,267) (35,628,040) (11,281,834) ( 8,199,294) (7,250,573)+ ( 5,736,793)+
Live Oak shares....... (5,536,157) -- ( 766,391) -- ( 524,001)+ --
Capital share
transactions net (Note 4):
Cortland shares....... 165,048,002 70,010,177 36,908,866 (15,098,141) (7,599,135) ( 16,528,509)
Live Oak shares....... 350,984,640 -- 47,325,294 -- 49,660,294 --
Contribution of capital from
investment manager (Note 3d) -- 4,441,391 -- 1,370,492 -- --
----------- ---------- ---------- ----------- ------------ ----------
Total increase (decrease ) 516,349,233 67,454,145 84,243,112 (15,775,186) 42,078,407 (16,529,264)
Net assets:
Beginning of year....... 993,853,961 926,399,816 218,307,135 234,082,321 224,040,960 240,570,224
------------ ----------- ----------- ----------- ----------- -----------
End of year*............ $1,510,203,194 $993,853,961 $302,550,247 $218,307,135 $266,119,367 $224,040,960
============= =========== =========== =========== =========== ===========
* Includes undistributed net investment income of $150,174 and $15,947 in
Cortland General Money Market Fund at March 31, 1996 and March 31, 1995,
respectively. Includes undistributed net investment income of $31,012 and
$14,494 at March 31, 1996 for the U.S. Government Fund and Municipal Money
Market Fund, respectively.
+ Designated as exempt-interest dividends for federal income tax purposes.
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
44
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
Note 1-General:
Cortland Trust, Inc. (the "Company") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a no-load, diversified, open-end
management company. The Company consists of three money market funds: the
Cortland General Money Market Fund ("Cortland General Fund"), the U.S.
Government Fund, and the Municipal Money Market Fund ("Municipal Fund"). Each
Fund has two classes of stock authorized, Cortland shares and Live Oak shares.
The Cortland shares are subject to a service fee of .25% of its average net
assets pursuant to the Distribution Plan. The Live Oak shares are subject to a
service fee of .20% of its average net assets. In all other respects, the
Cortland shares and Live Oak shares represent the same interest in the income
and assets of the Fund. Each class of shares have identical voting, dividend,
liquidation and other rights, except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan. Distribution of Live Oak shares commenced November 16, 1995.
The Company accounts separately for the assets, liabilities and operations of
each Fund. Each Fund's fiscal year ends on March 31.
It is the Company's policy to maintain a continuous net asset value per share of
$1.00 for each Fund; the Company has adopted certain investment, portfolio
valuation and dividend and distribution policies to enable it to do so.
The Cortland General Fund includes the Pilgrim Money Market Class of Shares (
the "Pilgrim Shares"). Pilgrim Shares are identical to the other shares of the
Cortland General Fund with respect to investment objectives, voting rights and
yield, but differ with respect to certain other matters relating primarily to
exchange privileges. At March 31, 1996, there were 5,823,789 Pilgrim Shares
outstanding.
Note 2-Significant Accounting Policies:
(a) Valuation of investments: Investments are valued at amortized cost, which
approximates market value and has been determined by the Company's Board of
Directors to represent the fair value of each Fund's investments.
(b) Securities transactions and investment income: Securities transactions are
recorded on a trade date basis. Realized gains and losses from securities
transactions are recorded on the identified cost basis. Interest income is
recognized on the accrual basis.
The Cortland General and U.S. Government Funds may enter into repurchase
agreements for securities held by these Funds with financial institutions
deemed to be creditworthy by the Funds' Advisor, subject to the seller's
agreement to repurchase and the Funds' agreement to resell such securities
at a mutually agreed upon price. Securities purchased subject to repurchase
agreements are deposited with the Funds' custodian and must have an
aggregate market value greater than or equal to the repurchase price plus
accrued interest at all times. In the event that the seller of the
agreement defaults on its repurchase obligation, the Fund maintains the
right to sell the underlying securities at market value.
(c) Dividends to Shareholders: It is the policy of the Company, with respect to
each Fund, to declare dividends from the net investment income earned by
each Fund daily; such dividends are distributed to each Fund's shareholders
on the subsequent business day. Dividends from net realized capital gains,
offset by capital loss carryovers, if any, are generally declared and paid
when realized.
d) Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
- -------------------------------------------------------------------------------
45
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
Note 2-Significant Accounting Policies: (Continued)
(e) Federal income taxes: It is the policy of each Fund to continue to qualify
as a regulated investment company, if such qualification is in the best
interests of its shareholders by complying with the applicable sections of the
Internal Revenue Code, and to make distributions of income (including net
realized capital gains) sufficient to relieve it from all Federal income
taxes. Accordingly, no provision for Federal income taxes is required. At
March 31, 1996, Cortland General Fund, U.S. Government Fund and Municipal Fund
had unused capital loss carryforwards of approximately $2,389,615, $699,105
and $24,684, respectively, available for Federal income tax purposes to be
applied against future securities profit, if any.
Note 3-Management Fee and Other Transactions With Affiliates:
(a) Reich & Tang Asset Management, L.P. (the "Manager") serves as the manager of
the Company and its three Funds pursuant to agreements with the Funds dated
September 14, 1993 ("Agreements"). Under the Agreements, the Manager provides
directly, or indirectly through contracts with others, all services required for
the management of the Company. The Manager bears all ordinary operating expenses
associated with the Company's operation except: (a) the fees of the directors
who are not "interested persons" of the Company, as defined by the Act, and the
travel and related expenses of the directors incident to their attending
shareholder's, director's and committee meetings, (b) interest, taxes and
brokerage commissions, (c) extraordinary expenses, (d) shareholder service or
distribution fees which together can represent up to 0.25% with respect to the
Cortland shares and up to 0.20% with respect to the Live Oak shares of the net
assets of each Fund on an annualized basis, and (e) membership dues of any
industry association. Additionally, the Manager has assumed all expenses
associated with organizing the Company and all expenses of registering or
qualifying the Company's shares under Federal and state securities laws. The
Funds pay the Manager an annual fee, calculated daily and paid monthly, of .80%
of the first $500 million of the Company's average daily net assets, plus .775%
of the next $500 million of the Company's average daily net assets, plus .75% of
the next $500 million of the Company's average daily net assets, plus .725% of
the Company's average daily net assets in excess of $1.5 billion. The management
fees are allocated pro-rata to each Fund based on their average daily net
assets.
The Manager has agreed to reduce its aggregate fees for any fiscal year, or
reimburse each of the Funds, to the extent required, so that the amount of the
ordinary expenses incurred by each of the Funds (excluding brokerage
commissions, interest, taxes, distribution support and service expenses and
extraordinary expenses) do not exceed the expense limitations imposed by the
securities laws or regulations of those states or jurisdictions in which the
Funds' shares are registered or qualified for sale. Currently, the only such
expense limitation requires that ordinary Fund expenses (excluding brokerage
commissions, interest, taxes, distribution support and service expenses and
extraordinary expenses) for any fiscal year do not exceed 2.5% of the first $30
million of each Fund's average daily net assets, plus 2% of the next $70 million
of each Fund's average daily net assets, plus 1.5% of each Fund's average daily
net assets in excess of $100 million. No reimbursement was required pursuant to
the expense limitation for the year ended March 31, 1996.
The Manager is a wholly-owned subsidiary of New England Investment Companies,
L.P. ("NEIC"). On August 16, 1995, New England Mutual Life Insurance Company
("The New England"), the owner of NEIC's general partner and a majority owner of
the limited partnership interest in NEIC, entered into an agreement to merge
with Metropolitan Life Insurance Company ("MetLife"), with MetLife to be the
survivor of the merger. The merger is subject to several conditions, including
the required approval, by shareholders of the
- -------------------------------------------------------------------------------
46
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
Note 3-Management Fee and Other Transactions with Affiliates: (Continued)
Fund of a proposed new investment advisory agreement, intended to take effect at
the time of the merger. The new agreement will be substantially similar to the
existing agreement.
(b) Certain officers and directors of the Company are "affiliated persons", as
defined in the Act, of the Manager. Each director who is not an "affiliated
person" receives from the Company an annual fee of $5,000 for services as a
director and a fee of $1,250 for each Board of Directors' meeting attended. All
directors fees and expenses are allocated equally to each Fund.
(c) Pursuant to a Distribution Plan ("Plan") dated July 31, 1989, each Fund can
make payments of up to 0.25% per annum of its average daily net assets with
respect to Cortland shares of the Fund for assistance in distributing its
shares. The Manager and/or its affiliates have the ability to make additional
payments for distribution assistance. The Manager and/or its affiliates bear all
other expenses related to the distribution of the company's shares.
Pursuant to a Distribution Plan approved by the Company's Board on November 9,
1995, each Fund can make payments of up to 0.20% per annum of it's average daily
net assets with respect to the Live Oak shares of the Fund for assistance in
distributing its shares.
During the year ended March 31, 1996, the Distributor waived Distribution
support and services fees of $19,788, $17,756 and $5,196 for the Live Oak shares
of the Cortland General Fund, U.S. Government Fund and Municipal Fund,
respectively.
(d) On November 4, 1994, in order to maintain the net asset value of the
Cortland General Fund and U.S. Government Fund at $1.00 per share, the Manager
purchased U.S. Government Agency Securities, from the Cortland General Fund and
U.S. Government Fund for $67,861,655 and $22,920,464, respectively, which was
equal to the respective Portfolio's amortized cost or carrying value on that
date. The securities had a fair value of $63,420,264 and $21,549,972 for the
Cortland General Fund and U.S. Government Fund, respectively, on this date. The
excess over the fair value ($4,441,391 and $1,370,492 for the Cortland General
Fund and U.S. Government Fund, respectively) that was paid by the Manager has
been classified by the Cortland General Fund and U.S. Government Fund as a
realized loss in the Statements of Operations and capital contribution in the
Statements of Changes in Net Assets. The realized losses were reclassified from
accumulated net realized loss to paid in capital due to a permanent book and tax
difference.
- -------------------------------------------------------------------------------
47
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
===============================================================================
Note 4-Capital Share Transactions:
At March 31, 1996, 3 billion shares of $.001 par value shares of the Company
were authorized. Transactions in the shares of each Fund were all at $1.00 per
share and are summarized for the period as follows:
<TABLE>
<CAPTION>
Cortland General Money Municipal Money
Market Fund U.S. Government Fund Market Fund
---------------------------- ---------------------------- ---------------------------
For the Year Ended March 31, For the Year Ended March 31, For the Year Ended March 31,
1996 1995 1996 1995 1996 1995
------------- ------------ ------------- ----------- ----------- ----------
Cortland Shares
<S> <C> <C> <C> <C> <C> <C>
Shares sold........ 5,692,461,972 3,635,190,794 1,147,151,347 896,820,365 1,118,581,921 885,996,924
Dividends reinvested 56,469,119 35,554,748 11,224,107 8,185,929 7,224,068 5,728,150
-------------- ------------- -------------- ------------ -------------- ------------
5,748,931,091 3,670,745,541 1,158,375,454 905,006,294 1,125,805,989 891,725,074
Shares redeemed.... (5,583,883,089)(3,600,735,365) (1,121,466,588) (920,104,435) (1,133,405,124) (908,253,583)
-------------- ------------- -------------- ------------ -------------- ------------
Net increase (decrease) 165,048,002 70,010,177 36,908,866 (15,098,141) ( 7,599,135) (16,528,509)
============== ============= ============== ============ =============== ============
<CAPTION>
Live Oak Shares*
<S> <C> <C> <C>
Shares sold........ 803,496,773 107,188,689 108,031,220
Dividends reinvested 5,399,043 747,543 512,060
-------------- -------------- --------------
808,895,816 107,936,232 108,543,280
Shares redeemed.... ( 457,911,177) ( 60,610,937) ( 58,882,986)
-------------- -------------- --------------
Net increase....... 350,984,639 47,325,295 49,660,294
============== ============== ==============
*Live Oak Shares commenced distribution on November 16, 1995.
</TABLE>
The components of net assets at March 31, are as follows:
<TABLE>
<CAPTION>
Cortland General Money Municipal Money
Market Fund U.S. Government Fund Market Fund
----------------------------- ------------------------- ---------------------------
March 31, March 31, March 31,
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Paid-in capital.... $1,512,442,635 $996,409,993 $303,218,340 $218,984,180 $266,129,557 $224,068,398
Accumulated net
realized losses. ( 2,389,615) ( 2,571,979) ( 699,105) ( 677,045) ( 24,684) ( 27,438)
Undistributed net
investment income 150,174 15,947 31,012 -- 14,494 --
------------- ------------ ----------- ----------- ----------- -----------
Total net assets... $1,510,203,194 $ 993,853,961 $ 302,550,247 $218,307,135 $266,119,367 $ 224,040,960
============= ============ =========== =========== =========== ===========
Note 5 - Financial Highlights:
Reference is made to the page 3 of the Live Oak Prospectus dated May 15, 1996.
</TABLE>
- -------------------------------------------------------------------------------
48
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(A) Financial Statements
Included in Prospectus (Part A):
Financial Highlights
Included in Statement of Additional Information (Part B):
(1) Independent Auditor's Report;
(2) Statements of Investments at March 31, 1996;
(3) Statements of Assets and Liabilities at March 31, 1996;
(4) Statements of Operations for year ended March 31, 1996;
(5) Statements of Changes in Net Assets for years ended March 31, 1996 and
1995; and
(6) Notes to Financial Statements
(B) Exhibits
(1) Articles of Incorporation of Registrant [filed as an Exhibit to
Post-Effective Amendment No. 7 on June 29, 1989 and is hereby
incorporated by reference].
(2) By Laws of Registrant [filed as an Exhibit to Post-Effective Amendment
No. 7 on June 29, 1989 and is hereby incorporated by reference].
(3) None.
(4) None.
(5) Management/Investment Advisory Agreements between the Registrant and
Reich & Tang Asset Management L.P. [filed as an Exhibit to
Post-Effective Amendment No. 16 on August 1, 1994 and is hereby
incorporated by reference].
(6) Form of Distribution Agreements between the Registrant and Reich & Tang
Distributors L.P. [filed as an Exhibit to Post-Effective Amendment No.
16 on August 1, 1994 and is hereby incorporated by reference].
(7) None.
(8) Custodian Agreement between Registrant and Investors Fiduciary Trust
Company [filed as an Exhibit to Post-Effective Amendment No. 7 on June
29, 1989 and is hereby incorporated by reference].
(9) Transfer Agency Agreement between Registrant and The Shareholder
Services Group, Inc.
(10)Opinion and Consent of Messrs. Spengler Carlson Gubar Brodsky &
Frischling [filed as an Exhibit to Post-Effective Amendment No. 7 on
June 29, 1989 and is hereby incorporated by reference].
C-1
<PAGE>
(11) (a) Consent of Ernst & Young LLP filed herewith.
(b) Consent of Messrs. Kramer, Levin, Naftalis, & Frankel filed
herewith.
(c) Opinion of Counsel to the effect that shares of the U.S. Government
Fund are permissible investment for federal credit unions [filed as
an Exhibit to Post-Effective Amendment No. 6 on July 29, 1988 and
is hereby incorporated by reference].
(d) Opinion of Counsel to the effect that the Tax-Free Money Market
Fund will be considered the owner of Municipal Securities subject
to Stand-by Commitments for federal income tax purposes [filed as
an Exhibit to Pre-Effective Amendment No. 2 on May 31, 1985 and is
hereby incorporated by reference].
(12) None.
(13) Letter agreement concerning initial subscription of $100,000 of shares
[filed as an Exhibit to Pre-Effective Amendment No. 1 on April 22, 1985
and is hereby incorporated by reference].
(14) (a) Pilgrim Section 403(b)(7) Tax Sheltered Retirement Plan [filed as
an Exhibit to Registrant's Registration Statement on Form N-14
(File No. 33-41322) on June 21, 1991 and is hereby incorporated by
reference].
(b) Pilgrim Individual Retirement Account [filed as an Exhibit to
Registrant's Registration Statement on Form N-14 (File No.
33-41322) on June 21, 1991 and is hereby incorporated by
reference].
(c) Form of the Pilgrim Group Retirement Plan including the Money
Purchase Pension Plan and Profit Sharing Plan [filed as an Exhibit
to Registrant's Registration Statement on Form N-14 (File No.
33-41322) on June 21, 1991 and is hereby incorporated by
reference].
(15) (a) Form of Amended Plans of Distribution and Forms of Related Service
Agreements [filed as Exhibits to Registrant's Registration State-
ment on Form N-14 (File No. 33-314322) on June 21, 1991 and is
hereby incorporated by reference].
(b) Form of Plan of Distribution (Live Oak Shares) [filed as an Exhibit
to Post-Effective Amendment No. 19 on October 16, 1995 and is
hereby incorporated by reference].
(c) Form of Primary Dealer Agreement [filed as an Exhibit to
Post-Effective Amendment No. 18 on July 28, 1995 and is hereby
incorporated by reference].
(d) Form of Primary Dealer Agreement (Live Oak Shares) [filed as an
Exhibit to Post-Effective Amendment No. 19 on October 16, 1995 and
is hereby incorporated by reference].
(e) Form of Rule 18f-3 Multi-Class Plan [filed as an Exhibit to
Post-Effective Amendment No. 19 on October 16, 1995 and is hereby
incorporated by reference].
C-2
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
No such persons.
Item 26. Number of Holders of Securities
Number of Record Holders
Title/Class As of April 30, 1996
Live Oak General Money Market Fund 33,891
Live Oak U.S. Government Money Market Fund 3,731
Live Oak Municipal Money Market Fund 1,369
Item 27. Indemnification
Registrant incorporates herein by reference the response to Item 27 in Post
Effective Amendment No. 12 to the Registration Statement filed with the
Commission on August 1, 1991.
Item 28. Business and Other Connections of Investment Advisor
The description of Reich & Tang Asset Management L.P. under the caption
"Management of the Fund" in the Prospectus and "Manager" and "Management of the
Fund" in the Statement of Additional Information constituting Parts A and B,
respectively, of the Registration Statement are incorporated herein by
reference.
New England Mutual Life Insurance Company, ("The New England") of which New
England Investment Companies, Inc. ("NEIC") is an indirect wholly-owned
subsidiary, owns approximately 55.9% of the outstanding partnership units of New
England Investment Companies, L.P., Reich & Tang, Inc., the former general
partner of New England Investment Companies, L.P. owns approximately 17.6% of
the outstanding partnership units of New England Investment Company, L.P. Reich
& Tang Asset Management, Inc. serves as the sole general partner for both Reich
& Tang Asset Management L.P. and Reich & Tang Distributors L.P., the Reich &
Tang Asset Management L.P. serves as the sole limited partner of the
Distributor.
Registrant's investment adviser, Reich & Tang Asset Management L.P., is a
registered investment adviser. Reich & Tang Asset Management L.P.'s investment
advisory clients include California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Delafield Fund, Inc. Institutional Daily Income Fund, Michigan Daily Tax Free
Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York Daily
Tax Free Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Short Term Income Fund, Inc. and Tax
Exempt Proceeds Fund, Inc., registered investment companies investing primarily
in money market instruments, whose addresses are 600 Fifth Avenue, New York, New
York 10020; Delafield Fund, Inc. and Reich & Tang Equity Fund, Inc., registered
investment companies whose addresses are 600 Fifth Avenue, New York, New York
10020, which invest principally in equity securities. In addition, Reich & Tang
Asset Management L.P. is the sole general partner of Alpha Associates, August
Associates, Reich & Tang Small Cap L.P. and Tucek Partners, private investment
partnerships organized as limited partnerships.
C-3
<PAGE>
Peter S. Voss, President, Chief Executive Officer and a Director of NEIC
since October 1992, Chairman of the Board of NEIC since December 1992, Group
Executive Vice President, Bank of America, responsible for the global asset
management private banking businesses, from April 1992 to October 1992,
Executive Vice President of Security Pacific Bank, and Chief Executive Officer
of Security Pacific Hoare Govett Companies a wholly-owned subsidiary of Security
Pacific Corporation, from April 1988 to April 1992, Director of The New England
since March 1993, Chairman of the Board of Directors of NEIC's subsidiaries
other than Loomis, Sayles & Company, L.P. ("Loomis") and Back Bay Advisors, L.P.
("Back Bay"), where he serves as a Director, and Chairman of the Board of
Trustees of all of the mutual funds in the TNE Fund Group and the Zenith Funds.
G. Neil Ryland, Executive Vice President, Treasurer and Chief Financial Officer
NEIC since July 1993, Executive Vice President and Chief Financial Officer of
The Boston Company, a diversified financial services company, from March 1989
until July 1993, from September 1985 to December 1988, Mr. Ryland wasemployed by
Kenner Parker Toys, Inc. as Senior Vice President and Chief Financial Officer.
Edward N. Wadsworth, Executive Vice President, General Counsel, Clerk and
Secretary of NEIC since December 1989, Senior Vice President and Associate
General Counsel of The New England from 1984 until December 1992, and Secretary
of Westpeak and Draycott and the Treasurer of NEIC. Lorraine C. Hysler has been
Secretary of RTAM since July 1994, Assistant Secretary of NEIC since September
1993, Vice President of the Mutual Funds Group of NEICLP from September 1993
until July 1994, and Vice President of Reich & Tang Mutual Funds since July
1994. Ms. Hysler joined Reich & Tang, Inc. in May 1977 and served as Secretary
from April 1987 until September 1993. Richard E. Smith, III has been a Director
of RTAM since July 1994, President and Chief Operating Officer of the Capital
Management Group of NEICLP from May 1994 until July 1994, President and Chief
Operating Officer of the Reich & Tang Capital Management Group since July 1994,
Executive Vice President and Director of Rhode Island Hospital Trust from March
1993 to May 1994, President, Chief Executive Officer and Director of USF&G
Review Management Corp. from January 1988 until September 1992. Steven W. Duff
has been a Director of RTAM since October 1994, President and Chief Executive
Officer of Reich & Tang Mutual Funds since August 1994, Senior Vice President of
NationsBank from June 1981 until August 1994, Mr. Duff is President and a
Director of California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax
Free Income Fund, Inc., Daily Tax Free Income Fund, Inc., Michigan Daily Tax
Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New York
Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income Fund,
Inc. and Short Term Income Fund, Inc., President and Trustee of Institutional
Daily Municipal Income Fund, Pennsylvania Daily Municipal Income Fund, President
and Chief Executive Officer of Tax Exempt Proceeds Fund, Inc., and Executive
Vice President of Reich & Tang Equity Fund, Inc. Bernadette N. Finn has been
Vice President/Compliance of RTAM since July 1994, Vice President of Mutual
Funds Division of NEICLP from September 1993 until July 1994, Vice President of
Reich & Tang Mutual Funds since July 1994. Ms. Finn joined Reich & Tang, Inc. in
September 1970 and served as Vice President from September 1982 until May 1987
and as Vice President and Assistant Secretary from May 1987 until September
1993. Ms. Finn is also Secretary of California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc., Delafield
Fund, Inc., Daily Tax Free Income Fund, Inc., Institutional Daily Municipal
Income Fund, Michigan Daily Tax Free Income Funds, Inc., New Jersey Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income
Fund and Tax Exempt Proceeds Fund, Inc., a Vice President and Secretary of Reich
& Tang Equity Fund, Inc. and Short Term Income Fund, Inc. Richard De Sanctis has
been Treasurer of RTAM since July 1994, Assistant Treasurer of NEIC since
September 1993 and Treasurer of the Mutual Funds Group of NEICLP from September
1993 until July 1994, Treasurer of the Reich & Tang Mutual Funds since July
1994. Mr. De Sanctis joined Reich & Tang, Inc. in December 1990 and served as
Controller of Reich & Tang, Inc., from January 1991 to September 1993. Mr. De
Sanctis was Vice President
C-4
<PAGE>
and Treasurer of Cortland Financial Group, Inc. and Vice President of Cortland
Distributors, Inc. from 1989 to December 1990. Mr. De Sanctis is also Treasurer
of California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free
Income Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc.,
Institutional Daily Municipal Income Fund, Michigan Daily Tax Free Income Fund,
Inc., New Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free
Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc. and is Vice President
and Treasurer of Cortland Trust, Inc.
Item 29. Principal Underwriters
(a) Reich & Tang Distributors L.P., the Registrant's Distributor, is also
distributor for California Daily Tax Free Income Fund, Inc., Connecticut Daily
Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund,
Inc., Florida Daily Municipal Income Fund, Institutional Daily Income Fund,
Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income
Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich &
Tang Equity Fund, Inc., Short Term Income Fund, Inc. and Tax Exempt Proceeds
Fund, Inc.
(b) The following are the directors and officers of Reich & Tang Asset
Management, Inc., the general partner of Reich & Tang Distributors L.P. Reich &
Tang Distributors L.P. does not have any officers. The principal business
address of Messrs. Voss, Ryland, and Wadsworth is 399 Boylston Street, Boston,
Massachusetts 02116. For all other persons, the principal business address is
600 Fifth Avenue, New York, New York 10020.
Positions and Offices Positions and
with General Partner Offices With
Name of the Distributor Registrant
Peter S. Voss President and Director None
G. Neal Ryland Director None
Edward N. Wadsworth Clerk None
Richard E. Smith III Director None
Steven W. Duff Director President
Bernadette N. Finn Vice President - Compliance Secretary
Lorraine C. Hysler Secretary None
Richard De Sanctis Vice President and Treasurer Vice President
and Treasurer
(c) Not applicable.
Item 30. Location of Accounts and Records
Accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder
are maintained in the physical possession of the Registrant at Reich & Tang
Asset Management L.P., 600 Fifth Avenue, New York, New York 10020, the
Registrant's manager, at Investors Fiduciary Trust Company, 127 West 10th
Street, Kansas City, Missouri, 64105, the Registrant's custodian, and at Reich &
Tang Services L.P., 600 Fifth Avenue, New York, New York 10020, the Registrant's
transfer agent and dividend disbursing agent.
Item 31. Management Services
None.
C-5
<PAGE>
Item 32. Undertakings
(1) The Registrant undertakes to comply with Section 16(c) of the
Investment Company Act of 1940 as though such provisions of the Act
were applicable to the Registrant, except that the request referred to
in the third full paragraph thereof may only be made by shareholders
who hold in the aggregate at least 1 per centum of the outstanding
shares of the Registrant, regardless of the net asset value of the
shares held by such requesting shareholders.
(2) The Registrant undertakes to call a meeting of stockholders for the
purpose of voting upon the question of removal of one or more of the
Registrant's directors when requested in writing to do so by the
holders of at least 10% of the Registrant's outstanding shares of
common stock and, in connection with such meeting, to comply with the
provisions of Section 16(c) of the Investment Company Act of 1940
relating to shareholder communications.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York, on the
13th day of May, 1996.
CORTLAND TRUST, INC.
By: /s/Steven W. Duff
Steven W. Duff
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following persons in
the capacities indicated below on May 13, 1996.
SIGNATURE TITLE
(1) Principal Executive Officer:
/s/Steven W. Duff
Steven W. Duff President
(2) Principal Financial and
Accounting Officer:
/s/Richard De Sanctis
Richard De Sanctis Treasurer
(3) Majority of Directors:
* Owen Daly II (Director)
* Albert R. Dowden (Director)
David C. Melnicoff (Director)
* James L. Schultz (Director)
By: /s/Jules Buchwald
Jules Buchwald
Attorney-in-fact*
* An executed copy of the power of attorney was filed as an exhibit to
Post-Effective Amendment No. 10 to the Registration Statement on March 4,
1991.
<PAGE>
INDEX TO EXHIBITS
(11) (a) Consent of Ernst & Young, LLP.
(11) (b) Consent of Kramer, Levin, Naftalis & Frankel.
EXHIBIT 11 (a)
ERNST & YOUNG LLP
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Reports" and to the use of our report dated April 25, 1996, in
this Registration Statement (Form N-1A No. 2-94935) of Cortland Trust, Inc.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
May 10, 1996
EXHIBIT 11 (b)
Kramer, Levin, Naftalis, & Frankel
919 Third Avenue
New York, N.Y. 10022-3852
(212) 715-9100
May 10, 1996
Cortland Trust, Inc.
600 Fifth Avenue
New York, New York 10022
Re: Cortland Trust, Inc.
Registration No. 2-94935
Gentlemen:
We hereby consent to the reference to our firm as Counsel in Registration
Statement No. 2-94935.
Very truly yours,
/s/Kramer, Levin, Naftalis & Frankel
Kramer, Levin, Naftalis & Frankel
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
extracted from the financial statements and supporting
schedules as of the end of the most current period and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000759699
<NAME> Cortland Trust, Inc.
<SERIES>
<NUMBER> 1
<NAME> General Money Market Fund
<S> <C>
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 1523555760
<INVESTMENTS-AT-VALUE> 1523555760
<RECEIVABLES> 3395715
<ASSETS-OTHER> 27544
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 152979019
<PAYABLE-FOR-SECURITIES> 14858400
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1917425
<TOTAL-LIABILITIES> 16775825
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1512442635
<SHARES-COMMON-STOCK> 1512442635
<SHARES-COMMON-PRIOR> 996409993
<ACCUMULATED-NII-CURRENT> 150174
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2389615)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1510203194
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 75588025
<OTHER-INCOME> 0
<EXPENSES-NET> 13178374
<NET-INVESTMENT-INCOME> 62409651
<REALIZED-GAINS-CURRENT> 182364
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 62592015
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 62275424
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6495958745
<NUMBER-OF-SHARES-REDEEMED> 6041794266
<SHARES-REINVESTED> 61868162
<NET-CHANGE-IN-ASSETS> 516349233
<ACCUMULATED-NII-PRIOR> 15947
<ACCUMULATED-GAINS-PRIOR> (2571979)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9878992
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13198162
<AVERAGE-NET-ASSETS> 1288845269
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
extracted from the financial statements and supporting
schedules as of the end of the most current period and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000759699
<NAME> Cortland Trust, Inc.
<SERIES>
<NUMBER> 2
<NAME> U.S. Government Fund
<S> <C>
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 305733882
<INVESTMENTS-AT-VALUE> 305733882
<RECEIVABLES> 421489
<ASSETS-OTHER> 1826808
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 307982179
<PAYABLE-FOR-SECURITIES> 4996613
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 435319
<TOTAL-LIABILITIES> 5431932
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 303218340
<SHARES-COMMON-STOCK> 303218340
<SHARES-COMMON-PRIOR> 218984180
<ACCUMULATED-NII-CURRENT> 31012
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (699105)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 302550247
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14707862
<OTHER-INCOME> 0
<EXPENSES-NET> 2628625
<NET-INVESTMENT-INCOME> 12079237
<REALIZED-GAINS-CURRENT> (22060)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 12057177
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12048225
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1254340036
<NUMBER-OF-SHARES-REDEEMED> 1182077525
<SHARES-REINVESTED> 11971650
<NET-CHANGE-IN-ASSETS> 84243112
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (677045)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1964097
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2646381
<AVERAGE-NET-ASSETS> 256170755
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
extracted from the financial statements and supporting
schedules as of the end of the most current period and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000759699
<NAME> Cortland Trust, Inc.
<SERIES>
<NUMBER> 3
<NAME> Municipal Money Market Fund
<S> <C>
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> YEAR
<INVESTMENTS-AT-COST> 260230202
<INVESTMENTS-AT-VALUE> 260230202
<RECEIVABLES> 5845108
<ASSETS-OTHER> 418276
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 266493586
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 374219
<TOTAL-LIABILITIES> 374219
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 266129557
<SHARES-COMMON-STOCK> 266129557
<SHARES-COMMON-PRIOR> 224068398
<ACCUMULATED-NII-CURRENT> 14494
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (24684)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 266119367
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10442208
<OTHER-INCOME> 0
<EXPENSES-NET> 2653140
<NET-INVESTMENT-INCOME> 7789068
<REALIZED-GAINS-CURRENT> 2754
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7791822
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7774574
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1226613141
<NUMBER-OF-SHARES-REDEEMED> 1192288110
<SHARES-REINVESTED> 7736128
<NET-CHANGE-IN-ASSETS> 42078407
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 27438
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1981507
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2658336
<AVERAGE-NET-ASSETS> 258416036
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
