Rule 497(b)
File No. 2-94935
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CORTLAND 600 FIFTH AVENUE
TRUST, INC. NEW YORK, NY 10020
(212) 830-5280
================================================================================
PROSPECTUS
August 1, 1996
Cortland Trust, Inc. ("Cortland") is an open-end, diversified money market fund
designed as a cash management service for institutional customers and
individuals. Cortland consists of three portfolios (collectively the "Funds").
The CORTLAND GENERAL MONEY MARKET FUND and the 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 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 Cortland's three Funds:
CORTLAND GENERAL MONEY MARKET FUND ("CORTLAND 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.
U.S. GOVERNMENT FUND ("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.
MUNICIPAL MONEY MARKET FUND ("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 ("FDIC"), THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
Shares of the Funds are part of an integrated cash management service, the
Convenience Account. A description of the Convenience Account features and
certain information concerning the component parts of the Convenience Account
program may be obtained from Reich & Tang Distributors L.P. at the address set
forth below.
This Prospectus sets forth basic information that investors should know about
Cortland prior to investing and should be read and retained for future
reference. A Statement of Additional Information relating to Cortland dated
August 1, 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 to Reich & Tang Distributors L.P., 600 Fifth Avenue, New York,
New York 10020.
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 OF FEES AND EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cortland
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......................................................... 0.25% 0.25% 0.25%
Other Expenses..................................................... 0.01% 0.02% 0.01%
----- ----- -----
Total Fund Operating Expenses...................................... 1.03% 1.04% 1.03%
===== ===== =====
Example
You would pay the following expenses on a $1,000 investment assuming a 5%
annual return:
1 year............................................................. $ 11 $ 11 $ 10
3 years............................................................ $ 33 $ 33 $ 32
5 years............................................................ $ 57 $ 57 $ 55
10 years........................................................... $ 126 $ 127 $ 121
</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, see "Management"
and the Financial Statements included at the end of Cortland's Statement of
Additional Information.) The expenses and example appearing in the preceding
table have been restated to reflect current fees and operating expenses. 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.
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<PAGE>
Selected Financial Information
The following information has been audited by Ernst & Young LLP, Cortland's
independent auditors, whose report thereon for each of the five years in the
period ended March 31, 1996 appears in the Statement of Additional Information.
The data applies to one share outstanding from the commencement of operations
for each Fund for the fiscal years ended March 31, 1987 to March 31, 1996.
Further financial data and related notes are included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cortland General Money Market Fund
For the Year Ended March 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year $0.9974 $1.0000 $1.0000 $1.0000 $1.0000 $0.9999 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income............ 0.0485 0.0384 0.0250 0.0284 0.0470 0.0706 0.0809 0.0755 0.0617 0.0567
Net realized and unrealized
gain/(loss) on investments. 0.0010 (0.0026)+ 0.0001 -- -- 0.0001 (0.0001) -- 0.0001 --
-------- ------- ------- ------ ------ ------- ------- -------- ------ -------
Total from investment operations. 0.0495 0.0358 0.0251 0.0284 0.0470 0.0707 0.0808 0.0755 0.0618 0.0567
Less distributions:
Dividends from net investment income (0.0484) (0.0384) (0.0250) (0.0284)(0.0470) (0.0706) (0.0809) (0.0755)(0.0617)(0.0567)
Dividends from net realized gain
on investments................ -- -- (0.0001) -- -- -- -- -- (0.0001) --
---- ------ ------- ------ ----- ----- ------ ------ -------- -----
Total distributions.............. (0.0484)(0.0384) (0.0251) (0.0284)(0.0470) (0.0706) (0.0809)(0.0755) (0.0618) (0.0567)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of year..... $0.9985 $0.9974 $1.0000 $1.0000 $1.0000 $1.0000 $0.9999 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= ======= ======= ======= ======
Total Return..................... 4.95% 3.91%+ 2.53% 2.88% 4.81% 7.42% 8.42% 7.55% 6.22% 5.67%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $1,159,173 $993,854 $926,400 $904,735 $906,662 $805,993 $970,560 $706,985 $420,063 $261,055
Ratios to average net assets:
Expenses*........................ 1.03% 1.03% 1.02% 1.00% 1.01% 1.01% 1.00% 1.00% 1.00% 1.00%
Net investment income............ 4.86% 3.85% 2.48% 2.84% 4.67% 7.06% 8.00% 7.40% 6.04% 5.48%
</TABLE>
* For the years ended March 31, 1990 to 1995, management and distribution
support and services fees of .02%, .02%, .04% , .04% , .04% and .04% of average
net assets, respectively, were waived.
+ Includes the effect of a capital contribution from the Manager of $.0044 per
share. Without a capital contribution the net realized and unrealized loss on
investments would have been $.0070 per share and the total return would have
been 2.89%.
3
<PAGE>
Selected Financial Information
The following information has been audited by Ernst & Young LLP,
Cortland's independent auditors, whose report thereon for each of the
five years in the period ended March 31, 1996 appears in the Statement of
Additional Information. The data applies to one share outstanding from
the commencement of operations for each Fund for the fiscal years ended
March 31, 1987 to March 31, 1996. Further financial data and related
notes are included in the Statement of Additional Information.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Fund
For the Year Ended March 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year $0.9969 $1.0000 $1.0000 $1.0000 $1.0000 $0.9998 $0.9995 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income........... 0.0471 0.0377 0.0250 0.0290 0.0466 0.0676 0.0775 0.0717 0.0559 0.0518
Net realized and unrealized
gain/(loss) on investments. 0.0008 (0.0031)+ 0.0002 -- 0.0004 0.0002 0.0003 (0.0005) 0.0009 0.0010
------ ------- ------- ----- ------- ------- ------- ------- ------- ------
Total from investment operations. 0.0479 0.0346 0.0252 0.0290 0.0470 0.0678 0.0778 0.0712 0.0568 0.0528
Less distributions:
Dividends from net investment income (0.0470) (0.0377) (0.0250) (0.0290) (0.0466) (0.0676) (0.0775) (0.0717) (0.0559) (0.0518)
Dividends from net realized gain
on investments............... -- -- (0.0002) -- (0.0004) -- -- -- (0.0009) (0.0010)
----- ---- ------- ----- ------- ----- ----- ------ ------- --------
Total distributions.............. (0.0470) (0.0377 (0.0252) (0.0290) (0.0470) (0.0676) (0.0775) (0.0717) (0.0568) (0.0528)
Net asset value, end of year..... $0.9978 $0.9969 $1.0000 $1.0000 $1.0000 $1.0000 $0.9998 $0.9995 $1.0000 $1.0000
Total Return..................... 4.80% 3.84%+ 2.55% 2.94% 4.77% 6.94% 8.05% 7.13% 5.71% 5.28%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $255,222 $218,307 $234,082 $242,199 $230,778 $188,419 $141,738 $84,014 $54,129 $47,721
Ratios to average net assets:
Expenses*....................... 1.04% 1.04% 1.04% 1.01% 1.00% 1.01% 1.01% 1.00% 1.01% 1.03%
Net investment income........... 4.72% 3.74% 2.47% 2.89% 4.63% 6.66% 7.68% 6.95% 5.49% 5.02%
</TABLE>
* For the fiscal years ended March 31, 1990 to March 31, 1995, management and
distribution support and service fees of .01%, .01%, .04%, .045% , .045% and
.045% of the average net assets, respectively, were waived.
+ Includes the effect of a capital contribution from the Manager of $.0063 per
share. Without a capital contribution the net realized and unrealized loss on
investments would have been $.0094 per share and the total return would have
been 2.81%.
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<PAGE>
Selected Financial Information
The following information has been audited by Ernst & Young LLP, Cortland's
independent auditors, whose report thereon for each of the five years in the
period ended March 31, 1995 appears in the Statement of Additional Information.
The data applies to one share outstanding from the commencement of operations
for each for the fiscal years ended March 31, 1987 to March 31, 1996. Further
financial data and related notes are included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Money Market Fund
For the Year Ended March 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year $0.9999 $0.9999 $0.9999 $1.0000 $0.9999 $0.9999 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income............ 0.0303 0.0255 0.0180 0.0224 0.0374 0.0502 0.0556 0.0520 0.0414 0.0394
Net realized and unrealized
gain/(loss) on investments. -- -- -- (0.0001) 0.0001 -- (0.0001) -- -- --
----- ------ ------ ------- ------- ----- ------- ------- ------ ------
Total from investment operations 0.0303 0.0255 0.0180 0.0223 0.0375 0.0502 0.0555 0.0520 0.0414 0.0394
Less distributions:
Dividends from net investment income (0.0302) (0.0255) (0.0180) (0.0224) (0.0374) (0.0502) (0.0556) (0.0520)(0.0414) (0.0518)
Dividends from net realized gain
on investments............ -- -- -- -- -- -- -- -- -- --
----- ---- ---- ---- ---- ---- ---- ---- ---- -----
Total distributions.............. (0.0302) (0.0255) (0.0180) (0.0224) (0.0374) (0.0502) (0.0556) (0.0520) (0.0414) (0.0394)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of year $1.0000 $0.9999 $0.9999 $0.9999 $1.0000 $0.9999 $0.9999 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= ======= ====== ======= ========
Total Return..................... 3.06% 2.58% 1.82% 2.26% 3.81% 5.22% 5.25% 5.20% 4.16% 3.94%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $216,456 $224,041 $240,570 $210,521 $210,948 $166,770 $203,781 $149,875 $89,926 $85,267
Ratios to average net assets:
Expenses*........................ 1.03% .99% .98% .92% .92% .89% 0.86% 0.72% 0.71% 0.59%
Net investment income............ 3.02% 2.54% 1.79% 2.22% 3.70% 5.00% 5.53% 5.20% 4.07% 3.82%
</TABLE>
* Management and distribution support and services fees of .424%, .30%, .28%,
.07%, .13%, .13%, .13%, .07% and .06% of average net assets, respectively, were
waived for the years March 31, 1987 to 1995.
6
<PAGE>
HOW TO PURCHASE SHARES
GENERAL INFORMATION ON PURCHASES
Shares of each Fund may be purchased from Cortland or through securities dealers
which have entered into dealer agreements with Reich & Tang Distributors L.P.
(the "Distributor"), 600 Fifth Avenue, New York, New York 10020, or by
institutions which maintain accounts with Cortland on behalf of their customers.
Orders for purchase of shares are accepted only on a "business day of Cortland"
which means any day on which both the New York Stock Exchange and Investors
Fiduciary Trust Company (the "Custodian"), Cortland'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, 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 Cortland may be as low as $1,000 and subsequent purchases will be
accepted in any amount. Participating brokers may impose different initial
and/or subsequent minimum investment requirements. For further information,
contact the Distributor or your participating broker.
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 Cortland for investment. Cortland 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 acceptance
of the order. Net asset value is normally determined at 12 noon and 4:15 p.m.
Eastern time on each business day of Cortland. Because Cortland 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, Cortland 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 one
business day and are accepted subject to collection at full face amount.
Cortland will not issue share certificates but will record investor holdings on
the books of Cortland in noncertificate form and regularly advise the
shareholder of his ownership position.
There is no sales charge to the investor on purchases placed directly with
Cortland. However, the costs of distributing Fund shares are borne in part by
Cortland 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 SECURITIES DEALERS
Investors may submit their initial and subsequent investments directly through
participating securities dealers. For an initial investment, investors should
submit payment and, if required, a completed Investor Application to their
participating securities dealer, who will transmit such payment to Cortland on
behalf of the investor and supply Cortland with required account information.
Some securities dealers may charge a fee for this service. For customers of
securities dealers who offer the service, investors may have their "free-credit"
cash balances automatically invested in Cortland 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 Cortland shares are
treated on the same basis as direct purchases and redemptions from Cortland.
"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 Cortland shares,
contact your
6
<PAGE>
participating securities dealer or the Distributor. Cortland is not responsible
for any delay caused by securities dealers in forwarding an order to Cortland.
Securities dealers have a responsibility to transmit orders promptly.
PURCHASES THROUGH CORTLAND
You may purchase shares of Cortland by wire and by mail. Cortland will only
accept direct orders from investors through the Distributor or through
securities dealers that have entered into dealer agreements with the Distributor
and are registered to sell securities in such state. The initial purchase must
be accompanied by a completed Investor Application available from the
Distributor.
INITIAL PURCHASE OF SHARES
Mail
Investors may send a check made payable to "Cortland" along with a completed
subscription order form to :
Mutual Funds Group
P.O. Box 13232
Newark, NJ 07101-3232
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 one business day
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 by telephoning
the Fund at either (212) 830-5280 (within New York State) or at (800) 433-1918
(outside New York State) and then instruct a member commercial bank to wire
money immediately to :
Investors Fiduciary Trust Company
ABA# 101003621
Reich & Tang Services L.P.
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 "Cortland" 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 13232
Newark, New Jersey 07101-3232
7
<PAGE>
ELECTRONIC FUNDS TRANSFERS (EFT)
AND DIRECT DEPOSIT PRIVILEGE
You may purchase shares of Cortland (minimum of $50) by having salary, dividend
payments, interest payments or any other payments designated by you, or by
having federal salary, social security, or certain veteran's, military or other
payments from the federal government, automatically deposited into your Cortland
account. You may deposit as much of such payments as you elect. To enroll in
this program, you must file with Cortland 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 your broker or
Cortland. 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, Cortland 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 Cortland 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 Cortland may redeem accounts of less than $500 or impose a
monthly service charge of not more than $10 on such accounts.
REDEMPTIONS THROUGH SECURITIES DEALERS
Shareholders may redeem shares by instructing their securities dealer to effect
their redemption transactions. The securities dealer will transmit the required
redemption information to Cortland and the proceeds from that redemption will be
transmitted to the securities dealer for the account of the shareholder.
Securities dealers, including participants in the plan of distribution described
under the heading "Distributor," may impose redemption minimums, service fees or
other requirements. Securities dealers have 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 $500 or more. Checks drawn in amounts of
less than $500 may be returned to the payee or a $15 fee will be imposed for
such checks paid.
Shareholders may elect to establish a Convenience Account. A Convenience 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 CONVENIENCE
ACCOUNT PROGRAM SHOULD CONSIDER THE INFORMATION AVAILABLE FROM THE DISTRIBUTOR
WITH RESPECT TO THE CONVENIENCE 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 Cortland to redeem a
8
<PAGE>
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 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 Cortland 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 Cortland Trust, Inc., 600 Fifth Avenue,
New York, New York 10020
and have the proceeds mailed or wired only to a previously designated broker or
bank account if (a) shares were paid for in federal funds or were purchased by
check and have been on Cortland's books at least fifteen calendar days and (b) a
telephone redemption authorization included in the Investor Application is on
file with Cortland 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.
Cortland 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 Cortland to
employ such procedures may cause Cortland 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 Cortland 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 Cortland)
(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 Cortland's standards and procedures.
The proceeds of redemption are sent to the shareholder's bank or the
shareholder's address as it appears in Cortland's records. In order to change
such designation, the shareholder must submit a written notification to Cortland
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 a shareholder's securities dealer
or by mail. The value of the shares being exchanged must meet the minimum
initial investment requirements of the Fund or the participating securities
dealer. Mail exchange orders should be addressed and sent as shown under the
heading "Redemptions by Letter of Instruction" and must contain:
- - your Cortland account number
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<PAGE>
- - your name and telephone number
- - 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 Cortland General Fund and the Government Fund seek to provide as high a
level of current income as is consistent with the preservation of capital and
liquidity. The 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.
GOVERNMENT FUND
The Government Fund endeavors to achieve its objective by investing at least 65%
of its 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 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
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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 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.
CORTLAND GENERAL FUND
The CORTLAND 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 CORTLAND GENERAL FUND may invest in bank instruments, which consist mainly
of certificates of deposit, bankers' acceptances and time deposits. The CORTLAND
GENERAL FUND may also invest in corporate instruments supported by bank letters
of credit. The CORTLAND 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 CORTLAND 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 CORTLAND 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 CORTLAND 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 CORTLAND 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 CORTLAND 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 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
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not subject to examination by United States Government agencies or
instrumentalities.
The CORTLAND 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 CORTLAND
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 CORTLAND 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 CORTLAND 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
CORTLAND 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 CORTLAND 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 Cortland's
Board of Directors.
MUNICIPAL FUND
The 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 assets in a diversified
portfolio of high quality, short-term municipal obligations ("Municipal
Securities").
The 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 Securities may give rise
to federal alternative minimum tax liability and may have other collateral
Federal income tax consequences.
The 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 Cortland'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 Municipal
Fund may invest. The 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
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repurchase agreements. Income from any such temporary investments would be
taxable to shareholders as ordinary income. It is the present policy of the
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 MUNICIPAL FUND that its assets will be invested
so that at least 80% of its income will be exempt from Federal income taxes. The
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.
Cortland 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 total 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 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
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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 Cortland'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 MUNICIPAL
FUND will incur a 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 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 MUNICIPAL FUND, when it
purchases Municipal Securities for its portfolio from a broker,
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dealer or other financial institution, to sell the same principal amount of such
securities back to the seller, at the MUNICIPAL FUND'S option, at a specified
price. Stand-by Commitments are also sometimes known as "puts." The 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 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
CORTLAND 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 and reverse
repurchase agreements are outstanding); or (4) lend money or securities except
to the extent that the investments of a Fund may be considered loans.
Additionally, the MUNICIPAL FUND will not: (1) purchase any securities which
would cause more than 25% of the value of the 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
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 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
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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 Cortland, 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 Cortland, elect to have dividends paid by check.
Any such election or revocation thereof must be made in writing to Cortland
Trust, Inc., 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 MUNICIPAL FUND will not be required to include the
"exempt-interest" portion of dividends paid by the Fund in their gross 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 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 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
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 MUNICIPAL FUND declared during
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that year. These percentages may differ from the actual percentages for any
particular day.
Shareholders of the GOVERNMENT FUND and the CORTLAND 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 Cortland 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 Cortland which may differ from the
Federal income tax consequences described above.
MANAGEMENT
BOARD OF DIRECTORS
The overall management of the business and affairs of Cortland 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
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 Cortland's officers, and the manager, subject always to the
objective and policies of each Fund and to the general supervision of Cortland's
Board of Directors. The manager also furnishes or procures on behalf of Cortland
at the manager's expense all services necessary for the proper conduct of each
Fund's business. Some of Cortland's officers and directors are officers or
employees of the manager. A majority of the members of the Board of Directors of
Cortland 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 Cortland 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 Cortland. The Manager bears all ordinary operating expenses
associated with Cortland's operation except: (a) the fees of the Directors who
are not "interested persons" of Cortland, 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
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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
Cortland 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
Cortland and all expenses of registering or qualifying Cortland'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 Cortland's average daily net assets, plus
.775% of the next $500 million of Cortland's average daily net assets, plus
.750% of the next $500 million of Cortland's average daily net assets, plus
.725% of Cortland's average daily net assets in excess of $1.5 billion.
Cortland's comprehensive fee is higher than most other money market mutual funds
which do not offer services that Cortland offers. However, most other funds bear
expenses that are being borne for Cortland by the Manager. During the fiscal
year ended March 31, 1996, Cortland paid the Manager fees which represented
0.77% of the CORTLAND GENERAL FUND'S average daily net assets, 0.77% of the
GOVERNMENT FUND'S average daily net assets and 0.77% of the MUNICIPAL FUND'S
average daily net assets, respectively, on an annualized basis. During such
year, expenses borne by each of the Funds, including fees paid to the Manager,
amounted to 1.03% of the CORTLAND GENERAL FUND'S average daily net assets, 1.04%
of the GOVERNMENT FUND'S average daily net assets and 1.03% of the MUNICIPAL
FUND'S average daily net assets, respectively, on an annualized basis.
The Manager was at June 30, 1996 investment manager, advisor or supervisor with
respect to assets aggregating in excess of $9.1 billion. The Manager currently
acts as investment manager or administrator of fifteen 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.
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
eleven 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; Vaughan-Nelson, Scarborough & McConnell,
Inc.; 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 Cortland'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
18
<PAGE>
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 August 1, 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 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 Funds 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 Inc. 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
Cortland. Pursuant to plans of distribution (the "Plans") approved by the Funds'
shareholders on July 31, 1989, each of the Funds may make distribution related
payments in an amount not to exceed on an annualized basis .25% 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 Cortland 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.
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.
19
<PAGE>
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.
Comparative performance information may be used from time to time in advertising
or marketing the Funds' shares, including data from industry publications.
For the seven-day period ended July 2, 1996, the current yield for the CORTLAND
GENERAL FUND was 4.40%, the current yield for the GOVERNMENT FUND was 4.30% and
the current yield for the MUNICIPAL FUND was 2.58%, which is equivalent to an
effective yield of 4.50% for the CORTLAND GENERAL FUND, 4.40% for the GOVERNMENT
FUND and 2.62% for the MUNICIPAL FUND.
GENERAL INFORMATION
ORGANIZATION OF CORTLAND AND
DESCRIPTION OF SHARES
Cortland is an open-end, diversified investment company. Cortland was organized
as a Massachusetts business trust on October 31, 1984, but had no operations
prior to May 9, 1985. On July 31, 1989, Cortland reorganized and became a
Maryland corporation. The shares of Cortland are divided into three Funds, each
of which represent shares of common stock of the par value of $.001. Shares of
Cortland have equal rights with respect to voting, except that the holders of
shares of a particular Fund will have the exclusive right to vote on matters
affecting only the rights of the holders of such Fund. For example, holders of a
particular Fund will have the exclusive right to vote on any investment advisory
agreement or investment restriction that relates only to such Fund. 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 Cortland 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 Cortland'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 Cortland's shares. Cortland'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 Cortland shares without shareholder
20
<PAGE>
approval.
LEGAL MATTERS
The law firm of Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York,
New York 10022, serves as counsel to Cortland 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 Fund's portfolio securities and cash. Cortland
acts as its own transfer agent for Cortland's shares.
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be directed to
your securities dealer or to Cortland at (212) 830-5280 or toll free at (800)
433-1918.
TABLE OF CONTENTS
Table of Fees and Expenses...........................2
Selected Financial Information.......................3
How to Purchase Shares...............................6
How to Redeem Shares.................................8
Investment Programs..................................10
Dividends and Taxes..................................16
Management...........................................17
Portfolio Transactions...............................20
Yield Information....................................20
General Information..................................20
<PAGE>
CORTLAND TRUST, INC.
PROSPECTUS
August 1, 1996
TABLE OF CONTENTS
<PAGE>
Rule 497 (b)
File N0. 2-94935
Pilgrim America General Money Market Shares
(Shares of Cortland Trust, Inc.)
Two Renaissance Square, 40 North Central Ave., Suite 1200
Phoenix, AZ 85004-4424 (800) 331-1080
- --------------------------------------------------------------------------------
Cortland Trust, Inc. (the "Company") is an open-end, diversified money market
fund. The Company consists of three separate money market fund series--the
Cortland General Money Market Fund, the U.S. Government Fund and the Municipal
Money Market Fund. This Prospectus relates exclusively to the Pilgrim America
General Money Market Shares class (the "Pilgrim America Shares") of the Cortland
General Money Market Fund (the "Fund"). The Fund seeks to provide as high a
level of current income as is consistent with the preservation of capital and
liquidity. The Fund invests in high quality debt obligations with relatively
short maturities. The Fund seeks to achieve its objective by investing in a
portfolio of securities and instruments issued or guaranteed by the United
States Government, its agencies or instrumentalities, bank instruments and
corporate commercial instruments.
SHARES OF THE FUND ARE NEITHER INSURED NORGUARANTEED BY THE U.S. GOVERNMENT.
THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE OR THAT THE FUND'S INVESTMENT OBJECTIVE WILL BE
ACHIEVED. SEE "INVESTMENT PROGRAM."
SHARES IN THE FUND 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 ("FDIC"), THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
This Prospectus sets forth basic information about the Company and the Fund that
prospective investors should know prior to investing. It should be read and
retained for future reference. A Statement of Additional Information ("SAI")
dated August 1, 1996, has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. The SAI is available upon request and
without charge by writing or calling Pilgrim America Securities, Inc., Two
Renaissance Square, 40 North Central Ave., Suite 1200, Phoenix, AZ 85004-4424,
telephone (800) 331-1080.
Investors should be aware that the Pilgrim America Shares may not be purchased
other than through certain securities dealers with whom Pilgrim America
Securities, Inc. ("PASI") has entered into agreements for this purpose, or
directly from PASI. Pilgrim America Shares have been created for the primary
purpose of providing an alternative money market fund product for shareholders
of certain funds distributed by PASI. Shares of the Company other than the
Pilgrim America Shares are offered pursuant to a separate prospectus.
Table of Contents Page
Summary 2
The Fund 4
Table of Fees and Expenses 4
Financial Highlights 5
Investment Program 6
Performance 9
Management 9
Shareholder Guide 12
How to Buy Pilgrim America Shares 12
How to Redeem Pilgrim America Shares 15
Distributions and Taxes 17
Retirement Plans 18
General Information 18
New Account Application 20
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.
PROSPECTUS DATED: AUGUST 1, 1996
<PAGE>
Summary
The Company and the Fund
The Company is an open-end, diversified investment company of the type commonly
known as a money market fund. The Company consists of three investment
portfolios. Shares of the Company other than the Pilgrim America Shares are
offered pursuant to separate prospectuses. The Fund seeks to provide as high a
level of current income as is consistent with the preservation of capital and
liquidity. The Fund invests in high quality debt obligations with relatively
short maturities. This Prospectus relates to the Pilgrim America Shares. No
assurance can be given that the Fund's investment objective will be achieved.
See "Investment Program."
Pilgrim America Shares
Pilgrim America Shares have been created for the primary purpose of providing an
alternative money market fund product for investors who purchase shares directly
from PASI, or through dealers with whom PASI has entered into agreements for
this purpose, or who acquire Pilgrim America Shares through the exchange of
shares of certain other investment companies as hereinafter described. Pilgrim
America Shares are identical to other shares of the Fund, which are offered
pursuant to separate prospectuses, with respect to investment objective and
yield, but differ with respect to certain other matters. For example,
shareholders who hold other shares of the Fund may not participate in the
exchange privilege described herein and have different arrangements for
redemptions by check.
Purchasing Shares
Pilgrim America Shares may be purchased directly from PASI and through certain
securities dealers with whom PASI has entered into agreements for this purpose
at net asset value without payment of any sales charge. However, securities
dealers processing purchase orders may charge a reasonable processing fee.
Initial investments must be at least $1,000 and subsequent purchases must be at
least $100. The minimum investment requirements may be waived for investments in
connection with tax-sheltered retirement plans or in connection with
reinvestment of distributions from another "Pilgrim America Fund." Purchases
made by check or bank wire will not become effective until converted into
Federal funds. See "How to Buy Pilgrim America Shares" and "Retirement Plans."
Exchange Privilege
Shareholders of Pilgrim America Shares may purchase shares of certain other
Pilgrim America Funds via an Exchange Privilege without a sales charge under
certain conditions hereinafter described. See "Exchange Privilege."
Redeeming Shares
Shareholders may at any time redeem all or a portion of their shares at the net
asset value of the Fund, without payment of a charge. See "How to Redeem Pilgrim
America Shares."
Dividends
Dividends from net investment income are declared daily and distributed in the
form of additional Pilgrim America Shares on the subsequent business day. At the
option of the shareholder, dividends may be paid monthly by check. See
"Distributions and Taxes."
Net Asset Value
The net asset value of the Pilgrim America Shares will normally remain constant
at $1.00 per share. However, there can be no assurance that such net asset value
per share can be maintained at all times. See "How to Buy Pilgrim America
Shares" herein, and "Net Asset Value Determination" in the SAI.
2
<PAGE>
Manager and Investment Advisor
Reich & Tang Asset Management L.P., 600 Fifth Avenue, New York, New York 10020,
acts as the Manager and Investment Advisor of the Company. Reich & Tang Asset
Management L.P. acts as investment manager or administrator of fifteen other
investment companies and also advises pension trusts and endowments. See
"Management."
Special Consideration
Subject to certain restrictions designed to reduce any associated risks, the
Fund may invest in securities such as commercial instruments which are not
rated, certain repurchase agreements, delayed delivery or when-issued securities
and in U.S. Dollar denominated obligations issued by foreign banks. Accordingly,
an investment in the Fund may entail somewhat different risks from an investment
in an investment company which does not engage in such investment practices. See
"Investment Program."
3
<PAGE>
The Fund
Table of Fees and Expenses
Pilgrim America General
Money Market
Shares
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchase (as a percentage of
offering price)............................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................ None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, as applicable)........................ None
Redemption Fees (as a percentage of amount redeemed, if
applicable)................................................... None
Exchange Fee....................................................... None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees ................................................... 0.77%
12b-1 Fees......................................................... 0.25%
Other Expenses..................................................... 0.01%
Total Fund Operating Expenses...................................... 1.03%
Example
You would pay the following expenses on a $1,000 investment
assuming a 5% annual return:
1 year............................................................. $ 11
3 years............................................................ $ 33
5 years............................................................ $ 57
10 years........................................................... $ 126
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, see "Management"
and the Financial Statements included at the end of Cortland's Statement of
Additional Information.) The expenses and example appearing in the preceding
table have been restated to reflect current fees and operating expenses. 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.
4
<PAGE>
Financial Highlights
The following information has been audited by Ernst & Young LLP, Cortland's
independent auditors, whose report thereon for each of the five years in the
period ended March 31, 1996 appears in the Statement of Additional Information.
The data applies to one share outstanding from the commencement of operations
for each Fund for the fiscal years ended March 31, 1987 to March 31, 1996.
Further financial data and related notes are included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cortland General Money Market Fund
For the Year Ended March 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year $0.9974 $1.0000 $1.0000 $1.0000 $1.0000 $0.9999 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income............ 0.0485 0.0384 0.0250 0.0284 0.0470 0.0706 0.0809 0.0755 0.0617 0.0567
Net realized and unrealized
gain/(loss) on investments. 0.0010 (0.0026)+ 0.0001 -- -- 0.0001 (0.0001) -- 0.0001 --
-------- ------- ------- ------ ------ ------- ------- -------- ------ -------
Total from investment operations. 0.0495 0.0358 0.0251 0.0284 0.0470 0.0707 0.0808 0.0755 0.0618 0.0567
Less distributions:
Dividends from net investment income (0.0484) (0.0384) (0.0250) (0.0284)(0.0470) (0.0706) (0.0809) (0.0755)(0.0617)(0.0567)
Dividends from net realized gain
on investments................ -- -- (0.0001) -- -- -- -- -- (0.0001) --
---- ------ ------- ------ ----- ----- ------ ------ -------- -----
Total distributions.............. (0.0484)(0.0384) (0.0251) (0.0284)(0.0470) (0.0706) (0.0809)(0.0755) (0.0618) (0.0567)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of year..... $0.9985 $0.9974 $1.0000 $1.0000 $1.0000 $1.0000 $0.9999 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= ======= ======= ======= ======
Total Return..................... 4.95% 3.91%+ 2.53% 2.88% 4.81% 7.42% 8.42% 7.55% 6.22% 5.67%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $1,159,173 $993,854 $926,400 $904,735 $906,662 $805,993 $970,560 $706,985 $420,063 $261,055
Ratios to average net assets:
Expenses*........................ 1.03% 1.03% 1.02% 1.00% 1.01% 1.01% 1.00% 1.00% 1.00% 1.00%
Net investment income............ 4.86% 3.85% 2.48% 2.84% 4.67% 7.06% 8.00% 7.40% 6.04% 5.48%
</TABLE>
*For the years ended March 31, 1990 to 1995, management and distribution support
and services fees of .02%, .02%, .04%, .04%, .04% and .04% of average net
assets, respectively, were waived.
+Includes the effect of a capital contribution from the Manager of $.0044 per
share. Without a capital contribution the net realized and unrealized loss on
investments would have been $.0070 per share and the total return would have
been 2.89%.
5
<PAGE>
Investment Program
The Fund's Investment Objective and Policies
The Fund seeks to provide as high a level of current income as is consistent
with the preservation of capital and liquidity. The investment objective of the
Fund is a fundamental policy, which may not be changed without the approval of
the shareholders of the Fund.
The 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 the
Fund 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 SAI 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 the Fund's total assets, with the investment in any such issuer being limited
to not more than the greater of 1% of the Fund's total assets or $1 million. The
Fund may invest in obligations issued or guaranteed by the U.S. Government
without any such limitation.
The Fund invests in such high quality debt obligations with relatively short
maturities. Unless otherwise stated, the investment policies and restrictions
set forth below and in the SAI are not fundamental policies, and may be changed
by the Board of Directors, with notice to shareholders.
The Fund seeks to achieve its objective by investing at least 80% of its assets
in U.S. Government Obligations (which consist of marketable securities and
instruments issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities), in bank instruments, in corporate commercial instruments and
in other corporate instruments which mature in thirteen months or less
(collectively, "Money Market Obligations").
The Fund seeks to achieve its objective by investing at least 80% of its assets
in U.S. Government Obligations (which consists of marketable securities and
instruments issued or guaranteed by the United States Government or by its
agencies or instrumentalities), 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 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 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 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 Fund's
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 United States branch of the foreign bank is
subject to the same regulation as the United States 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.
6
<PAGE>
The Fund will limit its purchases of time deposits to those which mature in
seven days or less, and will limit its purchases of time deposits maturing in
two to seven days to 10% of the Fund's total assets at the time of purchase.
Eurodollar, 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 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 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 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
Fund may also invest in 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 SAI for information with respect to
corporate commercial instruments and bond ratings.) The 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 the trust receives from an
underlying portfolio of bonds issued by a highly rated corporate or U.S.
Government agency issuer and/or payments from recharacterized distributions made
possible by the swap of certain payments due on the underlying bonds. The 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 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 transferee and compliance with trust
agreement requirements. The Manager will monitor the liquidity of the debt units
under the supervision of Cortland's Board of Directors.
CERTAIN INVESTMENT STRATEGIES
In the pursuit of its objective and policies, from time to time the Fund may
engage in the following strategies:
Repurchase Agreements. Under a repurchase agreement, the Fund 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 Fund'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, the Fund will not enter into a repurchase agreement if as a result of
such investment more than 10% of the Fund's total assets would be invested in
illiquid "continuing contract" or "open" repurchase agreement under which the
seller is under a continuing obligation to repurchase the underlying obligation
from the Fund on demand and the effective interest rate is negotiated on a daily
basis. In general, the Fund will enter into repurchase agreements only with
domestic banks with total assets
7
<PAGE>
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 may incur a loss to the extent that the proceeds 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.
Securities purchased pursuant to a repurchase agreement are held by the Fund's
custodian, Investors Fiduciary Trust Company (the "Custodian") and (i) are
recorded in the name of the Fund with the Federal Reserve Book-Entry System, or
(ii) the Fund receives daily written confirmation of each purchase of a security
and a receipt from the Custodian. The Fund purchases 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 purchased.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements, which involve the sale by the Fund of a portfolio security at an
agreed upon price, date and interest payment. The 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.
The Fund will use reverse repurchase agreements when the interest income to be
earned from the investment of the proceeds is greater than the interest expense
of the reverse repurchase transaction. The 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 the Fund in
lieu of liquidation may decline below the repurchase price of the securities
sold by the Fund which it is obligated to repurchase. The risk, if encountered,
could cause a reduction in the net asset value of the Fund's shares. Reverse
repurchase agreements are considered to be borrowings under the 1940 Act. (See
"Investment Restrictions" in the SAI for percentage limitations on borrowings.)
Delayed Delivery Agreements and When-Issued Securities. Delayed delivery
agreements are commitments by the Fund 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 Fund's
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 the Fund; therefore, to assure that the Fund will be as fully invested
as possible in instruments meeting its investment objective, the 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.
The Fund 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. Money Market Obligations 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. The Fund
will only make commitments to purchase such Money Market Obligations with the
intention of actually acquiring such securities, but the Fund may sell these
securities before the settlement date if it is deemed advisable.
If the Fund enters into a delayed delivery agreement or purchases a when-issued
security, the Fund will direct its custodian bank to place cash or other high
grade securities (including Money Market Obligations) in a separate account of
the 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 agreements and
when-issued commitments. To the extent that funds are in a separate account,
they will not be available for new investment or to meet redemptions.
Investments in securities on a when-issued basis and use of delayed delivery
agreements may increase the Fund's exposure to market fluctuation, or may
increase the possibility that the Fund
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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 Fund will employ techniques designed to
minimize these risks. No additional delayed delivery agreements or when-issued
commitments will be made if, as a result, more than 25% of the Fund's net assets
would become so committed.
INVESTMENT RESTRICTIONS
The Fund's 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
the Fund will not: (1) purchase securities of any issuer (other than obligations
of the U.S. Government, its agencies or instrumentalities and repurchase
agreements fully secured by such obligations) if as a result more than 5% of the
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 the 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
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 and then only in an amount not exceeding 15%
of the value of the Fund's total assets, except that the Fund may enter into
delayed delivery or reverse repurchase agreements and may make commitments to
purchase when-issued securities consistent with its investment objective and
policies (and the Fund will not make additional investments while borrowings
other than when-issued and delayed delivery purchases and reverse repurchase
agreements are outstanding); or (4) lend money or securities except to the
extent that the investments of the Fund may be considered loans.
MATURITIES
Consistent with its objective of stability of principal, the Fund attempts to
maintain a constant net asset value of $1.00 per share and, to this end, values
its assets by the amortized cost method and rounds the per share net asset value
to the nearest whole cent in compliance with applicable rules and regulations.
Accordingly, the Fund invests in Money Market Obligations having remaining
maturities of thirteen months or less and maintains a weighted average maturity
for the Fund of 90 days or less. However, there can be no assurance that the
Fund's net asset value per share of $1.00 will be maintained.
Performance
Yield information for the Pilgrim America Shares may be obtained by calling PASI
at (800) 992-0180. Yield is computed in accordance with a standardized formula
described in the SAI and can be expected to fluctuate from time to time and is
not necessarily indicative of future results. Accordingly, the yield information
may not provide a basis for comparison with investments which pay a fixed rate
of interest for a stated period of time. Yield is a function of the type and
quality of the Fund's investments, the Fund's maturity and the operating expense
ratio of the Fund. A shareholder's investment in the Fund is not insured or
guaranteed. These factors should be carefully considered by the investor before
making an investment in the Fund. For the seven-day period ended July 2, 1996,
the Fund's current yield and effective yield were 4.40% and 4.50%, respectively.
Management
BOARD OF DIRECTORS
The overall management of the business and affairs of the Company is vested with
its Board of Directors. The Board of Directors approves all significant
agreements between the Fund and persons or companies furnishing services to the
Fund, including the Company's agreements with the manager, the investment
advisor, the distributor, the transfer agent and the custodian. The day-to-day
operations of the Company are delegated to the
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Company's officers and Reich & Tang Asset Management L.P., (the "Manager" and/or
"Investment Advisor"), subject always to the objective and policies of each
portfolio, including the Fund and to the general supervision of the Company's
Board of Directors. The Manager furnishes or procures on behalf of the Company,
and at the Manager's expense, all services necessary for the proper conduct of
the Company'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
Reich & Tang Asset Management L.P., a Delaware limited partnership, with its
principal offices at 600 Fifth Avenue, New York, New York 10022, serves as the
Manager of the Company and its three portfolios, including the Fund, pursuant to
agreements with the Company dated October 1, 1994 (the "Management Agreements").
Under the Management Agreements, the Manager provides all services required for
the management of the Company and the Fund, either directly or indirectly
through contracts with others. The Manager bears all ordinary operating expenses
associated with the Company's and the Fund's operations 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 any 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 Fund under the plan of
distribution described under the heading "Distribution Plan" below, and (e)
membership dues of any industry association. The Company pays the Manager an
annual fee, calculated daily and paid monthly, of 0.80% of the first $500
million of the Company's average daily net assets, plus 0.775% of the next $500
million of the Company's average daily net assets, plus 0.75% of the next $500
million of the Company's average daily net assets, plus 0.725% of the Company's
average daily net assets in excess of $1.5 billion. A portion of such fees is
allocated to the Fund based upon its pro rata share of the Company's total net
assets. The comprehensive fee paid by the Company is higher than the fees paid
by most other money market mutual funds, many of which do not offer services
that the Company offers. Also, most other mutual 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
Fund's average daily net assets on an annualized basis. During such year,
expenses of the Fund, including fees paid to the Manager, amounted to 1.03% of
the Fund's average daily net assets on an annualized basis.
INVESTMENT ADVISOR
Reich & Tang Asset Management L.P. also serves as the Fund's Investment Advisor.
Reich & Tang Asset Management L.P. is a registered investment advisor. As of
June 30, 1996, the Manager was at the investment manager, advisor or supervisor
with respect to assets aggregating approximately $9.1 billion. The Manager
currently
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.
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
eleven investment advisory/management affiliates and two distribution
subsidiaries. These include, in addition to the Manager, Loomis, Sayles &
Company,
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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,; Vaughan-Nelson, Scarborough & McConnell, Inc.; 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 Agreement, the
Manager manages the investments of the Fund, 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 Fund. The Manager shall not be liable to
the Fund or the shareholders thereof except in the case of the Manager's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
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 the Fund. When instituted, the
Manager will continue these fee 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 Agreement, may be rescinded at any time
without further notice to investors.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Fund, broker-dealer selection and negotiation of commission rates. Since
purchases and sales of portfolio securities by the Fund are usually principal
transactions, the Fund incurs 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 Fund 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 formula. The primary consideration is prompt execution of orders in an
effective manner at the most favorable price.
DISTRIBUTION PLAN
The Fund has entered into a Distribution Agreement dated September 15, 1993 (the
"Distribution Agreement"), with Reich & Tang Distributors L.P. (the
"Distributor"), 600 Fifth Avenue, New York, New York 10020. The Distributor,
which was organized on January 4, 1991, has the exclusive right to enter into
agreements with registered broker-dealers who sell the Company's shares and with
financial institutions which may furnish services to shareholders on behalf of
the Company. On April 7, 1995, the Distributor entered into a Primary Dealer
Agreement with PASI in order to provide for the offer and sale of the Pilgrim
America Shares. Pursuant to a plan of distribution (the "Plan") approved by the
Fund's shareholders on July 31, 1989, the Fund may make distribution-related
payments in an amount not to exceed on an annualized basis 0.25% of the value of
the Fund's assets. Securities dealers and financial institutions (including
PASI) may receive distribution payments directly or indirectly from the Fund for
services that may be used to pay the costs of opening shareholder accounts,
processing investor purchase and redemption orders, responding to inquiries from
shareholders concerning the status of their accounts and the operations of the
Fund and communications with the Company on behalf of Fund shareholders. The
full amount of such payments made with respect to the Pilgrim America Shares
will be paid to PASI, which will use such amounts to defray in part its costs
associated with providing the foregoing services to holders of the Pilgrim
America Shares.
In addition, the Distributor may pay for advertisements, promotional materials,
sales literature and the printing and mailing of prospectuses to prospective
shareholders and other services to support distribution pursuant to the Plan.
The Distributor may also make payments to securities dealers (including PASI)
and financial institutions,
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such as banks, out of the investment management fee which the Manager receives
from the Fund, out of its profits or from any other source available to the
Distributor. Expenses payable under the Plan will not be carried over from year
to year and, if the Plan is terminated in accordance with its terms, the
obligations of the Fund to make payments to the Distributor, PASI or other
securities dealers pursuant to the Plan will cease and the Fund will not be
required to make any payments after such termination date.
As a result of 12b-1 fees, a long-term shareholder in the 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.
Shareholder Guide
How to Buy Pilgrim America Shares
Pilgrim America Shares are offered continuously for purchase on each day which
the New York Stock Exchange and the Company's Custodian are open for business.
All shares are purchased at the net asset value (expected to be constant at
$1.00 per share--see "Timing of Purchase Orders" below) next determined after
funds are received in payment for shares by the transfer agent of the Pilgrim
America Shares, Investors Fiduciary Trust Company (the "Transfer Agent"). There
is no sales charge. The minimum initial investment is $1,000 and $250 for IRAs
and the minimum subsequent investment is $100, but such minimum amounts may be
waived or changed at any time at Management's discretion. The Fund will waive
the minimum for purchases by employees of PASI or its affiliates, and employees
of the Transfer Agent and its affiliates. An investor wishing to open an account
should use the New Account Application included in this Prospectus.
Many of the types of instruments in which the Fund is permitted to invest are
paid for in Federal funds which are monies held by the Custodian on deposit at a
Federal Reserve Bank. Since the monies paid for shares of the Fund generally
cannot be invested by the Fund until they are converted into, and are available
to the Fund in Federal funds, which may take up to three days, payment of
dividends on the Fund's shares purchased will not commence until such conversion
and availability is achieved.
You will become a shareholder of record as of the close of business on the day
after payment is received by the Transfer Agent. Shares purchased by Federal
funds wire sent directly to the Transfer Agent (see "Purchases by Wire," below)
will be purchased at the close of business on the day on which your order is
received and you will be entitled to dividends on the next business day.
However, Federal funds wires received by the Transfer Agent after 4:00 p.m. New
York time on any business day will be deemed received by the Fund and credited
to an account on the next business day.
Although no sales charge is imposed by the Fund on purchases of its shares, a
selling agent may charge a commission or sales fee. PASI does not currently
impose any such fee. You may also purchase shares of the Fund initially by
sending a check accompanied by an application. Subsequent investments by check
must include account information including the account number. All checks must
be drawn on U.S. banks in U.S. funds to avoid delays and fees. Purchases made by
check are normally converted into Federal funds within two business days and are
accepted subject to collection at face value. A charge may be imposed if a check
submitted for investment does not clear.
PURCHASES BY WIRE
Pilgrim America Shares may be purchased by wire transfer in the form of Federal
funds. If payment is wired, it should be directed to Investors Fiduciary Trust
Company ABA #101003621 for credit to Pilgrim America General Money Market Shares
A/C #752-4854, For Further Credit to: Shareholder A/C # __________ , Shareholder
Name: ______________________ ."
For initial purchase by Federal funds wire, you must first obtain an account
number by telephoning the Fund at 800-336-3436. You may then instruct your bank
to wire funds as described above. After you have received an account number and
have wired funds, you must complete the Application in its entirety and send it
to:
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Pilgrim America Order Department
P.O. Box 419368
Kansas City, MO 64141
Your completed Application must be received in order to properly register your
account. Any requests to exchange, transfer, or redeem will not be honored until
such Application is received. See the Fund's Application included in this
Prospectus.
For subsequent investments by wire, first telephone the Fund to obtain a wire
reference number prior to transmission. This helps the Fund ensure proper credit
to your account.
PURCHASES BY CHECK
An initial investment made by check must be accompanied by the Fund's
Application completed in its entirety. Additional shares of the Fund may also be
purchased by sending a check payable to the Fund, along with information
regarding your account, including the account number, to the Transfer Agent. All
checks should be drawn only on U.S. banks in U.S. funds, in order to avoid fees
and delays. Please note that third party checks will not be accepted. A charge
may be imposed if any check submitted for investment does not clear.
Orders for the purchase of Pilgrim America Shares are accepted only on a
"business day of the Company," which means any day on which the New York Stock
Exchange and the Custodian are open for business. It is expected that the New
York Stock Exchange and/or the Custodian will be closed during the next twelve
months on Saturday and Sundays and on July 4 (Independence Day), September 2
(Labor Day), October 14 (Columbus Day), November 11 (Veterans' Day), November 28
(Thanksgiving Day), December 25 (Christmas), 1996 and January 1 (New Year's
Day), February 17 (Presidents' Day), March 28 (Good Friday) and May 26 (Memorial
Day), 1997. For further information, investors should contact PASI or any
participating broker.
An order to purchase Pilgrim America Shares is effected 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.
Pilgrim America Shares are purchased or exchanged at the net asset value next
determined after acceptance of the order. Net asset value is normally determined
at 12:00 noon and 4:00 p.m. New York time on each business day of the Company.
It is anticipated that the net asset value of the shares of the Fund will remain
constant at $1.00 per share, because the Fund uses the amortized cost method of
valuing the securities held by the Fund and rounds the Fund's per share net
asset value to the nearest whole cent. The Company, however, makes no assurance
that the Fund can maintain a $1.00 net asset value per share. The Fund will not
issue share certificates but will record investor holdings on the books of the
Company in non-certificate form and regularly advise the shareholder of his
ownership position. There is no sales charge to the investor on purchases of
Pilgrim America Shares. The costs of distributing Pilgrim America Shares are
borne in part by the Company and in part by the Manager and/or PASI. See
"Management--Distribution Plan."
CHOOSING A DISTRIBUTION OPTION
When you buy shares of the Fund you may choose one of the following distribution
options:
1) The Share Option reinvests your income dividends and capital gains
distributions, if any, in additional shares daily. You are assigned this
automatically if no selection is indicated. Income dividends and capital gains
will be distributed in the form of additional shares on the next business day.
2) With the Cash Option, you receive both income dividends and capital gains
distributions in cash. If you select this option and the U.S. Postal Service
cannot deliver your checks, or if your checks remain uncashed for six months,
your dividends and distributions may be reinvested in your account at the
then-current net asset value and your election will be converted to the Share
Option.
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3) If you are also a shareholder of any of the other Pilgrim America Group
Funds, distributed by PASI, the Transfer Option permits you to have income
dividends and capital gains distributions of the Fund automatically invested in
shares of any one of those funds of which you are a shareholder at the
applicable net asset value.
Once again, you must specify which option you desire when you place your order
or submit your application. Tax consequences of distributions (described below
under "Distributions and Taxes") are the same whether you choose to receive them
in cash or to reinvest them in additional shares of the Fund or another Pilgrim
America Fund.
EXCHANGE PRIVILEGE
An exchange privilege is available. Exchange requests may be made in writing to
the Fund's Transfer Agent or by calling the Transfer Agent at (800) 992-0108.
Shares of a Pilgrim America Group Fund that are not subject to a Contingent
Deferred Sales Charge (CDSC) may be exchanged for shares of Pilgrim America
Shares and shares of Pilgrim America Shares acquired in the exchange may
subsequently be exchanged for shares of a mutual fund in the Pilgrim America
Group of the same class as the original shares acquired. Shares of a fund that
are subject to a CDSC may be redeemed to purchase shares of Pilgrim America
Shares upon payment of the CDSC. Shareholders exercising the exchange privilege
with any of Pilgrim America Group's other funds should carefully review the
prospectus of that fund. Exchanges of shares are sales and may result in a gain
or loss for federal or state income tax purposes. You will automatically be
assigned the telephone exchange privilege unless you mark the box on the New
Account Application that signifies that you do not wish to have this privilege.
The exchange privilege is only available in states where shares of the fund
being acquired may legally be sold.
Management may, in its sole discretion, modify the exchange privilege and begin
imposing a charge of up to $5.00 for each exchange. In addition, management may,
in its sole discretion levy a charge of up to $5.00 for each exchange effected
by professional market timers for groups of accounts which exceed 4 annual group
exchanges. The total value of shares being exchanged must at least equal the
minimum investment requirement of the Fund into which they are being exchanged.
Systematic Exchange Privilege
Subject to the information and limitations outlined above, you may elect to have
a specified amount of shares systematically exchanged, monthly, quarterly,
semi-annually or annually (on or about the 10th of the applicable month), from
your account to an identically registered account in Class A or M of any other
Pilgrim America Fund. The exchange privilege may be modified at any time or
terminated upon 60 days written notice to shareholders.
PRE-AUTHORIZED INVESTMENT PLAN
For your convenience, a pre-authorized investment program (see "Pre-Authorized
Investment Plan" on the account Application) may be established whereby your
personal bank account is automatically debited and your Fund Account is
automatically credited with additional full and fractional shares ($100
subsequent minimum investment). For further information on pre-authorized
investment plans, please contact the Fund's Shareholder Servicing Agent at (800)
331-1080.
The minimum investment requirements may be waived by PASI for purchases made
pursuant to certain programs such as payroll deduction plans and retirement
plans.
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How to Redeem Pilgrim America Shares
Shares of the Fund will be redeemed at the net asset value next determined after
receipt of a redemption request in good form by the Fund's Transfer Agent on any
day on which the Fund's net asset value is calculated. If all of your shares are
redeemed, all dividends accrued through the day of withdrawal will be remitted
to you.
Types of Redemptions
REDEMPTION BY CHECK
The Transfer Agent will provide, upon your request, checks to be drawn on your
account that will clear through the Transfer Agent. These may be made payable to
the order of any person for an amount of $100 or more. When a check is presented
to the Transfer Agent for payment, the Transfer Agent will redeem a sufficient
number of full and fractional shares in your account to cover the amount of the
check. This enables you to continue earning daily income dividends until the
check has cleared. Cancelled checks will be returned to you by the Transfer
Agent. If you elect to use this method of redemption, please so signify on the
application.
You will be subject to the Transfer Agent's rules and regulations governing such
checks, including the right of the Transfer Agent not to honor checks in amounts
of less than $100 or exceeding the value of the account at the time they are
presented for payment. The Fund and the Transfer Agent reserve the right to
modify or terminate this service at any time after notification to the Fund's
shareholders.
REDEMPTION BY MAIL
A written request for redemption must be received by the Fund's Transfer Agent
in order to constitute a valid tender for redemption. The Transfer Agent may
also require a signature guarantee by an "Eligible Institution" as that term is
defined under the Securities Exchange Act of 1934. It will also be necessary for
corporate investors and other associations to have an appropriate certification
on file authorizing redemptions by a corporation or an association before a
redemption request will be considered in proper form. A suggested form of such
certification is provided on the Application included in this Prospectus. To
determine whether a signature guarantee or other documentation is required,
shareholders may call the Fund's Shareholder Servicing Agent at (800) 331-1080.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to have regular monthly, quarterly, semi annual or
annual payments in any fixed amount in excess of $100 made to him or her, or to
anyone else properly designated as long as the account has a value of at least
$10,000. During the withdrawal period, a shareholder may purchase additional
shares for deposit to his or her account if the additional purchases are equal
to at least one year's scheduled withdrawals or $1,200, whichever is greater.
There are no separate charges to a shareholder under this plan. The number of
full and fractional shares equal in value to the amount of the payment will be
redeemed at net asset value. Such redemptions are normally processed on the
fifth day prior to the end of the period. Checks are then mailed on or about the
first of the following month. Shareholders who elect to have a Systematic
Withdrawal Plan must have all dividends and capital gains reinvested. To
establish a Systematic Withdrawal Plan, please complete the section entitled
"Systematic Withdrawal Plan" on the Additional Options section of the New
Account Application. To have funds automatically deposited to your bank account,
follow the instructions on the New Account Application.
You may change the amount, frequency, and payee, or terminate this plan by
giving written notice to the Fund's Transfer Agent. The Fund reserves the right
to terminate this service at any time upon written notice to you by the Fund.
EXPEDITED REDEMPTION
The Expedited Redemption privilege allows you to effect a liquidation from your
account via a telephone call and have the proceeds (maximum of $50,000) mailed
to your address of record. This privilege is automatically
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assigned to you unless you check the box on the application which signifies that
you do not wish to utilize such option.
The Expedited Redemption Privilege additionally allows you to effect a
liquidation from your account and have the proceeds (minimum $5,000) wired to
your pre-designated bank account. This privilege will NOT automatically assigned
to you. If you want to take advantage of this privilege, please check the
appropriate box and attach a voided check to the New Account Application. Under
normal circumstances, proceeds will be transmitted to your bank on the first
business day following receipt of your instructions, provided redemptions may be
made. See "Telephone Transaction Authorization" on the New Account Application.
To effect an Expedited Redemption, please call the Transfer Agent at (800)
992-0180.
TIMING AND PRICING OF REDEMPTION ORDERS
Pilgrim America Shares are redeemed at their net asset value next computed after
a request for redemption in proper form (including signature guarantees and
other required documentation) is received by the Transfer Agent or PASI. Orders
for the redemption of shares received in proper form by PASI in its Phoenix,
Arizona office prior to 4:00 p.m. New York time will be confirmed as of the
close of that day. Orders received after 4:00 p.m. New York time will be
confirmed on the next business day of the Fund. The Fund will not accept
requests which specify a particular date for redemption or which specify any
special conditions.
Payment of the proceeds of redeemed shares is normally mailed within seven days
following the redemption date. A charge for special handling (such as wiring of
funds) may be made by the Transfer Agent. The right of redemption may not be
suspended or the date of payment upon redemption postponed except under unusual
circumstances such as when trading on the New York Stock Exchange is restricted
or suspended. Payment of the proceeds of redemptions relating to shares for
which checks sent in payment have not yet cleared will be delayed until it is
determined that the check has cleared, which may take up to 15 days from the
date that the check is received.
A signature guarantee is designed to protect the investor, the Fund, PASI, and
their agents by verifying the signature of each investor seeking to redeem or
transfer shares of the Fund. Signature guarantees are typically required at
least in the following circumstances: (1) redemptions by mail of $50,000 or
more; (2) are to be paid to someone other than the name(s) in which the account
is registered; (3) written redemptions by mail requesting proceeds to be sent by
wire; (4) redemptions by mail requesting proceeds to be sent to an address other
than the address of record or to an address that has been changed within 30
days; (5) requests to transfer the registration of shares to another owner; and
(6) requests for telephone redemption authorization. These requirements may be
waived or modified at the discretion of management. Other documentation may be
required under certain circumstances and it is suggested that you contact PASI
at (800) 331-1080 if you have any questions.
EXPEDITED REDEMPTION AND TELEPHONE EXCHANGE INFORMATION
The Fund and its Transfer Agent will not be responsible for the authenticity of
telephone instructions or losses, if any, resulting from unauthorized
shareholder transactions if the Fund or its Transfer Agent reasonably believe
that such instructions were genuine. The Fund and its Transfer Agent have
established procedures that the Fund believes are reasonably appropriate to
confirm that instructions communicated by telephone are genuine. These
procedures include: (i) recording telephone instructions for exchanges and
expedited redemptions; (ii) requiring the caller to give certain specific
identifying information; and (iii) providing written confirmations to
shareholders of record not later than five days following any such telephone
transaction. If the Fund and its Transfer Agent do not employ these procedures,
they may be liable for any losses due to unauthorized or fraudulent telephone
instructions.
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<PAGE>
MINIMUM ACCOUNT BALANCE
Due to the relatively high cost of handling small investments, the Fund reserves
the right upon 60 days' written notice to involuntarily redeem, at net asset
value, the shares of any account if the balance falls to less than $1,000 due to
shareholder withdrawal. Alternatively, the Fund also reserves the right to
liquidate sufficient shares to recover annual transfer agent fees should the
investor fail to increase his/her account value to at least $1,000.
Distributions and Taxes
It is the policy of the Company to declare dividends from the net investment
income earned by the Fund daily; such dividends are distributed to the Fund's
shareholders in the form of additional 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.
TAXES
Each Fund comprising the Company is treated as a separate taxable entity for
Federal income tax purposes. The 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 the 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 the Fund
will satisfy the distribution requirement of Subchapter M and not be subject to
Federal income taxes or the 4% excise tax. As long as the Fund qualifies for
this tax treatment, the Fund will not be subject to Federal income tax on
amounts distributed to shareholders. If the Fund fails to satisfy any of the
Code requirements for qualification as a regulated investment company, it will
be taxed at regular corporate tax rates on all of its 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 Fund's net long-term capital gains) to the extent of the Fund's
current and accumulated earnings and profits. In addition, the Fund intends to
meet the distribution requirements of the Code to avoid the imposition of a 4%
Federal excise tax.
Shareholders of the 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
dividends paid by the Fund 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 dividends and
redemption payments, shareholders must certify that the tax-payer identification
number ("TIN") provided to the Fund is correct and that they are not subject to
backup withholding for any reason.
The Fund reserves the right to involuntarily close all accounts which fail to
provide a certified TIN by redeeming such accounts in full at the current net
asset value.
If the Fund receives notice from the IRS that a previously certified TIN is
incorrect, the Fund will immediately impose backup withholding and such account
may be involuntarily redeemed as mentioned above.
The Fund also reserves the right to reject any account which does not furnish a
certified TIN, or does not indicate that a TIN has been applied for by checking
the "Awaiting TIN" box on the Application.
17
<PAGE>
If a TIN has been applied for and the "Awaiting TIN" box is checked on the
Application, the Fund will begin backup withholding on dividends and other
reportable payments immediately and will continue such withholding for at least
60 days. If, at the end of the 60-day period, a TIN has not been received and
certified on the IRS Form W-9, the Fund reserves the right to involuntarily
redeem all shares in the account at the current net asset value.
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 Fund that is
contained in the Fund's SAI. Shareholders are advised to consult with their tax
advisors concerning the application of state, local and foreign taxes to
investments in the Company, which may differ from the Federal income tax
consequences described above.
Retirement Plans
The Fund has available prototype qualified retirement plans for both
corporations and self-employed individuals. The Fund also has available
prototype Individual Retirement Account ("IRA") plans (for both individuals and
employers), Simplified Employee Pension ("SEP") plans, pension and profit
sharing plans and 403(b)(7) Tax-Sheltered Retirement Plans which are designed
for employees of public educational institutions and certain non-profit,
Tax-exempt organizations. Investors Fiduciary Trust Company, 127 West 10th
Street, Kansas City, Missouri 64105, acts as the custodian for these plans. For
information, including the custodian's fees and forms necessary to adopt the
plans, call or write PASI.
General Information
The Company is a no-load, open-end, diversified investment company. The Company
was initially organized as a Massachusetts business trust, under the name
"Cortland Trust," pursuant to an Agreement and Declaration of Trust dated
October 31, 1984, but had no operations prior to May 9, 1985. As of July 31,
1989, pursuant to an Agreement and Plan of Reorganization, Cortland Trust was
reorganized into a Maryland corporation, under the name "Cortland Trust, Inc."
The shares of the Company are divided into three separate portfolios
constituting separate series. The assets of each series are invested in separate
investment portfolios with differing investment objectives and policies. The
Pilgrim America Shares is a class of the Fund and share the same investment
portfolio with the Fund. Shares of each series of the Company are entitled to
one vote per share on all matters submitted to a vote of shareholders, except
that the holders of shares of a particular series will have the exclusive right
to vote on matters affecting only the rights of the holders of such series. For
example, holders of shares of a particular series will have the exclusive right
to vote on any investment advisory agreement or investment restriction that
relates solely to such series. Each share of a series bears equally the expenses
of the series. In the event of dissolution or liquidation, holders of a series
will receive pro rata, subject to the rights of creditors, (a) the proceeds of
the sale of the assets held in the respective series to which the shares of the
portfolio relate, less (b) the liabilities of the Company attributable to the
series or allocated among the series based on the respective liquidation value
of each series. There will not normally be annual shareholders' meetings.
Shareholders may remove directors from office by votes 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 the Company's
Prospectuses) applicable to any of the Company's shares. The Company's shares,
when issued, will be fully paid, non-assessable and transferable. The Board of
Directors may create additional series or classes of shares of common stock
without shareholder approval.
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, acts as custodian for the Company's portfolio securities and cash.
Investors Fiduciary Trust Company, c/o DST Systems, Inc., P.O. Box 419368,
Kansas City, Missouri 64141, acts as Transfer Agent and dividend paying agent
with respect to the
18
<PAGE>
Pilgrim America Shares. Except for certain fees applicable only to the Pilgrim
America Shares and paid directly by investors, all fees and costs of the
Transfer Agent for the Pilgrim America Shares are borne by PASI.
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.
Inquiries by shareholders concerning their accounts should be directed to the
Shareholder Servicing Agent at (800) 331-1080 or by writing to The Pilgrim
America Group, Inc. at the address shown on the cover of this Prospectus.
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing. A SAI has been filed with the SEC and is available
upon request and without charge by writing or calling PASI. This Prospectus
omits certain information contained in the registration statement filed with the
SEC. Copies of the registration statement, including items omitted from this
Prospectus, may be obtained from the SEC by paying the charges prescribed under
its rules and regulations.
This Prospectus is not an offering of the securities herein described in any
state in which the offering is unauthorized. No salesman, dealer or other person
is authorized to give any information or make any representations other than
those contained in this Prospectus or the Statement of Additional Information.
19
<PAGE>
PILGRIM AMERICA FUNDS
NEW ACCOUNT APPLICATION
Send Completed Application to:the Pilgrim America Group, P.O. Box 419368,
Kansas City, Missouri 64141-6368
SECTIONS 1 THROUGH 6 MUST BE COMPLETED FOR ACCOUNT TO BE ESTABLISHED.
1. ACCOUNT REGISTRATION TYPE OF ACCOUNT (Check one only)
[] Individual
First Name Middle Initial Last Name Social Security Number*
(first individual only)
[] JOINT TENANT
Joint Tenants First Name Middle Initial Last Name
[] GIFT/TRANSFER TO MINOR
Custodian's Name (one only) Minor's Name (one only)
Under Uniform Girft/Transfers Minor's Social Security Number*
to Minors Act of (State)
[] GUARDIANSHIP/CONSERVATORSHIP
Guardian/Conservator Ward/Incompetent or Ward/Incompetentor Minor's
Minor's Name(one only) Social Security Number*
[] CORPORATION, PARTNERSHIP, TRUST OR OTHER ORGANIZATION
Exact Name of Corporation, Partnership Tax Identification
or other Organization Number*
Trustee Accounts Only: Name of all Trustees required by trust agreement
to sell/purchase shares
Date of Trust Agreement Name of Trust Tax Identification Number*
[] OTHER [] CHECK HERE IF YOU ARE SUBJED TO BACKUP
WITHHOLDING.
[] CHECK HERE IF YOU ARE AWAITING THE ISSUANCE
OF SOCIAL SECURITY OR TAXPAYER
IDENTIFICATION NUMBER.
*Pilgrim America reserves the right to reject any application which does not
include a certified Social 5ecurity Number or Taxpayer Identification Number, or
does not indicate that such number has been applied for by checking the
"awaiting Social Security /or Taxpayer Identification Number" box.
2. MAILING ADDRESS
Street Address Apartment Number City State Zip Code
( ) ( )
Business Phone Home Phone
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<PAGE>
3. INVESTMENT INFORMATION
[ ] A check payable to the Pilgrim America Group is
included for $____ to establish an account in Pilgrim America
Genral Money Market Shares
or
[ ] Payment has been made by Federal funds wire on
(Reference No.) (Date)
(Account No.) $(Amount)
4. DIVIDEND AND DISTRIBUTION OPTIONS
(Check one only) -- If no option is selected, all distributions will be
reinvested.
[ ] Reinvest all dividends and capital gains.
[ ] Reinvest all dividends and capital gains into an existing account
in another Pilgrim America Account using the Dividend Transfer
Option.
Fund Name Account Number
I request the payable distributions be: (Check one.)
[ ] Sent to the address in Section 2.
[ ] Directly deposited in my bank account. (Please attach a voided
check to Section 6.)
If voided check is not enclosed, will be sent to address in Section 2.
[ ] Sent to a special payee listed in Section 9.
[ ] Pay all dividends and reinvest capital gains.
[ ] Pay all capital gains in cash and reinvest dividends.
[ ] Pay all dividends and capital gains. (IF EITHER PAY OPTION IS
SELECTED, COMPLETE INFORMATION AT RIGHT)
5. AUTHORIZED DEALER INFORMATION
Authorized Dealer Name Registered Representative's Name
Branch Office Address Registered Representative's Number
City State Zip Code
Registered Representative's Authorized Signature of Authorized
Phone Dealer
21
<PAGE>
6. SIGNATURES
I have read the prospectus and application for the Fund in which I am investing
and agree to its terms. I am also aware that a Telephone Exchange and Redemption
Privileges exist and that these privileges are automatically available unless
affirmatively declined. I also understand that if Pilgrim America, the Fund, the
Transfer Agent, or the Sub-Transfer Agent fail to follow the procedures outlined
in the prospectus and in the Telephone Transaction Authorization hereto, such
entity may be liable for losses due to unauthorized or fraudulent instructions.
I further understand that I must carefully review each account confirmation
statement or other documentation of transaction that I receive to ensure that my
instructions have been properly acted upon. If any discrepancies are noted, I
agree to notify Pilgrim America, the Fund, the Transfer Agent or the
Sub-Transfer Agent in a timely manner, but in no event more than 15 days from
receipt of such confirmation statement or documentation of transaction. Failure
to notify one of the above entities on a timely basis will relieve such entities
of any liability with respect to the transaction and any discrepancy. See
Exchange Privilege and Expedited Redemption sections for procedures. l am of
legal age. Sign below exactly as printed in registration. For joint
registration, all must sign. Under penalty of perjury, I certify with my
signature below that the number shown in Section 1 is my correct taxpayer
identification number. Also, I have not been notified by the Internal Revenue
Service that I am currently subject to backup withholding unless otherwise
indicated.
ATTACH VOIDED CHECK HERE (IF APPROPRIATE)
For Corporations, Trusts, or Partnerships: We hereby certify that each of the
persons listed below have been duly elected, and are now legally holding the
offices set forth opposite his/her name and have the authority to make this
authorization. Please print titles below if signing on behalf of a business or
trust to establish this account.
Signature Date President, Trustee, General Partner or
Title
Signature Date Co-owner, Secretary of Corporation, Co-
Trustee, etc.
CHECK THE APPROPRIATE BOXES BELOW AND PROVIDE THE REQUESTED INFORMATION
[ ] I am a United States Citizen
[ ] I am a non-resident alien* (a Form W-8 will be provided to you by Pilgrim
America. Please complete it as requested as soon as possible).
[ ] I am a resident alien and a social security number has been supplied on page
one of this New Account Application and a social security number has been
supplied on page one of this New Account Application (a Form 1078 will be
provided to you by Pilgrim America. Please complete it and return it as
requested).
[ ] If not a United States Citizen, please indicate what country you are a
permanent tax resident of:
*If the Pi!grim America account will be registered in joint registration with
another individual or individuals, each non-resident alien must complete and
return a Form W-8.
7. PRE-AUTHORIZED INVESTMENT PLAN
[ ] I wish to invest on a monthly, quarterly, semi-annual or annual basis,
direcity from my checking account into the following fund(s). (Please complete
the Pre-Authorized Investment Plan Agreement herein and attach a voided check to
section 6.)
Fund Name Fund Name Fund Name
Amount $ , to start [ ] 5th or [ ] 20th of
Minimum $100 Month Year
22
<PAGE>
8. ADDITIONAL OPTIONS
Telephone Exchange Privilege-- If accepted accounts must have the same
account information, options and class of shares.
[ ] I Decline telephone exchange, and do not want this privilege. (See Exchange
Privileges section for procedures.)
Systematic Exchange Privilege
[ ] I have at least $5,000 in shares in my Pilgrim America General Money
Market Shares account and I would like to exchange:
$ (min. of $50) into the Fund, Account #
$ (min. of $50) into the Fund, Account #
$ (min. of $50) into the Fund, Account #
on a [ ] monthly, [ ] quarterly, [ ] semi-annual or [ ] annual basis
starting in the month of
(Exchange Privilege is only available for Class A and M Pilgrim America Funds)
9. CHECK WRITING
The undersigned also authorizes drafts ($100 minimum) drawn on the Fund
to be honored and the redemption of a sufficient number of Fund shares to pay
such drafts. I (we) understand that the Transfer Agent is to honor drafts signed
by any (or all) owners as specified:
Any one owner All owners
Check Writing Signature Blocks
Please sign exactly as the account is to be registered (or as checks will be
signed on behalf of corporate entities)
X X
Systematic Withdrawal Plan (Withdrawal will occur about 5 business days prior to
the end of the month.) (Minimum account balance for a SWP is $10,000.)
[ ] I wish to automatically withdraw $ from this account.
[ ] Monthly [ ] Quarterly [ ] Semi-Annually [ ] Annually
I request this distribution be: (Check One)
[ ] Sent to the address listed in Section 2. To begin of .
[ ] Sent to the payee listed in Section 9. To begin of .
[ ] Directly deposited in my bank account. (Please attach a voided
check to Section 6.)
To begin __ of .
Expedited Redemption Privilege-Available on all non-retirement
accounts..Unless you decline this privilege, you will automatically be
assigned the ability to request, via the telephone, redemption proceeds to
be sent to the address in Section 2.
[ ] I wish to redeem shares by telephone and request that the proceeds be
directly deposited into my bank account. (Please attach a voided check to
Section 6.) (If voided check is not enclosed, will be sent to address in Section
2.)
[ ] I decline telephone redemption, and do not want this privilege. See
Expedited Redemption section for procedures.
23
<PAGE>
10. INTERESTED PARTY MAIL/DIVIDEND MAIL
[ ] I wish to have my distributions sent to the address listed below.
[ ] I wish to have duplicate confirmation statements sent to the interested
party listed below.
Name of Individual
Street Address
City State Zip Code
THIS APPLICATION IS NOT A PART OF THE PROSPECTUS.
24
<PAGE>
TELEPHONE TRANSACTION AUTHORIZATION
AUTHORIZATION AND AGREEMENT
I (we), the "Investor" hereby authorizes Pilgrim America to accept and act
conclusively upon telephone instructions from the investor, anyone other than
the investor representing himself to be the investor, or any person purporting
to represent the investor in effecting a redemption of specified share or dollar
amounts or in effecting exchanges of shares of one (or more) Pilgrim America
fund(s) (the "Fund" or "Fund(s)" or "Funds") for which such an exchange is
available. Pilgrim America, the Fund and its Transfer Agent employ procedures
considered by them to be reasonable to confirm that instructions communicated by
telephone are genuine. Such procedures include requiring certain personal
identification information prior to acting upon telephone instructions, tape
recording telephone communications and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed,
neither Pilgrim America, the Fund, its Transfer Agent, or Sub-Transfer Agent
will be liable for following telephone instructions which it reasonably believes
to be genuine. Pilgrim America, the Fund and its Transfer Agent may be liable
for any losses due to unauthorized or fraudulent instructions if reasonable
procedures are not followed. The investor understands and agrees to indemnify
and hold harmless Pilgrim America, the Funds, their Transfer Agent, or
Sub-Transfer Agent from any liability (including attorney's fees) arising
directly or indirectly from any act or omission to act hereunder not occasioned
by their gross negligence or willful misconduct. The investor understands that
the redemption and/or exchange privilege may be modified or terminated at any
time. The investor also understands that these privileges are subject to the
conditions and provisions set forth herein and in the current prospectuses of
the Funds. For each exchange, The investor will have received and read a copy of
the then current prospectus of the Fund being purchased. The Investor(s) or
their representatives certify that they have the power and authority to select
the privileges requested and to effect telephonic transactions. All persons
submit as representatives warrant as individuals that each person is an
authorized representative of the Investor and that all privileges have been duly
authorized and that all signatures are genuine and that all persons are
authorized to sign and the organization has the authority to transact telephone
exchanges. The Investor will notify Pilgrim America of any change in such
authority. Telephone Redemptions may be executed on all accounts other than
retirement accounts.
This Authorization shall be effective upon receipt by Pilgrim America. It shall
in all respects be interpreted, enforced and governed under the laws of the
State of Arizona. Any suit, claim or action hereunder against Pilgrim America
and the Funds shall have as its sole venue the County of Maricopa, State of
Arizona. Any suit, claim or action hereunder against the Transfer Agent or
Sub-Transfer Agent shall have as sole venue, the County of Jackson, State of
Missouri.
In the case of an Investor other than an individual, I certify that the
organization has the authority to transact telephone exchanges. I will notify
Pilgrim America of any change in such authority. Telephone Redemptions may be
executed on all accounts other than retirement accounts.
This Authorization shall be effective upon receipt by Pilgrim America. It shall
in all respects be interpreted, enforced and governed under the laws of the
State of Arizona. Any suit, claim or action hereunder against the Transfer Agent
or Sub-Transfer Agent shall have as sole venue the County of Maricopa, State of
Arizona.
If any provision of this Authorization is declared by any court to be illegal or
invalid, the validity of the remaining parts shall not be affected thereby, and
the illegal or invalid portion shall be deemed stricken from this Authorization.
Conditions
1. Telephone redemption and/or exchange instructions received in good oreder
before the pricing of the Fund on any day on which the New York Stock Exchange
is open for business (a "Business Day"), but not later than 4:00 p.m. eastern
time, will be processed at that day's closing net asset value. For each exchange
my account shall be charged an exchange fee noted in the then current
prospectus. There is no fee for telephone redemption.
2. Telephone redemption and/or exchange instructions should be made by dialing
1-800-992-0180.
3. Exchanges will not be requested in violtion of any of the terms and
conditions of any of the Fund's prospectus and I agree to idemnify Pilgrim
America, the Fund and the Trnasfer Agent against any harm occasioned by their
compliance with an improper order under the Fund's prospectus.
4. Telephone redemption requests must meet the following conditions to be
accepted by Pilgrim America:
(a) Proceeds of the redemption may be directly deposited into a
predetermined bank account, or mailed to the current address on the
registration. This address cannot reflect any change within the previous Thirty
(30) days.
(b) Certain account information will need to be provided for
verification purposes before the redemption will be executed.
(c) Only one telephone redemption (where proceeds are being mailed to
the address of record) can be processed within a 30 day period.
(d) The maximum amount which can be liquidated and sent to the address
of record at any one time is $50,000.
5. If the exchange involves the establishment of a new account, the dollar
amount being exchanged must at least equal the minimum investment requirement of
the Fund being acquired.
6. Any new account established through the exchange privilege will have the same
account information and options except as stated in the current prospectus and
subject to this authorization.
7. With respect to exchanges to Pilgrim America General Money Market Shares,
certificated shares cannot be redeemed or exchanged by telephone but must be
forwarded to Pilgrim America and deposited into the Investor's account before
any transaction may be processed.
8. With respect to exchanges to Pilgrim America General Money Market Shares , if
a portion of the shares to be exchanged are held in escrow in connection with a
Letter of
25
<PAGE>
Intent, the smallest number of full shares of the Fund to be purchased on the
exchange having the same aggregate net asset value as the shares being exchanged
shall be substituted in the escrow account. Shares held in escrow may not be
redeemed until the Letter of Intent has expired and/or the appropriate
adjustments have been made to the account.
9. Shares may not be exchanged and/or redeemed unless an exchange and/or
redemption privilege is offered pursuant to each Fund's current prospectus.
10. The investor agrees that his/her ability to exchange and/or redeem
under this authorization may be cancelled, modified or restricted at any time
indiscriminately at the sole discretion of Pilgrim America or by the Fund(s) by
written noticeto the address of record.
11. Proceeds of a redemption may be delayed up to 15 days or longer until
the check used to purchase the shares being redeemed has been paid by the Bank
upon which it was drawn.
AUTHORIZED DEALER AGREEMENT
Under these plans, the Authorized Dealer signing the application acts as
principal in all purchases of Fund shares and appoints Pilgrim America as its
agent to execute the purchases and to confirm each purchase to the Investor. The
Authorized Dealer hereby guarantees the genuineness of the signature(s) on the
application and represents that he is a duly licensed Authorized Dealer and may
lawfully sell Fund shares in the state designated by the Investor's mailing
address, and that he has entered into a Selling Group Agreement with the
Distributor with respect to the sale of fund shares.
Cut on perforated line
DETACH HERE AND RETURN THIS TO YOUR BANK IF YOU ARE
ESTABLISHING A PRE-AUTHORIZED INVESTMENT PLAN
(AUTHORIZATION TO HONOR CHECKS OR DEBIT
INSTRUCTIONS DRAWN BY DST SYSTEMS, INC.,
ON BEHALF OF THE PILGRIM AMERICA FUNDS, FOR AUTOMATIC PURCHASE PLAN)
PRE-AUTHORIZED INVESTMENT PLAN AGREEMENT
As a convenience, I (we) hereby request and authorize you to pay and charge to
my (our) account checks or debit instructions drawn on my (our) account by DST
Systems, Inc., the Fund's Agent and payable to the order of the Fund provided
there are sufficient collected funds in said account to pay the same upon
presentation: I (we) agree that your rights with respect to each such check or
debit instruction shall be the same as if it were a check or debit instructions
drawn on you and signed personally by me (us). This authority is to remain in
effect until revoked in writing and until you actually receive such notice. I
(we) agree that you shall be fully protected in honoring any such checks or
debit instructions.
I (we) further agree that if any such check or debit instruction is dishonored,
whether with or without cause and whether intentionally or inadvertently, you
shall be under no liability whatsoever.
Signature(s) of Depositor(s) (signed exactly as shown on bank records)
X
X
Date Signed
(PLEASE PRINT)
Name of Depositor (as shown on bank records)
Bank Account Number
Name of Bank
Address of Bank
City/State/Zip of Bank
26
<PAGE>
INSTRUCTIONS FOR COMPLETING THE NEW ACCOUNT APPLICATION
This New Account Application can be used to open a new Pilgrim America Account,
establish Shareholder privileges on existing accounts and be used in providing
documentation for certain transactions. The completed Application should be
forwarded along with your investment check payable to the Pilgrim America Group,
or other appropriate documentation to: Pilgrim America Funds, P.O. Box 419368,
Kansas City, Missouri 64141?6368.
This New Account Application may not be used to open a qualified retirement plan
acount for which Investors Fiduciary Trust Company acts as custodian.
1. ACCOUNT REGISTRATION
Check the appropriate box and provide the information requested. Unless
specified, accounts with more than one owner will be assumed to be "Joint
Tenants With Rights of Survivorship".
All investors must sign the Account Application, and authorize the requested
privileges.
For a child who is under the age of majority in your state of residence,
"Gift/transfer to minor" registration must be utilized.
2 . MAILING ADDRESS
This is the address of record for your account. All account confirmation
statements will be forwarded to this address.
3 . INVESTMENT INFORMATION
State the fund(s) in which you are investing and the dollar amount of the
investment. (Minimum initial investment is $1,000).
4. DIVIDEND AND DISTRIBUTION OPTIONS
Pilgrim America offers several options for the treatment of dividends and
capital gains distributions, if any, from your Pilgrim America investment.
You can have these payments distributed to you, or any other recipient you
choose, in cash; in additional shares of the Fund which is paying the
distribution or; in shares of another Pilgrim America Fund, at NAV without sales
charge, via the Dividends Transfer Option. The Dividend Transfer Option is
available only for open-end funds within the Pilgrim America Group.
5. AUTHORIZED DEALER INFORMATION
Your financial professional can complete this section.
6. SIGNATURES
All investors and authorized signers should sign in order to process the New
Account Application and to certify your Social Security, Tax identification
Number or if applicable, your foreign status.
27
<PAGE>
7. PRE-AUTHORIZED INVESTMENT PLAN
The Pre-Authorized Investment Plan provides a systematic method of investing
periodically in the Pilgrim America Fund(s) of your choice. Minimum investments
of at least $100 can be automatically debited from your bank account
periodically for investment purposes.
8. ADDITIONAL OPTIONS
The Telephone Exchange privilege will automatically be assigned to you unless
you check the box in Section 8 which states that you do not wish to have this
privilege.
The systematic Exchange Privilege allows you to automatically exchange
shares of one fund shares of the same class of another fund in regular
pre-determined amounts and at regular pre-determined intervals.
The Systematic Withdrawal Plan allows you to automatically have a specific
share or dollar amount ($100 minimum) liquidated from your account monthly,
quarterly, semi-annually or annually and forwarded to you or the payee of your
choosing as long as the account has a current value of at least $10,000. Amounts
designated for deposit to your bank account can be forwarded via the Automated
Clearing House system by attaching a voided check for such basic account to
Section 6 of the New Account Application.
The Expedited Redemption privilege allows you to effect a liquidation from your
account via a telephone call and have the proceeds (Maximum of $50,000) mailed
to your address of record. This privilege is automatically assigned to you
unless you check the box in this section which states you do not want to take
advantage of this privilege.
The Expedited Redemption privilege additionally allows you to effect a
liquidation from your account and have the proceeds (minimum $5,000) wired to
your pre-designated bank account. This privilege is NOT automatically assigned
to you. If you want to take advantage of this privilege, please check the
appropriate box and attach a voided check to section 6 of the New Account
Application.
9. INTERESTED PARTY MAIL/DIVIDEND MAIL
You may authorize an additional party to receive copies of your confirmation
statements (your Authorized Dealer will automatically receive such copies). If
you wish to have additional copies of your confirmation statements mailed to an
address other than your address of record, check the appropriate box in Section
9 and indicate such address.
You may have your cash dividend payments or Systematic Withdrawal Plan Payments
forwarded to an address other than your address of record by so indicating in
Section 9. (If you wish your cash dividends to be forwarded to a bank for
deposit to an account, refer to Section 4 of the New Account Application).
29
<PAGE>
IMPORTANT INFORMATION REGARDING COMPLETION OF THE APPLICATION
Effective in 1989, the Fund, and other payers, must, according to IRS
regulations, withhold 31% of reportable dividends (whether paid or accrued) and
redemption payments if a shareholder fails to provide a taxpayer identification
number, and a certification that he is not subject to backup withholding in the
SHAREHOLDER CERTIFICATION section of the Account Application form.
(Section references are to the Internal Revenue Code, as amended).
BACKUP WITHHOLDING
You are subject to backup withholding if:
(1) You fail to furnish your taxpayer identification number to the Fund in the
manner required, OR
(2) The Internal Revenue Service notifies the Fund that you furnished an
incorrect taxpayer identification number, OR
(3) You are notified that you are subject to backup withholding under section
3406(a)(1)(C), OR
(4) For an interest or dividend account opened after December 31, 1983, you fail
to certify to the payer that you are not subject to backup withholding under (3)
above, or fail to certify your taxpayer identification number.
For payments other than interest or dividends, you are subject to backup
withholding only if (1) or (2) above applies.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, application for a Social Security Number Card, or Form
SS-4, application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number. Write "applied for" in the space provided for a taxpayer identification
number on the application. Circle paragraph 3(b) of the Shareholder
Certification section.
WHAT NUMBER TO GIVE
Give the social security number or employer identification number of the record
owner of the account. If the account belongs to you as an individual, give your
social security number. If the account is in more than one name or is not in the
name of the actual owner, see the chart below for guidelines on which number to
report in completing the account registration section:
1. List first and circle the name of the person whose number you furnish.
2. Circle the minor's name and furnish the minor's social security number.
3. Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
4. Show the name of the owner.
5. List first and circle the name of the legal trust, estate, or pension trust.
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
PENALTIES
(1) Penalty for Failure to Furnish Taxpayer Identification Number. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments.-If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) Civil Penalty for False Information With Respect to Withholding.-If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
Payees Exempt from Backup Withholding
Certain payees are specifically exempted from backup withholding on ALL
payments. Write "exempt payee" after paragraph (3) of the Shareholder
Certification and Signature Certification section if your account falls into one
of the following categories. We will still need your taxpayer identification
number.
A corporation
A financial institution.
An organization exempt from tax under section 501(a), or an
individual retirement plan.
A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
A real estate investment trust.
A common trust fund operated by a bank under section 584(a).
An exempt charitable remainder trust, or a non-exempt trust described
in section 4947(a)(1).
An entity registered at all times under the Investment Company Act of
1940.
Payments of dividends not generally subject to backup withholding include
the following:
Payments to nonresident aliens subject to withholding under section 1441.
Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
Privacy Act Notice.-Section 6109 requires most recipients of dividend, interest,
or other payments to give taxpayer identification numbers to payers who must
report the payments to the IRS. The IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1984, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
Guidelines for determining proper number for this type of account:
1. An individual's account
2. Two or more individuals (joint account)
3. Husband and wife (joint account)
4. Custodian account to a minor (Uniform Gift to Minors Act)
5. Adult and minor
6. Account in the name of guardian or committee for a designated ward, minor or
incompetent person
7. a.The usual revocable savings trust account (grantor is also trustee)
b.So-called trust account that is not a legal or valid trust under state law
8. Sole proprietorship account
Give the SOCIAL SECURITY number of-
The individual
The actual owner of the account or, if combined funds any one of the
individuals1
The actual owner of the account or, if joint funds, either person1
The minor2
The adult or if the minor is the only contributor, the minor1
The ward, minor, or incompetent person3
The grantor-trustee5
The actual owner1
The owner1
For this type of account:
9. A valid trust, estate or pension trust
10. Corporate account
11. Religious, charitable, or educational organization account
12. Partnership account held in the name of the business
13. Association, club or other tax-exempt organization
14. A broker or registered nominee
15. Account with the Department of Agriculture in the name of a public
entity (such as a state or local government, school district, or prison) that
receives agricultural program payments
Give the EMPLOYER IDENTIFICATION number of-
Legal entity (Do not furnish the identifying number of the personal
representative or trustee unless the legal entity itself is not designated in
the account title.)5
The corporation
The organization
The partnership
The organization
The broker or nominee
The public entity
30
<PAGE>
Pilgrim America Pilgrim America
General Money Funds
Market Shares
Two Renaissance Square
40 North Central
12th Floor
Phoenix, AZ 85004
1-800-331-1080
Manager and Investment Advisor
Reich & Tang Asset Management L.P.
600 Fifth Avenue
New York, New York 10020
Pilgrim America
Principal Underwriter General Money Market Shares
Reich & Tang Distributors L.P. Class of the Cortland General Money Market
600 Fifth Avenue Fund Series of Cortland Trust, Inc.
New York, New York 10020
Shareholder Servicing Agent
Pilgrim America Group Inc.
Two Renaissance Square
40 North Central
12th Floor
Phoenix, AZ 85004
1-800-331-1080
Transfer Agent
Investors Fiduciary Trust Company
c/o DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141
Custodian
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
Legal Counsel
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
Auditors
Ernst & Young LLP
787 Seventh Avenue, Prospectus
New York, New York 10019 August 1, 1996
<PAGE>
Rule 497 (b)
File No. 2-95935
- --------------------------------------------------------------------------------
CORTLAND 600 FIFTH AVENUE, NEW YORK, NY 10020
TRUST, INC. (212) 830-5280
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1996
Relating to the Cortland Trust, Inc. Prospectus and the
Pilgrim America Shares Prospectus
dated August 1, 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.
If you wish to invest in shares of the Pilgrim America General Money Market
Shares you should obtain a separate Prospectus by writing to Pilgrim America
Securities, Inc., Two Renaissance Square, 40 North Central Ave., Suite 1200,
Phoenix, AZ 85004-4424 or by calling (800) 331-1080.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Table of Contents
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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....................................4 Fund Distributions......................................13
Manager and Investment Advisor........................5 Sale or Redemption of Fund Shares.......................14
Expenses..............................................6 Foreign Shareholders....................................15
Distributor and Plans of Distribution.................7 Effect of Future Legislation and
Custodian.........................................9. Local Tax Considerations...............................15
Transfer Agent....................................9. Yield Information..........................................15
Sub-Accounting....................................10 Investment Programs and Restrictions.......................16
Principal Holders of Securities...................10 Investment Programs.....................................16
Reports...........................................10 When-Issued Securities..................................18
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.........................................22
Tax Matters.......................................12 Report of Independent Auditors ............................25
Financial Statements.......................................26
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</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
Cortland Trust, Inc. (the "Company") is a money market mutual fund, formerly
known as "Cortland Trust." 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 August 1, 1996, relating to each of the three money market
portfolios comprising the Company: the Cortland General Money Market Fund, the
U.S. Government Fund and the Municipal Money Market Fund, which may be obtained
without charge from Reich & Tang Distributors L.P. (the "Distributor"), and in a
Prospectus dated August 1, 1996 relating to the Pilgrim America General Money
Market Shares (the "Pilgrim America Shares"), class of the Cortland General
Money Market series of the Company which may be obtained without charge from
Pilgrim America Securities, Inc., Two Renaissance Square, 40 North Central Ave.,
Suite 1200, Phoenix, AZ 85004-4424. 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 each current Prospectus
of the Company; and, in order to avoid repetition, reference will be made to
sections of each Prospectus. Additionally, each 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 each Prospectus and this Statement of Additional Information,
may be obtained from the SEC by paying the charges prescribed under its rules
and regulations.
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 series constituting
separate portfolios of investments, with various investment objectives and
policies (each such series is referred to herein as a "Fund" and collectively as
the "Funds"):
Cortland General Money Market Fund
U.S. Government Fund
Municipal Money Market Fund
The Cortland General Money Market Fund offers its shares, (the "Cortland General
Money Market Fund Shares") and the Pilgrim America General Money Market Shares
(the "Pilgrim America Shares"). Each Fund 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 Fund will have the exclusive right to
vote on matters affecting only the rights of the holders of such Fund. Each
share of a Fund bears equally the expenses of such Fund.
As used in each Prospectus of the Company, the term "majority of the outstanding
shares" of the Company or of a particular Fund means, respectively, the vote of
the lesser of (i) 67% or more of the shares of the Company or such Fund present
at a meeting, if the holders of more than 50% of the outstanding shares of the
Company or such Fund are present or represented by proxy or (ii) more than 50%
of the outstanding shares of the Company or such Fund.
Shareholders of the Funds 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 permit the Directors to issue the following number
of full and fractional shares, par value $.001, of the Funds: 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); 600,000,000 shares of the U.S.
Government Fund; and 600,000,000 shares of the Municipal Money Market Fund. Each
Fund 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 Fund
and all income, earnings, profits, losses and proceeds therefrom, subject only
to the rights of creditors, are allocated to that Fund, and constitute the
underlying assets of that Fund. The underlying assets of each Fund are
segregated and are charged with the expenses with respect to that Fund 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 Fund, certain expenses may be legally chargeable
against the assets of all three Funds. Also, certain expenses may be allocated
to a particular class of a Fund. See "Expenses."
2
<PAGE>
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., 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 a Trustee of Florida Daily Municipal Income Fund,
Institutional Daily Income Fund and Pennsylvania Daily Municipal Income Fund,
Executive Vice President of Reich & Tang Equity Fund, Inc., and President and
Chief Executive Officer of Tax Exempt Proceeds Fund, Inc.
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.
Albert R. Dowden, 55 - Director of the Company, 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, 60 - 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 Vice
President and Treasurer of the Manager since September 1993. Mr. De Sanctis was
formerly Controller of Reich & Tang, Inc. from January 1991 to September 1993
and Vice President and Treasurer of Cortland Financial Group, Inc. and Vice
President of Cortland Distributors, Inc. from 1989 to December 1990 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, 50 - 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.,
3
<PAGE>
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, 47 - 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 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.
<TABLE>
<CAPTION>
COMPENSATION TABLE
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Name of Person, Aggregate Pension or Estimated Annual Total Compensation
Position Compensation from Retirement Benefits upon from Fund and Fund
Registrant for Benefits Accrued Retirement Complex Paid to
Fiscal Year as Part of Fund Directors
Expenses
Owen Daly III, $12,500.00 0 0 $12,500 (1 Fund)
Director
Albert Dowden, $12,500.00 0 0 $12,500 (1 Fund)
Director
David Melnicoff, $12,500.00 0 0 $12,500 (1 Fund)
Director
James L. Schultz, $12,500.00 0 0 $12,500 (1 Fund)
Director
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ended March 31, 1996 and, with respect to certain of the funds
in the Fund Complex, estimated to be paid during the fiscal year ended 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.
4
<PAGE>
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 Funds 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 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.
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
eleven investment advisory/management affiliates and two 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;
Vaughan-Nelson, Scarborough & McConnell, Inc.; 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 Funds; (b) furnishes the Company with such office space,
heat, light, utilities, equipment and personnel as may be necessary for the
proper operation of the Funds and the Company's principal executive office; (c)
monitors the performance by all other persons furnishing services to the Company
on behalf of each Fund 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
Funds and their shareholders; (e) furnishes the Funds with all necessary
accounting services; and (f) reviews and supervises the preparation of all
financial, tax and 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 Funds, 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. During the
fiscal years ended March 31, 1996, 1995, and 1994, the Company made payable to
the Manager $9,878,992, $7,188,114 and $7,117,006; $1,964,097, $1,704,092 and
$1,862,259; $1,981,507, $1,755,183 and $1,776,734, respectively, under the
Management/Investment Advisory Agreements with the Cortland General Money Market
Fund, the U.S. Government Fund and the Municipal Money Market Fund. For the year
ended March 31, 1995, the manager voluntarily waived $124,695, $17,874 and $0,
respectively, with the Cortland General Money Market Fund, the U.S. Government
Fund and the Municipal Money Market Fund. For the year ended March 31, 1994 the
manager voluntarily waived $6,388, with the Municipal Money Market Fund. For the
years ended March 31, 1996, 1995 and 1994, the Funds' paid $9,878,992,
$7,063,419 and $7,117,006; $1,964,097, $1,686,218, and $1,862,259; $1,981,507,
$1,755,183 and $1,770,346, respectively, for the Cortland General Money Market
Fund, the U.S. Government Fund
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.
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 Funds or the Manager, effective October 1,
1994. The new Management/Investment Advisory Agreements will continue in effect
until September 15, 1995 and from year to year thereafter if it is 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 Funds or the Manager may
terminate the Management/Investment Advisory Agreements on 60 days' written
notice without penalty. Each Management/Investment Advisory Agreements
terminates automatically in the event of its "assignment," as defined in the
1940 Act. The Manager shall not be liable to the Funds 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
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of duty.The Company's (Funds') 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 (Funds') investment manager.
The Manager also serves as the Funds' investment advisor. The Manager was at
June 30, 1996 investment manager, advisor or supervisor with respect to assets
aggregating approximately $9.1 billion. In addition to the Funds, 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 Fund'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 Funds' 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 Funds and whether concerning the individual
issuers whose securities are included in the portfolios of the Company's three
Funds; (e) determines which issuers and securities shall be represented in the
Funds' 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 Funds; and (g) takes, on behalf of the Funds,
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 Funds 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.
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 Funds' 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 Funds, a trading function in order to carry out its
obligations to place orders for the purchase and sale of portfolio securities
for the Funds. 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 Funds' 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 Funds,
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 Funds 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 Funds; 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 Funds' 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 Funds' 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.
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Expenses which are attributable to any of the Company's Funds are charged
against the income of such Fund in determining net income for dividend purposes.
Expenses of the Company which are not directly attributable to the operations of
any single Fund are allocated among the Funds based upon the relative net assets
of each Fund.
The Manager has agreed to reduce its aggregate fees for any fiscal year, or to
reimburse each Fund, to the extent required so that the amount of the ordinary
expenses of each Fund (excluding brokerage commissions, interest, taxes and
extraordinary expenses such as litigation costs) paid or incurred by any of the
Funds do not exceed the expense limitations applicable to the Funds imposed by
the securities laws or regulations of those states or jurisdictions in which
such Fund'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 Fund
(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 Fund's
average daily net assets, plus 2% of the next $70 million of the Fund's average
daily net assets, plus 1 1/2% of the Fund's average daily net assets in excess
of $100 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 Funds, 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 April 7, 1995, the Distributor entered into a Primary Dealer Agreement with
Pilgrim America Securities, Inc.. ("Pilgrim America Distributors") in order to
provide for the offer and sale of the Pilgrim America Shares pursuant to a
separate Prospectus applicable to such shares.
The Funds have adopted plans of distribution under Rule 12b-1 of the 1940 Act
(the "Plans"). Pursuant to the Plans, the Distributor may pay certain
promotional and advertising expenses and may compensate certain registered
securities dealers (including Pilgrim America Securities, Inc.) 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. The Distributor 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 Company shareholders concerning the status of their
accounts and operations of the Funds and communicating with the Company 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 0.25% of
the aggregate average daily net assets that such Shareholder Service Agent's
customers maintain with the Company during the term of any Shareholder Service
Agreement. During the fiscal year ended March 31, 1996, the Company paid
$2,925,712, $599,069 and $600,822 for expenses incurred pursuant to the Plans on
behalf of the Cortland General Money Market Fund, the U.S. Government Fund and
the Municipal Money Market Fund, respectively, all of which amounts were spent
in payment to financial intermediaries in connection with the distribution of
the Funds' shares. During the fiscal year ended March 31, 1995, the Company paid
$2,311,650, $548,036 and $564,594 for expenses incurred pursuant to the Plans on
behalf of the Cortland General Money Market Fund, the U.S. Government Fund and
the Municipal Money Market Fund, respectively, all of which amounts were spent
in payment to financial intermediaries in connection with the distribution of
the Funds' shares. During the fiscal year ended March 31, 1994, the Company paid
$2,289,622, $599,100 and $571,601 on behalf of the Cortland General Money Market
Fund, the U.S. Government Fund and the Municipal Money Market Fund,
respectively, under the Plans.
The Distributor, under the Plans, may also make payments to 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. During the fiscal year ended March 31, 1996, the Distributor paid
Shareholder Service Agents $3,996,703 $825,951 and $781,698, on behalf of the
Cortland General Money Market Fund, the U.S. Government Fund and the Municipal
Money Market Fund, respectively, under the Plans. During the fiscal year ended
March 31, 1995, the Distributor paid
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<PAGE>
Shareholder Service Agents $2,790,360, $624,053 and $735,586, on behalf of the
Cortland General Money Market Fund, the U.S. Government Fund and the Municipal
Money Market Fund, respectively, under the Plans.
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 Funds 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 Fund and an increase in the expense ratio for any of the Funds.
The Distribution Agreements for each of the Funds were last renewed by the Board
of Directors on June 20, 1996, 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 Plans may only be renewed if the directors
make a similar determination for each subsequent year. On June 20, 1996 the
Plans were renewed by the Company's Board of Directors and by the directors who
have no direct or indirect financial interest in the Plans to continue in effect
for an additional 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 Funds
by fostering growth in the Funds' 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 Funds 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 Funds 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 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 Funds 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 Fund 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 Funds'
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.
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<PAGE>
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 Fund's shares, which most shareholders depend upon. By identifying
potential investors whose needs are served by the objectives of the Fund, 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 Funds to stabilize their net asset values per share.
6) The Company expects to share in the benefits of growth in the Funds' 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 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.
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 Cortland 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 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 Cortland shareholders and alternate means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of Cortland 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, Cortland 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 except with respect to the Pilgrim
America Shares. All costs associated with performing such services are borne by
the Manager.
Investors Fiduciary Trust Company, Inc. acts as transfer agent with respect to
the Pilgrim America Shares. All costs associated with performing such services
are borne by Pilgrim America Securities, Inc. The address of Investors Fiduciary
Trust Company is c/o DST Systems, Inc., P.O. Box 419368, Kansas City, Missouri
64141.
Sub-Accounting
The Manager, at its expense, will provide sub-accounting services to all
shareholders, except those shareholders of the Pilgrim Shares, and maintain
information with respect to underlying owners. Investors, such as bank trust
departments, investment counselors and brokers, who purchase shares for the
account of others, can make arrangements through the Manager for these
sub-accounting services.
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Principal Holders of Securities
On June 30, 1996 there were 1,674,316,506 total shares of the Company
outstanding. On June 30, 1996 there were 1,220,487,357 outstanding shares of the
Cortland General Money Market Fund, 244,256,037 outstanding shares of the U.S.
Government Fund and 209,573,092 outstanding shares of the Municipal Money Market
Fund. As of June 30, 1996 the amount of shares owned by all officers and
directors of the Funds as a group was less than 1% of the outstanding shares of
each Fund. Set forth below is certain information as to persons who owned 5% or
more of each Fund's outstanding shares as of June 30, 1996:
Nature of
Name and address Fund % of Class Ownership
Herzog, Heine, General Money Market 17.8% Record
Geduld, Inc. U.S. Government 23.4% Record
Newport Towers Municipal Money Market 11.8% Record
525 Washington Blvd.
Jesery City, NJ 07310
JW Charles Clearing General Money Market 12% Record
Corporation as Agent U.S. Government 7.7% Record
980 North Federal Hwy Municipal Money Market 7.3% Record
Boca Raton, FL 33432
George K. Baum U.S. Government 6.4% Record
120 West 12th Street Municipal Money Market 11.8% Record
Kansas City, MO 64105
Reports
The Company furnishes shareholders with semi-annual reports containing
information about the Funds and their operations, including a schedule of
investments held in the Funds' portfolios and the financial statements for each
Fund. 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
Funds' financial statements and to review the Funds' 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"
(under the captions "How to Buy Pilgrim America Shares" and "How to Redeem
Pilgrim America Shares" in the Prospectus relating to the Pilgrim America
Shares).
The possibility that shareholders who maintain accounts of less than $500 in
value ($1,000 in value for Pilgrim America Shares) will be subject to mandatory
redemption is also described under the caption "How to Redeem Shares" (under the
caption "How to Redeem Pilgrim America Shares" with respect to the Pilgrim
America Shares). If the Board of Directors authorizes mandatory redemption of
such small accounts, the holders of shares with a value of less than $500 (less
than $1,000 for Pilgrim America Shares) will be notified that they must increase
their investment to $500 ($1,000 for Pilgrim America Shares) or their shares
will be redeemed on or after the 60th day following such notice or pay a fee.
The minimum account balance of $1,000 with respect to Pilgrim America Shares is
not applicable to IRA accounts. 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 Funds. 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 Fund not reasonably practicable.
Net Asset Value Determination
The net asset values of the Funds are determined twice daily as of 12 noon and
4:00 p.m. Eastern time on each day the New York Stock Exchange and the Company's
custodian are open for business.
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For the purpose of determining the price at which shares of the Funds 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
Fund as set forth below; (b) deducting such Fund's liabilities; (c) dividing the
resulting amount by the number of shares outstanding of such Fund; 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 Funds.
The debt instruments held in each of the Fund'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 Fund would receive if it sold the entire
portfolio. During periods of declining interest rates, the daily yield for a
Fund, 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 Fund results in a lower aggregate portfolio value for
such Fund on a particular day, a prospective investor in the Fund 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 Fund 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 Fund 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 Fund'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 Funds is permitted in accordance with applicable rules and
regulations of the SEC, which require the Funds to adhere to certain conditions.
Each Fund 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 Fund's price per share at $1.00 as computed for the purpose of sales and
redemptions. Such procedures include review of a Fund'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 Fund 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 Fund. In the event the
Board of Directors determines that such a deviation exists for a Fund, 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 Fund is declared daily as dividends to the
respective holders of record of each Fund. Net income for each of the Funds 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 Fund and any general income of the Company prorated to such Fund
based on the relative net assets of such Fund, less (b) amortization of premium
and accrued expenses for the applicable dividend period attributable directly to
such Fund and general expenses of the Company prorated to such Fund based on the
relative net assets of such Fund. The amount of discount or premium on
instruments in each Fund'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 Fund will be reflected in the net
asset value of such Fund. Each Fund expects to distribute any net realized
short-term gains of such Fund at least once each year, although it may
distribute them more frequently if necessary in order to maintain such Fund's
net asset value at $1.00 per share. The Funds do not expect to realize net
long-term capital gains.
Should any of the Funds 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 Fund 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 Fund were reduced, or was anticipated to be
reduced, below $1.00, the Board of Directors may suspend further dividend
payments with respect to that Fund 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
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the period during which he held shares of the Fund and/or in his receiving upon
redemption a price per share lower than the price which he paid.
Dividends on a Fund'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 Fund 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
Fund's net asset value on that day. Dividends are declared daily and reinvested
in the form of additional full and fractional shares of each Fund 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 Funds 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 Fund 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 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"). As a
regulated investment company, each Fund 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 Fund 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 Fund 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 Fund
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 Fund
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 Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 Fund's
taxable year, at least 50% of the value of the Fund'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 Fund has
not invested more than 5% of the
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value of the Fund's total assets in securities of such issuer and as to which
the Fund 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 Fund 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 Fund 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 Fund'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")) and certain undistributed amounts from previous years. (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 Fund 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 Fund may in certain circumstances be required to liquidate portfolio
investments to make sufficient distributions to avoid excise tax liability.
Fund Distributions
Each Fund 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 Fund may either retain or distribute to shareholders its net capital gain
for each taxable year. Each Fund 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 Fund prior to the date on which the shareholder
acquired his shares.
Conversely, if a Fund elects to retain its net capital gain, the Fund will be
taxed thereon (except to the extent of any available capital loss carryovers) at
the 35% corporate tax rate. If a Fund elects to retain its net capital gain, it
is expected that the Fund 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 Fund 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 Fund intends to qualify to pay exempt-interest
dividends by satisfying the requirement that at the close of each quarter of the
Municipal Money Market Fund's taxable year at least 50% of the Fund's total
assets consists of tax-exempt municipal obligations. Distributions from the
Municipal Money Market Fund will constitute exempt-interest dividends to the
extent of the Fund's tax-exempt interest income (net of expenses and amortized
bond premium). Exempt-interest dividends distributed to shareholders of the
Municipal Money Market Fund 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
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other collateral tax consequences as discussed below. Distributions by the
Municipal Money Market Fund 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 Fund is denied a deduction
for interest on indebtedness incurred or continued to purchase or carry shares
of the Municipal Money Market Fund. 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 Fund will likely be subject
to tax on dividends paid by the Municipal Money Market Fund 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 Fund
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 Fund 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 Fund's assets to be invested in various countries is not
known.
Distributions by a Fund 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 Fund will be treated in the manner described above regardless
of whether such distributions are paid in cash or reinvested in additional
shares of the Fund (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 Fund reflects undistributed net investment
income or recognized capital gain net income, or unrealized appreciation in the
value of the assets of the Fund, 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 Fund 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 Fund) 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 Fund 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
Fund that it is not subject to backup withholding or that it is a corporation or
other "exempt recipient."
Sale or Redemption of Fund Shares
Each Fund seeks to maintain a stable net asset value of $1.00 per share;
however, there can be no assurance that the Funds will do this. In such a case,
a shareholder will recognize gain or loss on the sale or redemption of shares of
a Fund 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 Fund 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 Fund 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
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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 Fund is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Fund 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 Fund, capital gain dividends and
exempt-interest dividends and amounts retained by the Fund that are designated
as undistributed capital gains.
If the income from a Fund 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 Fund 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 Fund 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 Fund 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 Fund, 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 Fund.
YIELD INFORMATION
The yield for each Fund 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. The yield for the Pilgrim America Shares can be obtained by
calling Pilgrim America Securities, Inc. at (800) 331-1080. Quotations of yield
on the Funds 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 Fund
will be computed by assuming that an account was established with a single share
of such Fund (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 furnish a quotation of effective yield for
each Fund 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 Fund's portfolio and each
Fund's operating expenses. Quotations of yields will be accompanied by
information concerning the average weighted maturity of the Funds. Comparison of
the quoted yields of
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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 Funds
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 Fund is set forth in each 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 Funds are discussed in each Prospectus under the
aforementioned captions.
The following is a more detailed description of the portfolio instruments
eligible for purchase by the Funds which augments the summary of the Company's
and the Funds' investment programs which appears in each 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 Reich & Tang under the
supervision of the Board of Directors.
Subsequent to its purchase by a Fund, a particular issue of Money Market
Obligations or Municipal Securities, as defined in each Prospectus under the
aforementioned captions may cease to be rated, or its rating may be reduced
below the minimum required for purchase by the Funds. Neither event requires the
elimination of such obligation from a Fund's portfolio, but Reich & Tang will
consider such an event to be relevant in its determination of whether the Fund
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 Funds. (See "General Information About
the Company - The Company and its Shares.") There can be no assurance that the
Funds' objectives will be achieved.
The following is a more detailed description of the portfolio instruments
eligible for purchase by the Company's three Funds which augments the summary of
each Fund's investment program which appears in the Prospectus for the Company
and Prospectus for the Pilgrim America Shares under the captions "Investment
Programs" or "Investment Program," respectively. The Company seeks to achieve
the objectives of its Portfolios by investing in portfolios of 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
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 portfolio 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.
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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 consisting 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
participations, 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 Fund 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 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 Reich & Tang 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
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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
Funds:
1) Repurchase Agreements under which the purchaser (for example, one of the
Funds) 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 Fund will not enter into a repurchase agreement if as a
result of such transaction more than 10% of a Fund's total assets would be
invested in illiquid securities, including repurchase agreements expiring in
more than seven days. A Fund 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 Fund on demand and
the effective interest rate is negotiated on a daily basis. In general, the
Funds 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
Funds 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 Fund 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 Fund, with an agreement that the Fund will repurchase the instruments
at an agreed upon price and date. A Fund 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 Fund's total assets at the time it enters into a reverse
repurchase agreement. At the time it enters into a reverse repurchase agreement,
the Fund will place in a segregated custodial account high-quality debt
securities having a dollar value equal to the repurchase price. A Fund 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 Fund 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 Fund. 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. Until the settlement date, that Fund 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 Fund'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 Fund and will be subject to the risks of
market fluctuation. The purchase price of the delayed delivery securities is a
liability of the Fund until settlement. Absent extraordinary circumstances, the
Fund will not sell or otherwise transfer the delayed delivery securities prior
to settlement. If cash is not available to the Fund at the time of settlement,
the Fund 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 Funds.
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 Fund
will only make commitments to purchase such Money Market Obligations and
Municipal Securities with the intention of actually acquiring such securities,
but
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such Fund 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 Fund's net assets would become committed to
purchases of when-issued securities and delayed delivery agreements.
If one of the Funds 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 Fund'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 Fund 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 Fund's assets will fluctuate to a greater degree.
Furthermore, when the time comes for such Fund to meet its obligations under
when-issued commitments, the Fund 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 Fund'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.
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 Fund'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
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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 participations 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 participations 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 participations. 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" (under the caption "Investment
Program - Investment Restrictions" for the Pilgrim America Shares).
Additionally, as a matter of fundamental policy which may not be changed without
a majority vote of shareholders (as that term is defined in each Prospectus
under the caption "General Information - Organization of the Trust and
Description of Shares"), none of the Funds will:
1) purchase any Money Market Obligation or Municipal Security, if, as a result
of such purchase, more than 5% of a Fund'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 Fund'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
Funds' 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;
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 Fund'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 Fund 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 Funds' 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 Funds and their shareholders it will revoke the commitment by
terminating sales of its shares in the state(s) involved.
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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 Funds 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 Funds 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 Fund 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 Funds' 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 Funds'. 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 Funds 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
Funds 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 Funds 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 Fund 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 Funds' 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 Funds have
obtained an order of exemption from the SEC which would permit the Funds 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 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 Fund will be: (i) consistent with such Fund's investment policies and
objectives; (ii) consistent with the interests of shareholders of such Fund; 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 Funds 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.
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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 general 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.
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
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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.
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.
23
<PAGE>
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.
24
<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
25
<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.
26
<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.
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
------ ---- ----- -------- ------- ------
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.
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
------ ---- ----- -------- ------- ------
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.
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
------ ---- ----- -------- ------- ------
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.
30
<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.
31
<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.
32
<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.
33
<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.
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>
$ 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.
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>
$ 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.
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>
$ 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.
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
------ ---- ----- -------- ------- ------
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.
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
------ ---- ----- -------- ------- ------
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.
39
<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.
40
<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.
41
<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.
42
<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.
43
<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.
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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
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<PAGE>
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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.
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<PAGE>
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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>
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