As filed with the Securities and Exchange Commission on July 25, 1997
Securities Act File No. 2-94935
Investment Company File No. 811-4179
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 27 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 29
CORTLAND TRUST, INC.
(Exact Name of Registrant as Specified in Charter)
600 Fifth Avenue
New York, New York 10020-2302
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 830-5200
STEVEN W. DUFF
c/o Cortland Trust, Inc.
600 Fifth Avenue
New York, New York 10020-2302
(Name and Address of Agent for Service)
Copy to: Jules Buchwald, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, N.Y. 10022
(212) 715-7507
It is proposed that this filing will become effective (check
appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on August 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
The Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Section 24(f) under the Investment Company
Act of 1940, as amended, and Rule 24f-2 thereunder, and the Registrant filed a
Rule 24f-2 Notice for its fiscal year ended March 31, 1997 on May 16, 1997.
<PAGE>
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
[as required by Rule 404 (c)]
PART A Location in Prospectus
Item No. (Caption)
CORTLAND TRUST, INC. PROSPECTUS
Cortland General Money Market Fund
U.S. Government Fund
Municipal Money Market Fund
1. Cover Page Cover Page
2. Synopsis Table of Fees and Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Programs;
General Information
5. Management of the Fund Management
5a. Management Discussion of Fund Performance Not Applicable
6. Capital Stock and Other Securities Dividends and Taxes;
General Information
7. Purchase of Securities Being Offered How to Purchase Shares
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
<PAGE>
PART B Caption in Statement of
Item No. Additional Information
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History General Information
about the Company
13. Investment Objectives and Policies Investment Programs
and Restrictions
14. Management of the Fund Manager and
Investment Advisor
15. Control Persons and Holder of Securities Distributor and Plans of
Distribution
16. Investment Advisory and Other Services Manager and
Investment Advisor
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities General Information
about the Company
19. Purchase, Redemption and Pricing Share Purchases and
of Securities Being Offered Redemptions
20. Tax Status Dividends and Tax Matters
21. Underwriters Distributor and
Plans of Distribution
22. Calculation of Performance Data Yield Information
23. Financial Statements Report of Independent Auditors;
Financial Statements
<PAGE>
PART A Location in Prospectus
Item No. (Caption)
PILGRIM AMERICA GENERAL MONEY MARKET SHARES PROSPECTUS
class of the Cortland General Money Market Fund
1. Cover Page Cover Page
2. Synopsis Summary; Table of
Fees and Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Program;
General Information
5. Management of the Fund Management
5a. Management Discussion of Fund Performance Not Applicable
6. Capital Stock and Other Securities Distribution and Taxes;
General Information
7. Purchase of Securities Being Offered Shareholder's Guide -
How to Buy Pilgrim America
Shares
8. Redemption or Repurchase Shareholder's Guide -
How to Redeem Pilgrim
America Shares
9. Pending Legal Proceedings Not Applicable
<PAGE>
PART A Location in Prospectus
Item No. (Caption)
LIVE OAK SHARES PROSPECTUS
Cortland General Money Market Fund
U.S. Government Fund
Municipal Money Market Fund
1. Cover Page Cover Page
2. Synopsis Table of Fees and Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Programs;
General Information
5. Management of the Fund Management
5a. Management Discussion of Fund Performance Not Applicable
6. Capital Stock and Other Securities Dividends and Taxes;
General Information
7. Purchase of Securities Being Offered How to Purchase Shares
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
<PAGE>
PART B Caption in Statement of
Item No. Additional Information
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History General Information
about the Company
13. Investment Objectives and Policies Investment Programs
and Restrictions
14. Management of the Fund Manager and
Investment Advisor
15. Control Persons and Holder of Securities Distributor and Plans of
Distribution
16. Investment Advisory and Other Services Manager and
Investment Advisor
17. Brokerage Allocation and Other Practices Portfolio Transactions
18. Capital Stock and Other Securities General Information
about the Company
19. Purchase, Redemption and Pricing Share Purchases and
of Securities Being Offered Redemptions
20. Tax Status Dividends and Tax Matters
21. Underwriters Distributor and
Plans of Distribution
22. Calculation of Performance Data Yield Information
23. Financial Statements Report of Independent Auditors;
Financial Statements
<PAGE>
- -------------------------------------------------------------------------------
CORTLAND 600 FIFTH AVENUE
TRUST, INC. NEW YORK, NY 10020
(212) 830-5280
==============================================================================
PROSPECTUS
August 1, 1997
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 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
Spectrum Account. A description of the Spectrum Account features and certain
information concerning the component parts of the Spectrum 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, 1997 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 (after fee waiver)................................. 0.76% 0.74% 0.76%
12b-1 Fees......................................................... 0.25% 0.25% 0.25%
Other Expenses..................................................... 0.01% 0.02% 0.01%
----- ----- -----
Total Fund Operating Expenses...................................... 1.02% 1.01% 1.02%
===== ===== =====
Example
You would pay the following expenses on a $1,000 investment assuming a 5%
annual return:
1 year............................................................. $ 10 $ 10 $ 10
3 years............................................................ $ 32 $ 32 $ 32
5 years............................................................ $ 56 $ 56 $ 56
10 years........................................................... $ 125 $ 124 $ 125
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.) Absent fee waivers by the Manager, Total Fund Operating
Expenses would be 1.03% of the Government Fund's average net assets. 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.
</TABLE>
2
<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, 1997 appears in the Statement of Additional Information.
The data applies to one share outstanding for each of the fiscal years ended
March 31, 1988 to March 31, 1997. 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,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income.......... 0.044 0.049 0.038 0.025 0.028 0.047 0.071 0.081 0.076 0.062
Net realized and unrealized
gain/(loss) on investments.. -- 0.001 (0.003)+ -- -- -- -- -- -- --
------- ------ ------ ------ ------ ------ ------ ------- ----- ------
Total from investment operations 0.044 0.050 0.035 0.025 0.028 0.047 0.071 0.081 0.076 0.062
Less distributions:
Dividends from net investment income (0.044) (0.048) (0.038) (0.025) (0.028) (0.047) (0.071) (0.081) (0.076) (0.062)
Total distributions............ (0.044) (0.048) (0.038) (0.025) (0.028) (0.047) (0.071) (0.081) (0.076) (0.062)
------- ------ ------ ------ ------ ------ ------ ----- ------ -------
Net asset value, end of year... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Return................... 4.52% 4.95% 3.91%+ 2.53% 2.88% 4.81% 7.42% 8.42% 7.55% 6.22%
Ratios/Supplemental Data
Net assets, end of year (000's omitted)$1,160,352 $1,159,173 $993,854 $926,400 $904,735 $906,662 $805,993 $970,560 $706,985 $420,063
Ratios to average net assets:
Expenses*...................... 1.02% 1.03% 1.03% 1.02% 1.00% 1.01% 1.01% 1.00% 1.00% 1.00%
Net investment income.......... 4.41% 4.86% 3.85% 2.48% 2.84% 4.67% 7.06% 8.00% 7.40% 6.04%
</TABLE>
* For the years ended March 31, 1990 to 1995, management and distribution
support and services fees of .04%, .04%, .04% , .04% , .02% and .02% 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>
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, 1997 appears in the Statement of Additional Information.
The data applies to one share outstanding for each of the fiscal years ended
March 31, 1988 to March 31, 1997. 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,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- ------
Income from investment operations:
Net investment income.......... 0.043 0.047 0.038 0.025 0.029 0.047 0.068 0.078 0.072 0.056
Net realized and unrealized
gain/(loss) on investments (0.001) -- (0.003)+ -- -- -- -- -- (0.001) 0.001
----- ------ ----- ------ ------ ----- ------ ----- ---- -----
Total from investment operations 0.042 0.047 0.035 0.025 0.029 0.047 0.068 0.078 0.071 0.057
Less distributions:
Dividends from net investment income (0.043) (0.047) (0.038) (0.025) (0.029) (0.047)(0.068) (0.078) (0.072) (0.056)
Dividends from net realized gain
on investments.............. -- -- -- -- -- -- -- -- -- (0.001)
----- ----- ----- ----- ----- ----- ----- ---- ----- -------
Total distributions............. (0.043) (0.047) (0.038) (0.025) (0.029) (0.047) (0.068) (0.078) (0.072) (0.057)
----- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year.... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Return.................... 4.37% 4.80% 3.84%+ 2.55% 2.94% 4.77% 6.94% 8.05% 7.13% 5.71%
Ratios/Supplemental Data
Net assets, end of period (000's omitted)$164,464 $255,222 $218,307 $234,082 $242,199 $230,778 $188,419 $141,738 $84,014 $54,129
Ratios to average net assets:
Expenses*...................... 1.01%* 1.04% 1.04% 1.04% 1.01% 1.00% 1.01% 1.01% 1.00% 1.01%
Net investment income.......... 4.30% 4.72% 3.74% 2.47% 2.89% 4.63% 6.66% 7.68% 6.95% 5.49%
</TABLE>
* For the fiscal years ended March 31, 1990 to March 31, 1995 and March 31,
1997, management and distribution support and service fees of .045%, .045%,
.045%, .04%, .01%, .01%, and .02% of 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%.
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, 1997 appears in the Statement of Additional Information.
The data applies to one share outstanding for each for the fiscal years ended
March 31, 1988 to March 31, 1997. 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,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income.......... 0.026 0.030 0.026 0.018 0.022 0.037 0.050 0.056 0.052 0.041
Total from investment operations 0.026 0.030 0.026 0.018 0.022 0.037 0.050 0.056 0.052 0.041
Less distributions:
Dividends from net investment income (0.026) (0.030) (0.026) (0.018) (0.022) (0.037) (0.050) (0.056) (0.052) (0.041)
Total distributions............ (0.026) (0.030) (0.026) (0.018) (0.022) (0.037) (0.050) (0.056) (0.052) (0.041)
Net asset value, end of year... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Total Return................... 2.68% 3.06% 2.58% 1.82% 2.26% 3.81% 5.22% 5.25% 5.20% 4.16%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $153,322 $216,456 $224,041 $240,570 $210,521 $210,948 $166,770 $203,781 $149,875 $89,926
Ratios to average net assets:
Expenses*...................... 1.02% 1.03% 0.99% 0.98% 0.92% 0.92% 0.89% 0.86% 0.72% 0.71%
Net investment income.......... 2.64% 3.02% 2.54% 1.79% 2.22% 3.70% 5.00% 5.53% 5.20% 4.07%
* Management and distribution support and services fees of .30%, .28%, .07%,
.13%, .13%, .13%, .07% and .06% of average net assets, respectively, were waived
for the years March 31, 1988 to 1995.
</TABLE>
5
<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, Dr. Martin Luther King
Jr. 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
6
<PAGE>
date that a redemption order is effected. For further information and for
details concerning the automatic purchase and redemption of Cortland shares,
contact your 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
7
<PAGE>
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
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 Spectrum Account. A Spectrum Account
provides draft checking services which is part of a range of cash management
services provided by the Manager
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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 SPECTRUM ACCOUNT PROGRAM SHOULD CONSIDER THE INFORMATION
AVAILABLE FROM THE DISTRIBUTOR WITH RESPECT TO THE SPECTRUM 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 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
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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
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.
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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 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.
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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 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
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("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 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
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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 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.
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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, 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
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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 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
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
generally reinvested in additional Fund shares on the subsequent business day. 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. Dividends from net realized
capital gain, offset by capital loss carryovers, if any, are generally declared
and paid when realized except, to the extent that a net realized capital gain is
deemed necessary to offset future capital losses.
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
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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. Such distributions generally will be eligilbe for the
dividends-recieved deduction in the case of corporate shareholders.
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 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 a 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, each shareholder must furnish Cortland with its
taxpayer identification number and certify, under penalties of perjury, that
such number is correct and that such shareholder is not subject to backup
withholding for any reason.
The foregoing discussion of federal income tax
17
<PAGE>
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., 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 August 30, 1996 (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 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, 1997, Cortland paid the Manager fees which represented .76%
of the
18
<PAGE>
CORTLAND GENERAL FUND'S average daily net assets, .74% of the GOVERNMENT FUND'S
average daily net assets and .76% 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 1.02% of
the CORTLAND GENERAL FUND'S average daily net assets, 1.01% of the GOVERNMENT
FUND'S average daily net assets and 1.02% of the MUNICIPAL FUND'S average daily
net assets, respectively, on an annualized basis.
The Manager was, at June 30, 1997, investment manager, advisor or supervisor
with respect to assets aggregating in excess of $9.3 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.
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. On August 30, 1996, The New
England Mutual Life Insurance Company ("The New England") and Metropolitan Life
Insurance Company ("MetLife") merged, with MetLife being the continuing company.
The Manager remains an indirect wholly-owned subsidiary of NEICLP, but Reich &
Tang Asset Management, Inc., its sole general partner, is now an indirect
subsidiary of MetLife. Also, MetLife New England Holdings, Inc., a wholly-owned
subsidiary of MetLife, owns approximately 48.5% of the outstanding limited
partnership interest of NEICLP and may be deemed a "controlling person" of the
Manager. Reich & Tang, Inc. owns approximately 16% of the outstanding
partnership units of NEICLP.
MetLife is a mutual life insurance company with assets of $297.6 billion at
December 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.6 trillion at December 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through twelve subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units include AEW Capital Management, L.P.,
Back Bay Advisors, L.P., Graystone Partners, L.P., Harris Associates, L.P.,
Jurika & Voyles, L.P., Loomis, Sayles & Co., L.P., MC Management, L.P., New
England Fund, L.P., New England Funds Management, L.P., Reich & Tang Asset
Management L.P., Vaughan-Nelson, Scarborough & McConnell L.P. and Westpeak
Investment Advisors, L.P. These affiliates in the aggregate are investment
advisors or managers to 69 other registered investment companies.
The merger between The New England and MetLife resulted in an "assignment" of
the Management/Investment Advisory Agreements relating to each Fund. Under the
1940 Act, such an assignment caused the automatic termination of the agreements.
On November 14, 1995, the Board of Directors, including a majority of the
directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved Management/Investment Advisory Agreements
effective August 30, 1996, which have a term which extends to June 30,
19
<PAGE>
1998 and may be continued thereafter for successive twelve-month periods
beginning each July 1, provided that such continuance is specifically approved
annually by majority vote of the Fund's outstanding voting securities or by its
Board of Directors, and in either case by a majority of the directors who are
not parties to the Management/ Investment Advisory Agreements or interested
persons of any such party, by votes cast in person at a meeting called for the
purpose of voting on such matter.
The Management/ Investment Advisory Agreements were approved by the Shareholders
on March 28, 1996 and each contains the same terms and conditions governing the
Manager's investment management responsibilities as the Fund's previous
Management/ Investment Advisory Agreement with the Manager, except as to the
date of execution and termination.
Pursuant to the terms of the Management/ Investment Advisory Agreements, the
Manager manages the investments of each of the Funds, subject at all times to
the policies and control of the Company's Board of Directors. The Manager
obtains and evaluates economic, statistical and financial information to
formulate and implement investment policies for the Funds. The Manager shall not
be liable to the Funds or to their shareholders except in the case of the
Manager's willful misfeasance, bad faith, gross negligence or reckless disregard
of duty.
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,
including sales where a securities dealer automatically "sweeps" free credit
balances into a fund at the end of each day ("Sweep Arrangement") allowing the
account holder to earn dividends otherwise unavailable in the brokerage account,
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 March 5, 1997, each of the Funds may make
distribution related payments, under a sweep arrangement or otherwise, 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, under a sweep arrangement or
otherwise, and to financial institutions, such as banks, out of the investment
management fee the Manager receives from the
20
<PAGE>
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.
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 1, 1997, the current yield for the CORTLAND
GENERAL FUND was 4.66%, the current yield for the GOVERNMENT FUND was 4.45% and
the current yield for the MUNICIPAL FUND was 3.21%, which is equivalent to an
effective yield of 4.76% for the CORTLAND GENERAL FUND, 4.55% for the GOVERNMENT
FUND and 3.27% 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 with a 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
21
<PAGE>
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 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.
CORTLAND TRUST, INC.
PROSPECTUS
August 1, 1997
TABLE OF CONTENTS
Table of Fees and Expenses..........................2
Financial Highlights................................3
How to Purchase Shares..............................6
How to Redeem Shares................................8
Investment Programs.................................10
Dividends and Taxes.................................16
Management..........................................18
Portfolio Transactions..............................21
Yield Information...................................21
General Information.................................21
22
<PAGE>
Pilgrim America General Money Market Shares
(Shares of Cortland Trust, Inc.)
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 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, 1997, 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., 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, 1997
<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."
2
<PAGE>
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.
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 ................................................... 0.76%
12b-1 Fees......................................................... 0.25%
Other Expenses..................................................... 0.01%
Total Fund Operating Expenses...................................... 1.02%
Example
You would pay the following expenses on a $1,000 investment
assuming a 5% annual return:
1 year............................................................. $ 10
3 years............................................................ $ 32
5 years............................................................ $ 56
10 years........................................................... $ 125
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 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, 1997 appears in the Statement of Additional Information.
The data applies to one share outstanding for each of the fiscal years ended
March 31, 1988 to March 31, 1997. 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,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income.......... 0.044 0.049 0.038 0.025 0.028 0.047 0.071 0.081 0.076 0.062
Net realized and unrealized
gain/(loss) on investments.. -- 0.001 (0.003)+ -- -- -- -- -- -- --
------- ------ ------ ------ ------ ------ ------ ------- ----- ------
Total from investment operations 0.044 0.050 0.035 0.025 0.028 0.047 0.071 0.081 0.076 0.062
Less distributions:
Dividends from net investment income (0.044) (0.048) (0.038) (0.025) (0.028) (0.047) (0.071) (0.081) (0.076) (0.062)
Total distributions............ (0.044) (0.048) (0.038) (0.025) (0.028) (0.047) (0.071) (0.081) (0.076) (0.062)
------- ------ ------ ------ ------ ------ ------ ----- ------ -------
Net asset value, end of year... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Return................... 4.52% 4.95% 3.91%+ 2.53% 2.88% 4.81% 7.42% 8.42% 7.55% 6.22%
Ratios/Supplemental Data
Net assets, end of year (000's omitted)$1,160,352 $1,159,173 $993,854 $926,400 $904,735 $906,662 $805,993 $970,560 $706,985 $420,063
Ratios to average net assets:
Expenses*...................... 1.02% 1.03% 1.03% 1.02% 1.00% 1.01% 1.01% 1.00% 1.00% 1.00%
Net investment income.......... 4.41% 4.86% 3.85% 2.48% 2.84% 4.67% 7.06% 8.00% 7.40% 6.04%
</TABLE>
* For the years ended March 31, 1990 to 1995, management and distribution
support and services fees of .04%, .04%, .04% , .04% , .02% and .02% 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. 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
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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 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
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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 purchase.
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 delivery
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 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.
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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
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 1, 1997,
the Fund's current yield and effective yield were 4.66% and 4.76%, 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 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
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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 August 30, 1996 (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, 1997, the Company paid the Manager fees which represented 0.76% 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 1.02% 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, 1997, the Manager was the investment manager, advisor or supervisor
with respect to assets aggregating approximately $9.3 billion. The Manager
currently acts as investment manager or administrator of fifteen other
investment companies and also advises pension 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. 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. On August 30, 1996, The New
England Mutual Life Insurance Company ("The New England") and Metropolitan Life
Insurance Company ("MetLife") merged, with MetLife being the continuing company.
The Manager remains an indirect wholly-owned subsidiary of NEICLP, but Reich &
Tang Asset Management, Inc., its sole general partner, is now an indirect
subsidiary of MetLife. Also, MetLife New England Holdings, Inc., a wholly-owned
subsidiary of MetLife, owns approximately 48.5% of the outstanding limited
partnership interest of NEICLP and may be deemed a "controlling person" of the
Manager. Reich & Tang, Inc. owns approximately 16% of the outstanding
partnership units of NEICLP.
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MetLife is a mutual life insurance company with assets of $297.6 billion at
December 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.6 trillion at December 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through twelve subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units include AEW Capital Management, L.P.,
Back Bay Advisors, L.P., Graystone Partners, L.P., Harris Associates, L.P.,
Jurika & Voyles, L.P., Loomis, Sayles & Co., L.P., MC Management, L.P., New
England Fund, L.P., New England Funds Management, L.P., Reich & Tang Asset
Management L.P., Vaughan-Nelson, Scarborough & McConnell L.P. and Westpeak
Investment Advisors, L.P. These affiliates in the aggregate are investment
advisors or managers to 69 other registered investment companies.
The merger between The New England and MetLife resulted in an "assignment" of
the Management/Investment Advisory Agreements relating to each Fund. Under the
1940 Act, such an assignment caused the automatic termination of the agreements.
On November 14, 1995, the Board of Directors, including a majority of the
directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved Management/Investment Advisory Agreements
effective August 30, 1996, which have a term which extends to June 30, 1998 and
may be continued thereafter for successive twelve-month periods beginning each
July 1, provided that such continuance is specifically approved annually by
majority vote of the Fund's outstanding voting securities or by its Board of
Directors, and in either case by a majority of the directors who are not parties
to the Management/ Investment Advisory Agreements or interested persons of any
such party, by votes cast in person at a meeting called for the purpose of
voting on such matter.
The Management/ Investment Advisory Agreements were approved by the Shareholders
on March 28, 1996 and each contains the same terms and conditions governing the
Manager's investment management responsibilities as the Fund's previous
Management/ Investment Advisory Agreement with the Manager, except as to the
date of execution and termination.
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.
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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, 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, next determined after funds are received in payment for shares
by the transfer agent of the Pilgrim America Shares, DST Systems, Inc. (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: ______________________ .
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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:
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 1
(Labor Day), October 13 (Columbus Day), November 11 (Veterans' Day), November 28
(Thanksgiving Day), December 25 (Christmas), 1997 and January 1 (New Year's
Day), January 19 (Dr. Martin Luther King, Jr. Day), February 16 (Presidents'
Day), April 10 (Good Friday) and May 25 (Memorial Day), 1998. 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.
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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.
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) 992-0180.
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.
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The minimum investment requirements may be waived by PASI for purchases made
pursuant to certain programs such as payroll deduction plans and retirement
plans.
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
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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 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 the Transfer Agent 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 will normally be 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 purchase is effected.
A signature guarantee is designed to protect the investor, the Fund, PASI, and
their agents by verifying the signature of an 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;
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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.
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 reinvested in additional
shares of the Fund 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. Such distributions generally will
be eligible for the dividends-received deduction in the case of corporate
shareholders.
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
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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 received in cash or reinvested 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, each shareholder must certify, under penalties of perjury,
that the taxpayer identification number ("TIN") provided by it to the Fund is
correct and that such shareholder is 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.
If a TIN has been applied for and the "Awaiting TIN" box is checked on the
Application, the Fund generally will not begin backup withholding on dividends
and other reportable payments for a 60 day period. 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
will begin backup withholding. 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 and Simple IRA ("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.
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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. DST
Systems, Inc., P.O. Box 419368, Kansas City, Missouri 64141, acts as Transfer
Agent and dividend paying agent with respect to the 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.
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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 the Net Asset Value is calculated (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.
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3. Exchanges will not be requested in violation of the terms and conditions of
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 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 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 the 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 by
written notice to 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.
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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
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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
account 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.
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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 for such bank account 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).
24
<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
SIGNATURES 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 and check the "Awaiting TIN" box in the signatures
section of this application.
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. Check the "Exempt Payee" box in the Signatures 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.
25
<PAGE>
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
individuals
The actual owner of the account or, if joint funds, either person
The minor
The adult or if the minor is the only contributor, the minor
The ward, minor, or incompetent person
The grantor-trustee
The actual owner
The owner
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.)
The corporation
The organization
The partnership
The organization
The broker or nominee
The public entity
26
<PAGE>
[This Page Intentionally Left Blank]
27
<PAGE>
[This Page Intentionally Left Blank]
28
<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 Gift/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
*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 on page 30.
2. MAILING ADDRESS
Street Address Apartment Number City State Zip Code
( ) ( )
Business Phone Home Phone
3. INVESTMENT INFORMATION
[ ] A check payable to the Pilgrim America Group is
included for $____ to establish an account in Pilgrim America
General Money Market Shares
or
[ ] Payment has been made by Federal funds wire on
(Reference No.) (Date)
(Account No.) $(Amount)
29
<PAGE>
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. I am of
legal age. Sign below exactly as printed in registration.
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.
CERTIFICATION: UNDER PENALTIES OF PERJURY, I/WE CERTIFY THAT:
I am not subject to backup withholding because I have not been notified by the
IRS that I am subject to backup withholding as a result of failure to report all
interest or dividends or because the IRS has notified me that I am no longer
subject to backup withholding. (If you are currently subject to backup
withholding as a result of a failure to report all interest or dividends, please
cross out the preceding statement), AND (CHECK AS APPROPRIATE):
[] The number shown above is my correct TIN, or that of the minor named in
section 1.
[] Awaiting TIN. I have not previously been issued a TIN, have applied for one
or intend to apply for one in the near future, and am waiting for a number
to be issued to me. I understand that if I do not provide a certified TIN
to Pilgrim America within 60 days, Pilgrim America is required to commence
31% backup withholding until I provide a certified TIN and may be required
immediately to impose 31% backup withholding on certain withdrawals from my
account until I provide a certified TIN.
[] Exempt Payee. The account owner is an exempt payee. Individuals cannot be
exempt. Check this box only after reading the instructions on page 39 to
see whether the account owner is an exempt payee. (You must still provide a
TIN.)
Permanent address for tax purposes:
Street address City State County Postal code
NOTE: THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISIONS OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID
BACKUP WITHHOLDING.
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 Pilgrim 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.
30
<PAGE>
7. PRE-AUTHORIZED INVESTMENT PLAN
[ ] I wish to invest on a monthly, quarterly, semi-annual or annual basis,
directly 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
8. ADDITIONAL OPTIONS
Telephone Exchange Privilege-- If accepted accounts must have the same account
information, options and class of shares unless you decline this privilege by
checking the box below, it will automatically be assigned to you.
[ ] 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 with 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, proceeds will be sent to address
in Section 2.)
[ ] I decline telephone redemption, and do not want this privilege. See
Expedited Redemption section for procedures.
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.
31
<PAGE>
Pilgrim America Pilgrim America
General Money Funds
Market Shares
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.
40 North Central
12th Floor
Phoenix, AZ 85004
1-800-331-1080
Transfer Agent
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, 1997
<PAGE>
- -------------------------------------------------------------------------------
LIVE OAK SHARES 600 FIFTH AVENUE
NEW YORK, NY 10020
(212) 830-5280
===============================================================================
PROSPECTUS
August 1, 1997
The Company, Cortland Trust, Inc. is an open-end, diversified money market fund
designed as a cash management service for institutional customers and
individuals. The Company consists of three portfolios (collectively, the
"Portfolios"). This Prospectus relates exclusively to the Live Oak classes (the
"Live Oak Shares") of the Portfolios (collectively, the "Funds"). The LIVE OAK
GENERAL MONEY MARKET FUND and the LIVE OAK U.S. GOVERNMENT FUND seek to provide
as high a level of current income as is consistent with the preservation of
capital and liquidity. The LIVE OAK MUNICIPAL MONEY MARKET FUND seeks to provide
as high a level of current income exempt from federal income taxes as is
consistent with the preservation of capital and liquidity. Each Fund invests in
high quality debt obligations with relatively short maturities. Each Fund seeks
to achieve its objective by investing in different types of securities.
Investors may purchase shares of any or all of the Company's three Funds:
LIVE OAK GENERAL MONEY MARKET FUND ("LIVE OAK GENERAL FUND"): a portfolio
of securities and instruments issued or guaranteed by the United States
Government, its agencies or instrumentalities, bank instruments and
corporate commercial instruments.
LIVE OAK U.S. GOVERNMENT FUND ("LIVE OAK GOVERNMENT FUND"): a portfolio of
securities and instruments issued or backed by the full faith and credit of
the United States Government and repurchase agreements collateralized by
U.S. Government obligations.
LIVE OAK MUNICIPAL MONEY MARKET FUND ("LIVE OAK MUNICIPAL FUND"): a
portfolio of obligations issued by states, territories and possessions of
the United States and their political subdivisions, public authorities and
other entities authorized to issue debt, the interest on which is exempt
from federal income taxes.
SHARES OF THE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
THERE IS NO ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE OR THAT EACH FUND'S INVESTMENT OBJECTIVE WILL BE
ACHIEVED. SEE "INVESTMENT PROGRAMS."
SHARES IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
Shares of the Funds are part of an integrated cash management service, the Key
Account. A description of the Key Account features and certain information
concerning the component parts of the Key Account program may be obtained from
Interstate/Johnson Lane.
This Prospectus sets forth basic information that investors should know about
the Company prior to investing and should be read and retained for future
reference. A Statement of Additional Information relating to the Company dated
August 1, 1997 has been filed with the Securities and Exchange Commission and is
hereby incorporated by reference. It is available upon request and without
charge by writing or calling the Company at 600 Fifth Avenue, New York, New York
10020 (212) 830-5280.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF FEES AND EXPENSES
For a better understanding of the expenses you will incur when investing in a
Fund offered pursuant to this Prospectus, a summary of estimated expenses is set
forth below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LIVE OAK LIVE OAK LIVE OAK
GENERAL GOVERNMENT MUNICIPAL
FUND FUND FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchase
(as a percentage of offering price)......................... None None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)......................... None None None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, as applicable)..................... None None None
Redemption Fees (as a percentage of amount redeemed, if
applicable)................................................ None None None
Exchange Fee.................................................. None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees............................................... 0.76% 0.74% 0.76%
12b-1 Fees (after fee waiver)................................. 0.18% 0.10% 0.16%
Other Expenses................................................ 0.01% 0.02% 0.01%
----- ----- -----
Total Fund Operating Expenses (after fee waiver).............. 0.95% 0.86% 0.93%
===== ===== =====
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming a 5%
annual return:
1 year ....................................................... $ 10 $ 9 $ 9
3 years....................................................... $ 30 $ 27 $ 30
5 years....................................................... $ 53 $ 48 $ 51
10 years...................................................... $ 117 $ 106 $ 114
</TABLE>
The above table of fees and expenses is provided to assist you in understanding
the various costs and expenses that you will bear directly and indirectly. (For
more complete descriptions of the various costs and expenses, including fees
waived by the Company's Manager, see "Management".) The expenses and example
appearing in the preceding table reflect current management fees and operating
expenses for each Portfolio of the Company. THE EXAMPLE SHOWN IN THE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Absent fee waivers by the Manager and the Distributor, Total Fund Operating
Expenses would be .97% of the General Fund's average net assets, .98% of the
Government Fund's average net assets and .97% of the Municipal Fund's average
net assets. Such fee waivers may be rescinded at any time without notice to
investors.
As a result of 12b-1 fees, a long-term shareholder in a Fund may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
Rules of the National Association of Securities Dealers, Inc.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial information has been audited by Ernst & Young, LLP,
Independent Auditors, whose report thereon appears in the Statement of
Additional Information.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Live Oak Live Oak Live Oak
General U.S. Municipal
Money Market Government Money Market
Fund Fund Fund
For For For
the November 16, 1995 the November 16, 1995 the November 16, 1995
Year (Commencement of Year (Commencement of Year (Commencement of
Ended distribution) to Ended distribution) to Ended distribution) to
March 31, March 31, March 31, March 31, March 31, March 31,
1997 1996 1997 1996 1997 1996
PER SHARE OPERATING PERFORMANCE:
(for a share outstanding
throughout the period)
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...... 0.045 0.018 0.044 0.017 0.027 0.011
Net realized and unrealized
gain/(loss) on investments...... -- -- (0.001) -- -- --
Total from investment operations.... 0.045 0.018 0.043 0.017 0.027 0.011
LESS DISTRIBUTIONS:
Dividends from net investment income (0.045) (0.018) (0.044) (0.017) (0.027) (0.011)
Total distributions................. (0.045) (0.018) (0.044) (0.017) (0.027) (0.011)
Net asset value, end of period...... $ 1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= ====== =====
TOTAL RETURN........................ 4.59% 4.78%++ 4.53% 4.74%++ 2.77% 2.96%++
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $440,457 $351,030 $55,057 $47,328 $58,794 $49,663
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................... 0.95%* 0.97%++* 0.86%* 0.89%++* 0.93%* 0.96%++*
Net investment income............. 4.48% 4.68%++ 4.45% 4.64%++ 2.72% 2.91%++
* Distribution support and service fees of .02% of average net assets were
waived during both the period ended March 31, 1996 and the year ended March
31, 1997 for Live Oak shares of Cortland General Money Market Fund.
Management and distribution support and services of .12% and .11% of
average net assets were waived for Live Oak shares of the U.S. Government
Fund and distribution support and service fees of .04% and .03% of average
net assets were waived for Live Oak shares of Municipal Money Market Fund
for year ended March 31, 1997, and the period ended March 31, 1997.
</TABLE>
3
<PAGE>
HOW TO PURCHASE SHARES
GENERAL INFORMATION ON PURCHASES
Shares of each Fund may be purchased through Interstate/Johnson Lane, 121 West
Trade Street, Charlotte, North Carolina 28201. Orders for purchase of shares are
accepted only on a "business day of the Company" which means any day on which
both the New York Stock Exchange and Investors Fiduciary Trust Company (the
"Custodian"), the Company's custodian, are open for business. It is expected
that the New York Stock Exchange and/or the Custodian will be closed on
Saturdays and Sundays, New Year's Day, Dr. Martin Luther King Jr., 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 the Company may be as low as $1,000 and
subsequent purchases will be accepted in any amount.
An order to purchase Fund shares is effective only when it is received in proper
form and payment in the form of Federal Funds (member bank deposits with the
Federal Reserve Bank) is received by the Company for investment. The Company
reserves the right to reject any order for the purchase of shares. Fund shares
are purchased or exchanged at the net asset value next determined after receipt
of the order. Net asset value is normally determined at 12 noon and 4:15 p.m.
Eastern time on each business day of the Company. Because the Company uses the
amortized cost method of valuing the securities held by each Fund and rounds
each Fund's per share net asset value to the nearest whole cent, it is
anticipated that the net asset value of the shares of each Fund will remain
constant at $1.00 per share. However, the Company makes no assurance that it can
maintain a $1.00 net asset value per share. In order to earn dividends the next
day, purchase orders must be received before 4:15 p.m. Eastern time; otherwise,
the purchase of shares will occur the following business day. Payments
transmitted by check are normally converted into Federal Funds within two
business days and are accepted subject to collection at full face amount. The
Company will not issue share certificates but will record investor holdings on
the books of the Company in noncertificate form and regularly advise the
shareholder of his ownership position.
There is no sales charge to the investor on Fund purchases placed directly with
the Company. However, the costs of distributing Fund shares are borne in part by
the Company and in part by Reich & Tang Asset Management L.P. (the "Manager").
Purchases may be made by following the procedures specified below. If these
purchase procedures are not followed, the processing of orders may be delayed.
PURCHASES THROUGH INTERSTATE/JOHNSON LANE
Investors may submit their initial and subsequent investments directly through
Interstate/Johnson Lane. For an initial investment, investors should submit
payment and, if required, a completed Investor Application to Interstate/Johnson
Lane, who will transmit such payment to the Company on behalf of the investor
and supply the Company with required account information. Investors may have
their "free-credit" cash balances automatically invested in Fund shares on a
daily basis depending upon which Fund has been designated by the investor as the
primary Fund for his account. Automatic purchases and
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redemptions of Fund shares are treated on the same basis as direct purchases and
redemptions from the Company. "Free-credit" cash balances begin to earn
dividends on the first day following the date that the share purchase or
exchange order is effected and through the date that a redemption order is
effected. For further information and for details concerning the automatic
purchase and redemption of Fund shares, contact Interstate/Johnson Lane. The
Company is not responsible for any delay caused by Interstate/Johnson Lane in
forwarding an order to the Company. Interstate/Johnson Lane has a responsibility
to transmit orders promptly.
PURCHASES FROM THE COMPANY
You may purchase Fund shares by wire and by mail. The Company will only accept
direct orders from investors through the Distributor or through
Interstate/Johnson Lane. The initial purchase must be accompanied by a completed
Investor Application available from the Distributor or from Interstate/Johnson
Lane.
INITIAL PURCHASE OF SHARES
Mail
Investors may send a check made payable to "Reich & Tang Funds" along with a
completed subscription order form to:
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 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 two business days
after receipt of the check. Checks drawn on a nonmember bank may take
substantially longer to convert into Federal Funds and to be invested in Fund
shares. An investor's subscription will not be accepted until the Fund receives
Federal Funds.
Bank Wire
To purchase shares of the Fund using the wire system for transmittal of money
among banks, an investor should first obtain a new account number from
Interstate/Johnson Lane and then instruct a member commercial bank to wire money
immediately to:
Investors Fiduciary Trust Company
ABA# 101003621
Reich & Tang Funds
DDA# 890752-954-6
The investor should then promptly complete and mail the subscription order form.
An investor planning to wire funds should instruct his bank to wire before 12
noon, New York City time, on the same day. There may be a charge by the
investor's bank for transmitting the money by bank wire, and there also may be a
charge for use of Federal Funds. The Fund does not charge investors in the Fund
for its receipt of wire transfers. Payment in the form of a "bank wire" received
prior to 12 noon, New York City time, on a Fund Business Day will be treated as
a Federal Funds payment received on that day.
Personal Delivery
Deliver a check made payable to "Reich & Tang Funds" along with a completed
subscription order form to:
Reich & Tang Funds
600 Fifth Avenue, 9th Floor
New York, New York 10020
SUBSEQUENT PURCHASES OF SHARES
There is a $50 minimum for each subsequent purchase. All payments should clearly
indicate the shareholder's account number. Provided that the information on the
subscription order
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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
ELECTRONIC FUNDS TRANSFERS (EFT)
AND DIRECT DEPOSIT PRIVILEGE
You may purchase Fund shares (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 account.
You may deposit as much of such payments as you elect. To enroll in this
program, you must file with the Company a completed EFT Application and/or a
Direct Deposit Sign-Up Form for each type of payment that you desire to include
in the privilege. The appropriate form may be obtained from Interstate/Johnson
Lane or the Company. Death or legal incapacity will terminate your participation
in the privilege. You may elect at any time to terminate your participation by
notifying in writing the appropriate depositing entity and/or federal agency.
Further, the Company may terminate your participation upon 30 days' notice to
you.
HOW TO REDEEM SHARES
You may redeem your shares, in whole or in part, on any day on which the Fund's
net asset value is calculated. Shares are redeemed at the net asset value next
determined after receipt of proper notice of redemption. If you redeem all of
your shares, you will receive payment of all dividends declared but unpaid
through the date of redemption. If you redeem only a portion of the shares in
your account, the dividends declared but unpaid on the shares redeemed will not
be distributed to you until the next regular dividend payment date. If your
redemption order is received prior to 12 noon Eastern time, the redemption will
be effective on that day and the Company will endeavor to transmit payment that
same business day. If the notice of redemption is received after 12 noon and
prior to 4:15 p.m. Eastern time, the redemption will be at the 4:15 p.m. net
asset value and payment will be made on the next business day.
Some of the redemption procedures described below may require you to complete
and file an authorization form in advance. If purchases are made by check,
redemption of those shares by wire, by check redemption or by telephone are
restricted for fifteen calendar days following the purchase of shares. Under
certain circumstances the Company may redeem accounts of less than $500 or
impose a monthly service charge of not more than $10 on such accounts.
REDEMPTIONS THROUGH
INTERSTATE/JOHNSON LANE
Shareholders may redeem shares by instructing Interstate/Johnson Lane to effect
their redemption transactions. Interstate/Johnson Lane will transmit the
required redemption information to the Company and the proceeds from that
redemption will be transmitted to Interstate/Johnson Lane for the account of the
shareholder. Interstate/Johnson Lane may impose redemption minimums, service
fees or other requirements. Interstate/Johnson Lane has a responsibility to
transmit redemption requests promptly.
Redemptions by Check
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Shareholders may use checks to effect redemptions. The standard checking allows
checks to be drawn in any amount of $250 or more. Checks drawn in amounts of
less than $250 may be returned to the payee or a $15 fee will be imposed for
such checks paid.
Shareholders may elect to establish a Key Account. A Key Account provides draft
checking services which is part of a range of cash management services provided
by the Manager and/or its affiliates. The account entitles shareholders to write
checks in any amount that will clear through an agent bank. SHAREHOLDERS WHO ARE
INTERESTED IN PARTICIPATING IN THE KEY ACCOUNT PROGRAM SHOULD CONSIDER THE
INFORMATION AVAILABLE FROM INTERSTATE/JOHNSON LANE WITH RESPECT TO THE KEY
ACCOUNT, INCLUDING THE FEES RELATED THERETO.
The payee of a check may cash or deposit it in the same way as an ordinary bank
check. When a check is presented to the agent bank for payment, the agent bank
will cause the Company to redeem a sufficient number of shares to cover the
amount of the check. Shareholders are entitled to dividends on the shares
redeemed up until the day on which the check is presented to the agent bank for
payment. Checks drawn on insufficient funds will be returned to the payee and a
fee (currently $16) will be imposed. Additionally, a fee (currently $20) will be
imposed for stop payment orders.
PREAUTHORIZED REDEMPTIONS
Shareholders may make preauthorized redemptions by contacting the Company by:
(a) calling (212) 830-5280 if calling from New Jersey, Alaska or Hawaii or
(b) calling toll free at (800) 433-1918 if calling from elsewhere in the
continental United States or
(c) sending a telegram or letter to Reich & Tang, 600 Fifth Avenue, New York,
New York 10020
and have the proceeds mailed or wired only to Interstate/Johnson Lane or a
previously designated bank account if (a) shares were paid for in Federal Funds
or were purchased by check and have been on the Company's books at least fifteen
calendar days and (b) a telephone redemption authorization included in the
Investor Application is on file with the Company before the redemption request
is placed. This authorization requires designation of a brokerage or bank
account to which the redemption payment is to be sent. The proceeds will not be
mailed or wired to other than the designated account. Redemptions of $10,000 or
more will be sent by bank wire if requested. Smaller amounts will normally be
mailed to the designated account.
The Company will employ procedures to confirm that telephone redemption
instructions are genuine, and will require that shareholders electing such
option provide a form of personal identification. The failure by the Company to
employ such procedures may cause the Company to be liable for any losses
incurred by investors due to telephone redemptions based upon unauthorized or
fraudulent instructions.
REDEMPTIONS BY LETTER OF INSTRUCTION
Shareholders may redeem shares by a letter of instruction sent directly to Reich
& Tang Funds, 600 Fifth Avenue, New York, New York 10020, containing:
(a) your Interstate/Johnson Lane account number
(b) your redemption Fund choice
(c) your name and telephone number
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(d) the dollar amount or number of shares to be redeemed or a statement that
all shares in the account are to be redeemed
(e) payment instructions (normally redemption proceeds will be mailed to the
shareholder's address as registered with the Company)
(f) signature(s) of the registered shareholder(s)
(g) signature(s) guaranteed stamped under the signature and signed and
guaranteed by an eligible guarantor institution which includes a domestic
bank, a domestic savings and loan institution, a domestic credit union, a
member bank of the Federal Reserve System or a member firm of a national
securities exchange, pursuant to the Company's standards and procedures.
The proceeds of redemption are sent to the shareholder's bank or the
shareholder's address as it appears in the Company's records. In order to change
such designation, the shareholder must submit a written notification to the
Company with the signature guarantee(s) described above.
EXCHANGES
Shares of each Fund may be exchanged at net asset value for shares of any of the
other Funds without charge by instructions to Interstate/Johnson Lane or by
mail. The value of the shares being exchanged must meet the minimum initial
investment requirements of the Fund. Mail exchange orders should be addressed
and sent as shown under the heading "Redemptions by Letter of Instruction" and
must contain:
your Interstate/Johnson Lane account number
your name and telephone number
the amount of shares to be exchanged (or, if all shares are to be
exchanged, a statement to this effect)
the Fund shares to be exchanged
the Fund shares to be acquired
any change in dividend election
INVESTMENT PROGRAMS
INVESTMENT OBJECTIVES
The LIVE OAK GENERAL FUND and the LIVE OAK GOVERNMENT FUND seek to provide as
high a level of current income as is consistent with the preservation of capital
and liquidity. The LIVE OAK MUNICIPAL FUND seeks to provide as high a level of
current income exempt from federal income taxes as is consistent with the
preservation of capital and liquidity. For purposes of this Prospectus and the
Statement of Additional Information, interest which is "tax-exempt" or "exempt"
from federal income tax means interest which is excluded from gross income for
federal income tax purposes, but which may constitute an item of tax preference
and which may therefore give rise to a federal alternative minimum tax liability
for individual shareholders. The investment objectives of each Fund are
fundamental policies, which may not be changed without the approval of the
shareholders of the respective Funds.
INVESTMENT POLICIES
Each Fund invests only in U.S. dollar-denominated securities which are rated in
one of the two highest rating categories for debt obligations by at least two
nationally recognized statistical rating organizations ("NRSROs") (or one NRSRO
if the instrument was rated by only one such organization) or, if unrated, are
of comparable quality as determined in accordance with procedures established by
the Board of Directors. The NRSROs currently rating instruments of the type one
or more of the Funds may purchase are Moody's Investors Service, Inc., Standard
& Poor's Corporation, Duff and Phelps, Inc., Fitch Investors Service,
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Inc., IBCA Limited and IBCA Inc. (See the Statement of Additional Information
for information with respect to rating criteria for each NRSRO.)
Investments in rated securities not rated in the highest category by at least
two NRSROs (or one NRSRO if the instrument was rated by only one such
organization), and unrated securities not determined by the Board of Directors
to be comparable to those rated in the highest category, will be limited to 5%
of a Fund's total assets, with the investment in any such issuer being limited
to not more than the greater of 1% of a Fund's total assets or $1 million. A
Fund may invest in obligations issued or guaranteed by the U.S. Government
without any such limitation.
Each Fund invests in such high quality debt obligations with relatively short
maturities. Each Fund seeks to achieve its objective by investing in different
types of securities, as described below. Unless otherwise stated, the investment
policies and restrictions set forth below and in the Statement of Additional
Information are not fundamental policies, and may be changed by the Board of
Directors, with notice to shareholders.
LIVE OAK GOVERNMENT FUND
The LIVE OAK GOVERNMENT FUND endeavors to achieve its objective by investing at
least 65% of its total assets in short-term "U.S. Government Obligations." U.S.
Government Obligations consist of marketable securities and instruments issued
or guaranteed by the U.S. Government or by its agencies or instrumentalities.
Direct obligations are issued by the U.S. Treasury and include bills,
certificates of indebtedness, notes and bonds. Obligations of U.S. Government
agencies and instrumentalities ("Agencies") are issued by government-sponsored
agencies and enterprises acting under authority of Congress. Although
obligations of federal agencies and instrumentalities are not debts of the U.S.
Treasury, in some cases payment of interest and principal on such obligations is
guaranteed by the U.S. Government, e.g., obligations of the Federal Housing
Administration, the Export-Import Bank of the United States, the Small Business
Administration, the Government National Mortgage Association, the General
Services Administration and the Maritime Administration; in other cases payment
of interest and principal is not guaranteed, e.g., obligations of the Federal
Home Loan Bank System and the Federal Farm Credit Bank. The LIVE OAK GOVERNMENT
FUND will invest in Agencies which are not guaranteed or backed by the full
faith and credit of the U.S. Government only when the Fund's Board of Directors
is satisfied that the credit risk with respect to a particular agency or
instrumentality is minimal.
LIVE OAK GENERAL FUND
The LIVE OAK GENERAL FUND seeks to achieve its objective by investing at least
80% of its assets in U.S. Government Obligations, as defined above, in bank
instruments, in trust instruments, in corporate commercial instruments and in
other corporate instruments maturing in thirteen months or less (collectively,
"Money Market Obligations").
The LIVE OAK GENERAL FUND may invest in bank instruments, which consist mainly
of certificates of deposit, bankers' acceptances and time deposits. The Live Oak
General Fund may also invest in corporate instruments supported by bank letters
of credit. The LIVE OAK GENERAL FUND generally limits investments in bank
instruments to (a) those which are fully insured as to principal by the FDIC or
(b) those issued by banks which at the date of their latest public reporting
have total assets in excess of $1.5 billion. However, the total assets of a bank
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will not be the sole factor determining the Fund's investment decisions, and the
Fund may invest in bank instruments issued by institutions which the Board of
Directors believes present minimal credit risk.
The LIVE OAK GENERAL FUND may invest up to 100% of its assets in obligations
issued by banks, and up to 10% of its assets in obligations issued by any one
bank, subject to the provisions of Rule 2a-7 of the Investment Company Act of
1940 (the "1940 Act"). If the bank is a domestic bank, it must be a member of
the FDIC. The LIVE OAK GENERAL FUND may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks or foreign branches of
foreign banks ("Eurodollar" obligations) and domestic branches of foreign banks
("Yankee dollar" obligations). The LIVE OAK GENERAL FUND will limit its
aggregate investments in foreign bank obligations, including Eurodollar
obligations and Yankee dollar obligations, to 25% of its total assets at the
time of purchase, provided that there is no limitation upon the LIVE OAK GENERAL
FUND investments in (a) Eurodollar obligations, if the domestic parent of the
foreign branch issuing the obligation is unconditionally liable in the event
that the foreign branch fails to pay on the Eurodollar obligation for any
reason; and (b) Yankee dollar obligations, if the U.S. branch of the foreign
bank is subject to the same regulation as U.S. banks. Eurodollar, Yankee dollar
and other foreign bank obligations include time deposits, which are
non-negotiable deposits maintained in a bank for a specified period of time at a
stated interest rate. The LIVE OAK GENERAL FUND will limit its purchases of time
deposits to those which mature in seven days or less, and will limit its
purchases of time deposits maturing in two to seven days to 10% of such Fund's
total assets at the time of purchase.
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, that the obligations may
be less marketable than comparable domestic obligations of domestic issuers,
that a foreign jurisdiction might impose withholding taxes on interest income
payable on those obligations, that deposits may be seized or nationalized, that
foreign governmental restrictions such as exchange controls may be adopted which
might adversely affect the payment of principal of and interest on those
obligations, that the selection of foreign obligations may be more difficult
because there may be less information publicly available concerning foreign
issuers, that there may be difficulties in enforcing a judgment against a
foreign issuer or that the accounting, auditing and financial reporting
standards, practices and requirements applicable to foreign issuers may differ
from those applicable to domestic issuers. In addition, foreign banks are not
subject to examination by United States Government agencies or
instrumentalities.
The LIVE OAK GENERAL FUND may invest in short-term corporate obligations and
instruments, including but not limited to corporate commercial paper, notes,
bonds and debentures. Corporate commercial instruments generally consist of
short-term unsecured promissory notes issued by corporations. The LIVE OAK
GENERAL FUND may also purchase variable amount master demand notes, which are
unsecured demand notes that permit investment of fluctuating amounts of money at
variable rates of interest pursuant to arrangements with issuers who meet the
foregoing quality criteria. The interest rate on a variable amount master demand
note is periodically redetermined according to a prescribed formula. Although
there is no
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secondary market in master demand notes, the payee may demand payment of the
principal and interest upon notice not exceeding five business or seven calendar
days. The LIVE OAK GENERAL FUND may also purchase participation interests in
loans extended by banks to companies, provided that both such banks and such
companies meet the quality standards set forth above. (See the Statement of
Additional Information for information with respect to corporate commercial
instruments and bond ratings.) The LIVE OAK GENERAL FUND may also invest in
fixed or variable rate debt units representing an undivided interest in a
trust's distributions of principal and interest that a trust receives from an
underlying portfolio of bonds issued by a highly rated corporate or U.S.
Government agency issuer and/or payments from re-characterized distributions
made possible by the swap of certain payments due on the underlying bonds. The
LIVE OAK GENERAL FUND'S investment will be limited solely to the debt units and
in each case, must meet the credit quality standards under Rule 2a-7 of the 1940
Act. Debt units will be purchased by the LIVE OAK GENERAL FUND as an
institutional accredited investor pursuant to a private placement memorandum.
Sale of debt units will be effected pursuant to Rule 144A or other exemptions
from registration under the Securities Act of 1933, subject to the eligibility
of the purchaser and compliance with trust agreement requirements. The Manager
will monitor the liquidity of the debt units under the supervision of the
Company's Board of Directors.
LIVE OAK MUNICIPAL FUND
The LIFE OAK MUNICIPAL FUND seeks to provide as high a level of current income
that is exempt from federal income taxes as is consistent with the preservation
of capital and liquidity by investing at least 80% of its net assets in a
diversified portfolio of high quality, short-term municipal obligations
("Municipal Securities").
The LIVE OAK MUNICIPAL FUND will invest in the following securities. The LIVE
OAK MUNICIPAL FUND will invest in Municipal Securities which include debt
obligations issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities, the refunding of outstanding
obligations, the obtaining of funds for general operating expenses and lending
such funds to other public institutions and facilities. In addition, certain
types of private activity bonds or industrial development bonds are issued by or
on behalf of public authorities to obtain funds to provide for the construction,
equipment, repair or improvement of privately operated facilities. Such
obligations are considered to be Municipal Securities provided that the interest
paid thereon generally qualifies as exempt from federal income tax in the
opinion of bond counsel. However, interest on Municipal Securities may give rise
to federal alternative minimum tax liability and may have other collateral
federal income tax consequences.
The LIVE OAK MUNICIPAL FUND also may purchase any Municipal Security which
depends on the credit of the U.S. Government and may invest in Municipal
Securities which are not rated if, in the opinion of the Company's investment
advisor, and in accordance with procedures established by the Board of
Directors, such securities possess creditworthiness comparable to those rated
obligations in which the LIVE OAK MUNICIPAL FUND may invest. The LIVE OAK
MUNICIPAL FUND may, from time to time, on a temporary or defensive basis, invest
in short-term, high quality U.S. Government Obligations, Money Market
Obligations and repurchase agreements. Income from any such temporary
investments would be taxable to shareholders as ordinary income. It is the
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present policy of the LIVE OAK MUNICIPAL FUND to invest only in securities the
interest on which is tax-exempt. The Fund will endeavor to be invested at all
times in Municipal Securities. It is a fundamental policy of the LIVE OAK
MUNICIPAL FUND that its assets will be invested so that at least 80% of its
income will be exempt from federal income taxes. The LIVE OAK MUNICIPAL FUND may
from time to time hold cash reserves.
ALL FUNDS
The securities in which the Funds invest may not yield as high a level of
current income as longer term or lower grade securities, which generally have
less liquidity and greater fluctuation in value. There can be no assurance that
the Funds will achieve their objectives. The values of the securities in which
the Funds invest fluctuate based upon interest rates, the financial stability of
the issuers and market factors.
The Company may enter into the following arrangements with respect to all three
Funds. Repurchase Agreements: under a repurchase agreement, the purchaser (for
example, one of the Funds) acquires ownership of an obligation and the seller
agrees, at the time of the sale, to repurchase the obligation at a mutually
agreed upon time and price, thereby determining the yield during the purchaser's
holding period. This arrangement results in a fixed rate of return insulated
from market fluctuations during such period. Although the underlying collateral
for repurchase agreements may have maturities exceeding one year, a Fund will
not enter into a repurchase agreement if as a result of such investment more
than 10% of such Fund's net assets would be invested in illiquid securities,
including repurchase agreements which expire in more than seven days. A Fund
may, however, enter into "continuing contract" or "open" repurchase agreements
under which the seller is under a continuing obligation to repurchase the
underlying obligation from that Fund on demand and the effective interest rate
is negotiated on a daily basis.
In general, a Fund will enter into repurchase agreements only with domestic
banks with total assets of at least $1.5 billion or with primary dealers in U.S.
Government securities. However, the total assets of a bank will not be the sole
factor determining the Fund's investment decisions, and the Fund may enter into
repurchase agreements with other institutions which the Board of Directors
believes present minimal credit risk. Nevertheless, if the seller of a
repurchase agreement fails to repurchase the obligation in accordance with the
terms of the agreement, the Fund which entered into the repurchase agreement may
incur a loss to the extent that the proceeds it realized on the sale of the
underlying obligation are less than the repurchase price. Repurchase agreements
may be considered loans to the seller of the underlying security. Income with
respect to repurchase agreements is not tax-exempt.
Securities purchased pursuant to a repurchase agreement are held by the Fund's
Custodian and (i) are recorded in the name of the Fund with the Federal Reserve
Book-Entry System, or (ii) the 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
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should they occur, or in some cases as a technique to enhance income. A Fund
will use reverse repurchase agreements when the interest income to be earned
from the investment of the proceeds of the transaction is greater than the
interest expense of the reverse repurchase transaction. A Fund will enter into
reverse repurchase agreements only in amounts up to 10% of the value of its
total assets at the time of entering into such agreements. Reverse repurchase
agreements involve the risk that the market value of securities retained by a
Fund in lieu of liquidation may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. This risk, if
encountered, could cause a reduction in the net asset value of a Fund's shares.
Reverse repurchase agreements are considered to be borrowings under the 1940
Act. See "Investment Restrictions" in the Statement of Additional Information
for percentage limitations on borrowings.
Delayed delivery agreements are commitments by any of the Funds to dealers or
issuers to acquire securities beyond the customary same-day settlement for money
market instruments. These commitments fix the payment price and interest rate to
be received on the investment. Delayed delivery agreements will not be used as a
speculative or leverage technique. Rather, from time to time, the Funds'
investment advisor can anticipate that cash for investment purposes will result
from scheduled maturities of existing portfolio instruments or from net sales of
shares of a Fund; therefore, to assure that a Fund will be as fully invested as
possible in instruments meeting that Fund's investment objective, a Fund may
enter into delayed delivery agreements, but only to the extent of anticipated
funds available for investment during a period of not more than five business
days.
Money Market Obligations and Municipal Securities are sometimes offered on a
"when-issued" basis, that is, the date for delivery of and payment for the
securities is not fixed at the date of purchase, but is set after the securities
are issued (normally within forty-five days after the date of the transaction).
The payment obligation and the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A Fund
will only make commitments to purchase such Money Market Instruments or
Municipal Securities with the intention of actually acquiring such securities,
but a Fund may sell these securities before the settlement date if it is deemed
advisable.
If a Fund enters into a delayed delivery agreement or purchases a when-issued
security, that Fund will direct the Company's custodian bank to place cash or
other high grade securities (including Money Market Obligations and Municipal
Securities) in a segregated account of such Fund in an amount equal to its
delayed delivery agreements or when-issued commitments. If the market value of
such securities declines, additional cash or securities will be placed in the
account on a daily basis so that the market value of the account will equal the
amount of such Fund's delayed delivery agreements and when-issued commitments.
To the extent that funds are in a segregated account, they will not be available
for new investment or to meet redemptions. Investment in securities on a
when-issued basis and use of delayed delivery agreements may increase a Fund's
exposure to market fluctuation; may increase the possibility that the LIVE OAK
MUNICIPAL FUND will incur a 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
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security under a delayed delivery agreement. The Funds will employ techniques
designed to minimize these risks.
No additional delayed delivery agreements or when-issued commitments will be
made if more than 25% of a Fund's net assets would become so committed. The
Funds will enter into when-issued and delayed delivery transactions only when
the time period between trade date and settlement date is at least 30 days and
not more than 120 days.
The LIVE OAK MUNICIPAL FUND may attempt to improve its portfolio liquidity by
assuring same-day settlements on portfolio sales (and thus facilitate the
same-day payment of redemption proceeds) through the acquisition of "Stand-by
Commitments." A Stand-by Commitment is a right of the LIVE OAK MUNICIPAL FUND,
when it purchases Municipal Securities for its portfolio from a broker, dealer
or other financial institution, to sell the same principal amount of such
securities back to the seller, at the LIVE OAK MUNICIPAL FUND'S option, at a
specified price. Stand-by Commitments are also sometimes known as "puts." The
LIVE OAK MUNICIPAL FUND will acquire Stand-by Commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition or exercisability of a Stand-by Commitment by
the LIVE OAK MUNICIPAL FUND will not affect the valuation or the average
weighted maturity of its underlying portfolio securities. See "Investment
Programs and Restrictions - Stand-by Commitments" in the Statement of Additional
Information for additional information with respect to Stand-by Commitments.
INVESTMENT RESTRICTIONS
The Funds' investment programs are subject to a number of investment
restrictions which reflect self-imposed standards as well as federal and state
regulatory limitations. The most significant of these restrictions provide that
each Fund will not: (1) purchase securities of any issuer (other than
obligations of the U.S. Government, its agencies or instrumentalities,
repurchase agreements fully secured by such obligations and any Municipal
Securities guaranteed by the U.S. Government) if as a result more than 5% of a
Fund's total assets would be invested in the securities of such issuer, except
that in the case of certificates of deposit and bankers' acceptances, up to 25%
of the value of a Fund's total assets may be invested without regard to such 5%
limitation, but shall instead be subject to a 10% limitation (in each case,
subject to the provisions of Rule 2a-7 of the 1940 Act); (2) purchase any
corporate commercial instruments which would cause 25% of the value of the LIVE
OAK GENERAL FUND'S total assets at the time of such purchase to be invested in
securities of one or more issuers conducting their principal business activities
in the same industry; (3) borrow money or pledge, mortgage or hypothecate its
assets except for temporary or emergency purposes (except to secure reverse
repurchase agreements and then only in an amount not exceeding 15% of the value
of a Fund's total assets) except that each Fund may purchase delayed delivery
and when-issued securities consistent with its investment objective and policies
(such Fund will not make additional investments while borrowings other than
when-issued and delayed delivery purchases are outstanding); or (4) lend money
or securities except to the extent that the investments of a Fund may be
considered loans.
Additionally, the LIVE OAK MUNICIPAL FUND will not: (1) purchase any securities
which would cause more than 25% of the value of the LIVE OAK MUNICIPAL FUND'S
net assets at the time of such purchase to be invested in (i) securities of one
or more issuers conducting their principal activities in the same state, (ii)
securities, the interest upon which is paid from revenues of
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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 LIVE OAK MUNICIPAL FUND may purchase
Stand-by Commitments.
The foregoing restrictions are matters of fundamental policy and may not be
changed without the affirmative vote of a majority of the outstanding shares of
each Fund affected by such change.
MATURITIES
Consistent with the objective of stability of principal, each Fund attempts to
maintain a constant net asset value per share of $1.00 and, to this end, values
its assets by the amortized cost method and rounds its per share net asset value
to the nearest whole cent in compliance with applicable rules and regulations.
Accordingly, the Funds invest in Money Market Obligations and Municipal
Securities having remaining maturities of thirteen months or less and maintain a
weighted average maturity for each Fund of 90 days or less. However, there can
be no assurance that a Fund's net asset value per share of $1.00 will be
maintained.
DIVIDENDS AND TAXES
DIVIDENDS
It is the policy of the Company, with respect to each Fund, to declare dividends
from the net investment income earned by each Fund daily; such dividends are
generally reinvested in additional Fund shares on the subsequent business day. A
shareholder may, by letter to the Company, elect to have dividends paid by
check. Any such election or revocation thereof must be made in writing to Reich
& Tang Funds, 600 Fifth Avenue, New York, New York 10020. Shareholders whose
dividends are being reinvested will receive a summary of their accounts at least
quarterly indicating the reinvestment of dividends. Dividends from net realized
capital gain, offset by capital loss carryovers, if any, are generally declared
and paid when realized except to the extent that a net realized capital gain is
deemed necessary to offset future capital losses.
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
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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. Such distributions generally will
be eligible for the dividends-received deduction in the case of corporate
shareholders.
Shareholders of the LIVE OAK MUNICIPAL FUND will not be required to include the
"exempt-interest" portion of dividends paid by the Fund in their gross income
for federal income tax purposes. However, shareholders will be required to
report the receipt of exempt-interest dividends and other tax-exempt interest on
their federal income tax returns. Moreover, exempt-interest dividends may be
subject to state income taxes, may give rise to a federal alternative minimum
tax liability, may affect the amount of social security benefits subject to
federal income tax, may affect the deductibility of interest on certain
indebtedness of the shareholder and may have other collateral federal income tax
consequences. The LIVE OAK MUNICIPAL FUND may purchase without limitation
Municipal Securities the interest on which constitutes an item of tax preference
and which may therefore give rise to a federal alternative minimum tax liability
for individual shareholders. For additional information concerning the
alternative minimum tax and certain collateral tax consequences of the receipt
of exempt-interest dividends, see the Statement of Additional Information.
The LIVE OAK MUNICIPAL FUND may invest in securities the interest on which is
(and the dividends paid by the Fund derived from such interest are) subject to
federal income tax, but such taxable securities will not exceed 20% of the value
of the LIVE OAK MUNICIPAL FUND'S total assets. The percentage of dividends which
constitute exempt-interest dividends, and the percentage thereof (if any) which
constitutes an item of tax preference, will be determined annually and will be
applied uniformly to all dividends of the LIVE OAK MUNICIPAL FUND Declared
during that year. These percentages may differ from the actual percentages for
any particular day.
Shareholders of the LIVE OAK GOVERNMENT FUND and the LIVE OAK GENERAL FUND will
be subject to federal income taxes and any applicable state income taxes on
amounts distributed as dividends unless such shareholders are otherwise exempt.
It is not expected that any portion of taxable dividends paid by the Funds will
qualify for the federal dividends-received deduction for corporations.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether the shareholder elects to receive them in cash or
reinvest them in additional shares. In general, shareholders take distributions
into account in the year in which they are made. However, shareholders are
required to treat certain distributions made during January as having been paid
and received on December 31 of the preceding year. A statement setting forth the
federal income tax status of all distributions made (or deemed made) during the
year, will be sent to shareholders promptly after the end of each year.
To avoid being subject to a 31% federal backup withholding on taxable dividends
and redemption payments, a shareholder must furnish the Company with its
taxpayer identification number and certify, under penalties of perjury, that
such number is correct and that such shareholder is 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
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only, shareholders should also review the more detailed discussion of federal
income tax considerations relevant to the Funds that is contained in the Funds'
Statement of Additional Information. Shareholders are advised to consult with
their tax advisors concerning the application of state, local and foreign taxes
on investments in the Company which may differ from the federal income tax
consequences described above.
MANAGEMENT
BOARD OF DIRECTORS
The overall management of the business and affairs of the Company is vested with
the Board of Directors. The Board of Directors approves all significant
agreements between the Funds and persons or companies furnishing services to the
Funds, including the Funds' agreements with the manager, the investment advisor,
the distributor, and the custodian. The day-to-day operations of each Fund are
delegated to the Company's officers, and the manager, subject always to the
objective and policies of each Fund and to the general supervision of the
Company's Board of Directors. The manager also furnishes or procures on behalf
of the Company at the manager's expense all services necessary for the proper
conduct of each Fund's business. Some of the Company's officers and directors
are officers or employees of the manager. A majority of the members of the Board
of Directors of the Company have no affiliation with the manager.
MANAGER AND INVESTMENT ADVISOR
Reich & Tang Asset Management L.P., a Delaware limited partnership, with its
principal offices at 600 Fifth Avenue, New York, New York 10020, serves as the
manager and investment advisor of the Company and its three Funds pursuant to
agreements with the Funds dated August 30, 1996 (the "Management/Investment
Advisory Agreements"). Under the Management/Investment Advisory Agreements,
Reich & Tang Asset Management L.P. (the "Manager") provides, either directly or
indirectly through contracts with others, all services required for the
management of the Company. The Manager bears all ordinary operating expenses
associated with the Company's operation except: (a) the fees of the Directors
who are not "interested persons" of the Company, as defined by the 1940 Act, and
the travel and related expenses of the Directors incident to their attending
shareholders', directors' and committee meetings, (b) interest, taxes and
brokerage commissions (which are expected to be insignificant), (c)
extraordinary expenses, if any, including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto, (d)
shareholder service or distribution fees payable by the Company under the plans
of distribution described under the heading "Distributor" below, and (e)
membership dues of any industry association. Additionally, the Manager has
assumed all expenses associated with organizing the Company and all expenses of
registering or qualifying the Company's shares under federal and state
securities laws.
The Funds pay the Manager an annual fee, calculated daily and paid monthly, of
.80% of the first $500 million of the Company's average daily net assets, plus
.775% of the next $500 million of the Company's average daily net assets, plus
.750% of the next $500 million of the Company's average daily net assets, plus
.725% of the Company's average daily net assets in excess of $1.5 billion. The
Company's comprehensive fee is higher than most other money market mutual funds
which do not offer services that the Company offers. However, most other funds
bear expenses that are being borne for the Company by the Manager. During the
fiscal year ended March 31, 1997, the Company paid
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the Manager fees which represented 0.76% of the Cortland General Portfolio's
average daily net assets, 0.74% of the Government Portfolio's average daily net
assets and 0.76% of the Municipal Portfolio'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 .95% of the
Cortland General Fund's average daily net assets, .86% of the Government Fund's
average daily net assets and .93% of the Municipal Fund's average daily net
assets, respectively, on an annualized basis.
The Manager was, at June 30, 1997, investment manager, advisor or supervisor
with respect to assets aggregating in excess of $9.3 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.
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. On August 30, 1996, The New
England Mutual Life Insurance Company ("The New England") and Metropolitan Life
Insurance Company ("MetLife") merged, with MetLife being the continuing company.
The Manager remains an indirect wholly-owned subsidiary of NEICLP, but Reich &
Tang Asset Management, Inc., its sole general partner, is now an indirect
subsidiary of MetLife. Also, MetLife New England Holdings, Inc., a wholly-owned
subsidiary of MetLife, owns approximately 48.5% of the outstanding limited
partnership interest of NEICLP and may be deemed a "controlling person" of the
Manager. Reich & Tang, Inc. owns approximately 16% of the outstanding
partnership units of NEICLP.
MetLife is a mutual life insurance company with assets of $297.6 billion at
December 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.6 trillion at December 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through twelve subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units include AEW Capital Management, L.P.,
Back Bay Advisors, L.P., Graystone Partners, L.P., Harris Associates, L.P.,
Jurika & Voyles, L.P., Loomis, Sayles & Co., L.P., MC Management, L.P., New
England Fund, L.P., New England Funds Management, L.P., Reich & Tang Asset
Management L.P., Vaughan-Nelson, Scarborough & McConnell L.P. and Westpeak
Investment Advisors, L.P. These affiliates in the aggregate are investment
advisors or managers to 69 other registered investment companies.
The merger between The New England and MetLife resulted in an "assignment" of
the Management/Investment Advisory Agreements relating to each Fund. Under the
1940 Act, such an assignment caused the automatic termination of the agreements.
On November 14, 1995, the Board of Directors, including a majority of the
directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved Management/Investment Advisory Agreements
effective August 30, 1996, which has a term which extends to June 30, 1998 and
may be continued thereafter for
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successive twelve-month periods beginning each July 1, provided that such
continuance is specifically approved annually by majority vote of the Fund's
outstanding voting securities or by its Board of Directors, and in either case
by a majority of the directors who are not parties to the Management/ Investment
Advisory Agreements or interested persons of any such party, by votes cast in
person at a meeting called for the purpose of voting on such matter.
The Management/ Investment Advisory Agreements were approved by the Shareholders
on March 28, 1996 and each contains the same terms and conditions governing the
Manager's investment management responsibilities as the Fund's previous
Management/ Investment Advisory Agreement with the Manager, except as to the
date of execution and termination.
Pursuant to the terms of the Management/ Investment Advisory Agreements, the
Manager manages the investments of each of the Funds, subject at all times to
the policies and control of the Company's Board of Directors. The Manager
obtains and evaluates economic, statistical and financial information to
formulate and implement investment policies for the Funds. The Manager shall not
be liable to the Funds or to their shareholders except in the case of the
Manager's willful misfeasance, bad faith, gross negligence or reckless disregard
of duty.
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 Portfolios has entered into a distribution agreement dated September
15, 1993 (the "Distribution Agreements") with Reich & Tang Distributors L.P.
(the "Distributor"), 600 Fifth Avenue, New York, New York 10020. Reich & Tang
Asset Management L.P. is the sole general partner of the Distributor. The
Distributor, which was organized on January 4, 1991, has the exclusive right to
enter into dealer agreements with securities dealers who sell shares of the
Funds, including sales where a securities dealer automatically "sweeps" free
credit balances into a Fund at the end of each day ("Sweep Arrangement")
allowing the account holder to earn dividends otherwise unavailable in the
brokerage account, and with financial institutions which may furnish services to
shareholders on behalf of the Company. Pursuant to plans of distribution (the
"Plans") approved by the Funds' Boards on November 9, 1995, each of the Funds
may make distribution related payments, under a sweep arrangement or otherwise,
in an amount not to exceed on an annualized basis .20% of the value of the
Fund's assets. Securities dealers and other financial institutions may receive
distribution payments directly or indirectly from the Funds for services that
may include payments for opening shareholder accounts, processing investor
purchase and redemption orders, responding to inquiries from shareholders
concerning the status of their accounts and operations of their Fund and
communications with the Company on behalf of Fund shareholders. Additionally,
the Distributor may pay for advertisements, promotional materials, sales
literature and printing and mailing of prospectuses to other than Fund
shareholders and other services to support distribution pursuant to the Plans.
The Distributor may also make payments to securities dealers, under a sweep
arrangement or otherwise, and to 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.
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The Plans will only make payments for expenses actually incurred by the
Distributor. The Plans will not carry over expenses from year to year and if a
Plan is terminated in accordance with its terms, the obligations of a Fund to
make payments to the Distributor pursuant to the Plan will cease and the Fund
will not be required to make any payments past the date the Plan terminates.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Funds, broker-dealer selection and negotiation of commission rates. Since
purchases and sales of portfolio securities by the Funds are usually principal
transactions, the Funds incur little or no net brokerage commissions. Portfolio
securities are normally purchased directly from the issuer or from a market
maker for the securities. The purchase price paid to dealers serving as market
makers may include a spread between the bid and asked prices. The Funds may also
purchase securities from underwriters at prices which include a concession paid
by the issuer to the underwriter.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed to be in
the best interest of shareholders of the Funds rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price.
YIELD INFORMATION
Each Fund will provide yield quotations based on its daily dividends. Yield is
computed in accordance with a standardized formula described in the Statement of
Additional Information and can be expected to fluctuate substantially over time.
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 1, 1997, the current yield for the LIVE OAK
SHARES OF CORTLAND GENERAL FUND was 4.74%, the current yield for the GOVERNMENT
FUND was 4.65% and the current yield for the MUNICIPAL FUND was 3.31%, which is
equivalent to an effective yield of 4.85% for the LIVE OAK SHARES OF CORTLAND
GENERAL FUND, 4.75% for the GOVERNMENT FUND and 3.36% for the MUNICIPAL FUND.
GENERAL INFORMATION
ORGANIZATION OF THE COMPANY AND
DESCRIPTION OF SHARES
The Company is an open-end, diversified investment company. The Company was
organized as a Massachusetts business trust on October 31, 1984, but had no
operations prior to May 9, 1985. On July 31, 1989, the Company reorganized and
became a Maryland corporation. The shares of the Company are divided into three
Portfolios, each of which represent shares of common stock of the par value of
$.001. The Cortland General Money Market Fund Portfolio's shares are classified
into three classes - the Cortland General Money Market Fund Class, the Live Oak
General Money Market Fund Class and the Pilgrim America General Money Market
Shares. The U.S. Government Fund Portfolio's shares are classified into two
classes - the U.S. Government Fund Class and the Live Oak U.S. Government Fund
Class. The Municipal Money Market Fund Portfolio's shares are classified into
two classes - the Municipal Money Market Fund Class and the Live Oak Municipal
Money Market Fund Class. Classes of shares of the Company's Portfolios offered
through other prospectuses have different maximum distribution plan payments and
may have different other expenses which may affect performance. Investors may
call their securities
20
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dealer or the Company at (212) 830-5280 to obtain more information concerning
the other classes.
Shares of the Company have equal rights with respect to voting, except that the
holders of shares of a particular Portfolio or Fund will have the exclusive
right to vote on matters affecting only the rights of the holders of such
Portfolio or Fund. For example, holders of a particular Portfolio will have the
exclusive right to vote on any investment advisory agreement or investment
restriction that relates only to such Portfolio. The holders of each Fund have
distinctive rights with respect to dividends and redemptions which are more
fully described in this Prospectus and the Statement of Additional Information.
In the event of dissolution or liquidation, holders of each Fund will receive
pro rata, subject to the rights of creditors, (a) the proceeds of the sale of
the assets held in the respective portfolio to which the shares of the Fund
relate, less (b) the liabilities of the Company attributable to the respective
portfolio or allocated between the portfolios based on the respective
liquidation value of each portfolio. There will not normally be annual
shareholders' meetings. Shareholders may remove directors from office by a
majority of votes entitled to be cast at a meeting of shareholders. Shareholders
holding 10% or more of the Company's outstanding stock may call a special
meeting of shareholders.
There are no preemptive or conversion rights (other than the exchange privileges
set forth in this Prospectus) applicable to any of the Company's shares. The
Company's shares when issued, will be fully paid, non-assessable and
transferable. The Board of Directors may increase the number of authorized
shares or create additional series or classes of the Company shares without
shareholder approval.
LEGAL MATTERS
The law firm of Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York,
New York 10022, serves as counsel to the Company and has passed upon the
legality of the shares offered pursuant to this Prospectus.
CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, acts as custodian for each Portfolio's securities and cash. The Company
acts as its own transfer agent for the Company's shares.
SHAREHOLDER INQUIRIES
Shareholder inquiries concerning the status of an account should be directed to
your securities dealer or to the Company at (212) 830-5280 or toll free at (800)
433-1918.
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Table of Contents
Table of Fees and Expenses......................... 2
Financial Highlights............................... 3
How to Purchase Shares............................. 4
General Information on Purchases................ 4
Purchases Through
Interstate/Johnson Lane...................... 4
Purchases From the Company...................... 5
Initial Purchase of Shares...................... 5
Subsequent Purchases of Shares.................. 5
Electronic Funds Transfers (EFT)
and Direct Deposit Privilege................ 6
How to Redeem Shares............................... 6
Redemptions Through
Interstate/Johnson Lane...................... 6
Redemptions by Check............................ 6
Preauthorized Redemptions....................... 7
Redemptions by Letter of Instruction............ 7
Exchanges....................................... 8
Investment Programs................................ 8
Investment Objectives........................... 8
Investment Policies............................. 8
Live Oak Government Fund........................ 9
Live Oak General Fund........................... 9
Live Oak Municipal Fund.........................11
Investment Restrictions.........................14
Maturities......................................15
Dividends and Taxes................................15
Dividends.......................................15
Taxes 15
Management.........................................17
Portfolio Transactions.............................19
Yield Information..................................19
General Information................................20
Organization of the Company and
Description of Shares.......................20
Legal Matters...................................20
Custodian and Transfer Agent....................21
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CORTLAND 600 FIFTH AVENUE, NEW YORK, NY 10020
TRUST, INC.(212) 830-5280
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1997
Relating to the Cortland Trust, Inc. Prospectus and the
Pilgrim America Shares Prospectus
dated August 1, 1997
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.
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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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INTRODUCTION
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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, 1997, 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, 1997 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, as supplemented, permit the Directors to issue
the following number of full and fractional shares, par value $.001, of the
Portfolios: 2,000,000,000 shares of the Cortland General Money Market Fund (of
which 100,000,000 shares are classified as the Pilgrim America Shares and
400,000,000 shares are classified as Live Oak General Money Market Fund Shares);
1,000,000,000 shares of the U.S. Government Fund (of which 100,000,000 shares
are classified as Live Oak U.S. Government Fund Shares and 400,000,000 shares
are classified as Bradford U.S. Government Fund Shares); and 1,000,000,000
shares of the Municipal Money Market Fund (of which 100,000,000 shares are
classified as Live Oak Municipal Money Market Fund Shares and 400,000,000 shares
are classified as Bradford Municipal Money Market Fund Shares). 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
2
<PAGE>
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."
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, 43 - President and Director 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, 72 - 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, 77 - 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, 40 - 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 AEW Commercial Mortgage Securities, Inc., 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, 51 - 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, 46 - 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
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December 1977 to September 1993. Ms. Flewharty is also Vice President of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Florida
Daily Municipal Income Fund, Institutional Daily Income Fund, Inc., Michigan
Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc.,
New York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., Short Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc.
DANA E. MESSINA, 40 - 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, 48 - 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, 49 - 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 AEW Commercial Mortgage Securities, Inc.,
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>
<S> <C> <C> <C> <C>
COMPENSATION TABLE
(1) (2) (3) (4) (5)
Name of Person, Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation from
Position from Registrant for Benefits Accrued as Benefits upon Fund and Fund Complex
Fiscal Year Part of Fund Expenses Retirement Paid to Directors*
Owen Daly II, $15,000 0 0 $15,000 (1 Fund)
Director
Albert R. Dowden, $15,000 0 0 $15,000 (1 Fund)
Director
David C. Melnicoff, $15,000 0 0 $15,000 (1 Fund)
Director
James L. Schultz $15,000 0 0 $15,000 (1 Fund)
Director
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ended March 31, 1997 and, with respect to certain of the funds
in the Fund Complex, estimated to be paid during the fiscal year ended March 31,
1997. 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.
MANAGER AND INVESTMENT ADVISOR
Reich & Tang Asset Management L.P., a Delaware limited partnership, with its
principal offices at 600 Fifth Avenue, New York, New York 10020, serves as the
manager and investment advisor of the Company and its three Funds pursuant to
agreements with the Funds dated August 30, 1996 (the "Management/Investment
Advisory Agreements"). Under the Management/Investment Advisory Agreements,
Reich & Tang Asset Management L.P. (the "Manager") provides, either directly or
indirectly through contracts with others, all services required for the
management of the Company. The Manager bears all ordinary operating expenses
associated with the Company's operation except: (a) the fees of the Directors
who are not "interested persons" of the Company, as defined by the 1940 Act, and
the travel and related expenses of the Directors incident to their attending
shareholders', directors' and committee meetings, (b) interest, taxes and
brokerage commissions (which are expected to be insignificant), (c)
extraordinary expenses, if any, including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto, (d)
shareholder service or distribution fees payable by the Company under the plans
of
4
<PAGE>
distribution described under the heading "Distributor" below, and (e) membership
dues of any industry association. Additionally, the Manager has assumed all
expenses associated with organizing the Company and all expenses of registering
or qualifying the Company's shares under federal and state securities laws.
The Manager was, at June 30, 1997, investment manager, advisor or supervisor
with respect to assets aggregating in excess of $9.3 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.
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. On August 30, 1996, The New
England Mutual Life Insurance Company ("The New England") and Metropolitan Life
Insurance Company ("MetLife") merged, with MetLife being the continuing company.
The Manager remains an indirect wholly-owned subsidiary of NEICLP, but Reich &
Tang Asset Management, Inc., its sole general partner, is now an indirect
subsidiary of MetLife. Also, MetLife New England Holdings, Inc., a wholly-owned
subsidiary of MetLife, owns approximately 48.5% of the outstanding limited
partnership interest of NEICLP and may be deemed a "controlling person" of the
Manager. Reich & Tang, Inc. owns approximately 16% of the outstanding
partnership units of NEICLP.
MetLife is a mutual life insurance company with assets of $297.6 billion at
December 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.6 trillion at December 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through twelve subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units include AEW Capital Management, L.P.,
Back Bay Advisors, L.P., Graystone Partners, L.P., Harris Associates, L.P.,
Jurika & Voyles, L.P., Loomis, Sayles & Co., L.P., MC Management, L.P., New
England Fund, L.P., New England Funds Management, L.P., Reich & Tang Asset
Management L.P., Vaughan-Nelson, Scarborough & McConnell L.P. and Westpeak
Investment Advisors, L.P. These affiliates in the aggregate are investment
advisors or managers to 69 other registered investment companies.
The merger between The New England and MetLife resulted in an "assignment" of
the Management/Investment Advisory Agreements relating to each Fund. Under the
1940 Act, such an assignment caused the automatic termination of the agreements.
On November 14, 1995, the Board of Directors, including a majority of the
directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved Management/Investment Advisory Agreements
effective August 30, 1996, which have a term which extends to June 30, 1998 and
may be continued thereafter for successive twelve-month periods beginning each
July 1, provided that such continuance is specifically approved annually by
majority vote of the Fund's outstanding voting securities or by its Board of
Directors, and in either case by a majority of the directors who are not parties
to the Management/ Investment Advisory Agreements or interested persons of any
such party, by votes cast in person at a meeting called for the purpose of
voting on such matter.
The Management/ Investment Advisory Agreements were approved by each Fund on
March 28, 1996 and each contains the same terms and conditions governing the
Manager's investment management responsibilities as the Fund's previous
Management/ Investment Advisory Agreement with the Manager, except as to the
date of execution and termination.
Pursuant to the terms of the Management/ Investment Advisory Agreements, the
Manager manages the investments of each of the Funds, subject at all times to
the policies and control of the Company's Board of Directors. The Manager
obtains and evaluates economic, statistical and financial information to
formulate and implement investment policies for the Funds. The Manager shall not
be liable to the Funds or to their shareholders except in the case of the
Manager's willful misfeasance, bad faith, gross negligence or reckless disregard
of duty.
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 Portfolios, calculated daily
and paid monthly, of 0.800% of the first $500 million of the Company's average
daily net assets, 0.775% of the average daily
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<PAGE>
net assets of the Company in excess of $500 million but less than $1 billion,
0.750% of the average daily net assets of the Company in excess of $1 billion
but less than $1.5 billion, plus 0.725% of the Company's average daily net
assets in excess of $1.5 billion. The Company's comprehensive fee is higher than
most other money market mutual funds which do not offer services that the
Company offers. However, most other funds bear certain expenses that are borne
by the Manager. During the fiscal years ended March 31, 1995, March 31, 1996 and
March 31, 1997 the Company paid to the Manager the management fees set forth in
the table below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Year Management Fees
1995 Payable Waived Paid
---- ------- ------ ----
Cortland General $7,188,114 $124,695 $7,063,419
----------
U.S. Government 1,704,092 17,874 1,686,218
Municipal 1,755,183 0 1,755,183
1996
Cortland General $9,878,992 $0 $9,878,992
U.S. Government 1,964,097 0 1,964,097
Municipal 1,981,507 0 1,981,507
1997
Cortland General $10,885,158 $0 $10,885,158
U.S. Government 1,851,957 50,000 1,801,957
Municipal 1,698,486 0 1,698,486
</TABLE>
The Management/Investment Advisory Agreements were approved by the Board of
Directors, including a majority of directors who are not interested persons (as
defined in the 1940 Act), of the Portfolios or the Manager, effective August 30,
1997. The new Management/Investment Advisory Agreements were last approved for
continuance on June 20, 1997 and will continue thereafter if they are
specifically approved at least annually by the Board of Directors and by the
affirmative vote of a majority of the directors who are not parties to such
Management/Investment Advisory Agreements or "interested persons" of any such
party by votes cast in person at a meeting called for such purpose. The
Portfolios or the Manager may terminate the Management/Investment Advisory
Agreements on 60 days' written notice without penalty. Each
Management/Investment Advisory Agreement terminates automatically in the event
of its "assignment," as defined in the 1940 Act. The Manager shall not be liable
to the Portfolios or to their shareholders for any act or omission by the
Manager or for any loss sustained by a Fund or its shareholders except in the
case of the Manager's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty. The Company's (Portfolios') right to use the name
"Cortland" in its name in any form or combination may terminate upon termination
of the Manager as the Company's (Portfolios') investment manager.
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
6
<PAGE>
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.
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
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<PAGE>
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, 1997, the Company paid $2,618,147, $479,697 and $419,942 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, 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.
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, 1997, the Distributor paid
Shareholder Service Agents $5,142,902, $907,365 and $766,048, 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, 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
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 25, 1997, 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.
8
<PAGE>
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.
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.
9
<PAGE>
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.
DST SYSTEMS, Inc., P.O. Box 419368, Kansas City, Missouri 64141. 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.
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.
PRINCIPAL HOLDERS OF SECURITIES
On June 30, 1997 there were 2,236,979,166 total shares of the Company
outstanding. On June 30, 1997 there were 1,813,545,864 outstanding shares of the
Cortland General Money Market Fund, 235,870,851 outstanding shares of the U.S.
Government Fund and 187,562,451 outstanding shares of the Municipal Money Market
Fund. As of June 30, 1997 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, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nature of
Name and address Fund % of Class Ownership
E Trade Securities General Money Market 37.75% Record
[omnibus account] U.S. Government 40.36% Record
600 Fifth Avenue Municipal Money Market 22.96% Record
New York, NY 10020
JW Charles Clearing General Money Market 10.62% Record
Corporation as Agent U.S. Government 8.43% Record
980 North Federal Hwy Municipal Money Market 7.82% Record
Boca Raton, FL 33432
George K. Baum & Co. U.S. Government 8.15% Record
120 West 12th Street Municipal Money Market 15.45% Record
Kansas City, MO 64105
Reports
</TABLE>
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.
10
<PAGE>
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.
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.
11
<PAGE>
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 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 additional full and fractional shares of each Fund at net asset value. A
shareholder may elect to have the declared dividends 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, with respect to
the Municipal Money Market Fund, 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 will therefore satisfy the Distribution Requirement. If a Fund has net
capital loss (i.e., the excess of capital losses over capital gains) for any
year, the amount thereof may be carried forward up to eight years and treated as
a short-term capital loss which can be used to offset capial gains in such
years. As of March 31, 1997, Cortland General Fund, U.S. Government Fund and
Municipal Fund had capital loss carryforwards of approximately $2,325,981,
$715,280, $32,156 respectively, which expire through 2004, 2004 and 2003,
respectively. Under code Sections 382, and 383, if a Fund has an "ownership
change, " then such Fund's use of its capital loss carryforwards in any year
following the ownership change will be limited to an amount equal to the net
asset value of the Fund immediately prior to the ownership change multiplied by
the long-term tax-exempt rate (which is published monthly by the Internal
Revenue Service (the "IRS")) in effect for the month in which the ownership
change occurs (the rate for June is 5.64%). The Funds will use their best
efforts to avoid having an ownership change. However, because of circumstances
which may be beyond the control or knowledge of a Fund, there can be no
assurance that a Fund will not have, or has not already had, an ownership
change. If a Fund has or has had an ownership change, then any capital gain net
income for any year following the ownership change in excess of the annual
limitation on the capital loss carryforwards will have to be distributed by the
Fund and will be taxable to shareholders as described under "Fund Distributions"
below.
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 such sale or other disposition.
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.
12
<PAGE>
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 each of which the
Fund has not invested more than 5% of the value of the Fund's total assets in
securities of such issuer and 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 the asset
diversification test, 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. Net capital gain that is distributed and designated as a capital gain
dividend 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 federal income tax returns
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
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Federal income tax purposes, they may be subject to alternative minimum tax
("AMT") in certain circumstances and may have other collateral tax consequences
as discussed below. Distributions by the Municipal Money Market 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. 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 they 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 an "exempt
recipient" (such as a corporation).
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 months or less will be disallowed to the extent of the amount of
exempt-interest dividends received on such shares and (to the
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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 applicable 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 a foreign noncorporate shareholder, 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 shareholder furnishes 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 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.
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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.
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."
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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
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.
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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 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
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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 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
19
<PAGE>
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. 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
20
<PAGE>
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.
21
<PAGE>
INVESTMENT RATINGS
The following is a description of the two highest commercial paper, bond,
municipal bond and other short- and long-term categories assigned by Standard &
Poor's Rating Services, a division of the McGraw-Hill Companies ("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 investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA by IBCA.
22
<PAGE>
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.
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.
23
<PAGE>
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, 1997, 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 and financial highlights. Our procedures included confirmation of
securities owned as of March 31, 1997, 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, 1997, 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
May 1, 1997
New York, New York
25
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Commercial Paper (27.00%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 10,000,000 Asset Securities Corporations 05/28/97 5.35% $ 9,916,558 P1 A1+
13,000,000 Asset Securities Corporations 05/28/97 5.42 12,890,291 P1 A1+
15,000,000 Banque International A Luxembourg 05/21/97 5.34 14,890,208 P1 A1+
20,000,000 Compagnie Bancaire 04/14/97 5.36 19,961,650 P1 A1
20,000,000 Compagnie Bancaire 04/24/97 5.43 19,931,511 P1 A1
7,000,000 Compagnie Bancaire 05/19/97 5.47 6,950,347 P1 A1
20,000,000 Compagnie Bancaire 08/18/97 5.45 19,590,722 P1 A1
10,000,000 Compagnie Bancaire 09/23/97 5.82 9,724,861 P1 A1
10,000,000 Cosmair, Inc.
Guaranteed By L'oreal 04/16/97 5.42 9,977,708 P1
50,000,000 Dresdner U.S. Finance 04/01/97 6.25 50,000,000 P1 A1+
20,000,000 GTE Corporation(a) 04/10/97 5.37 19,973,300
20,000,000 GTE Corporation(a) 04/10/97 5.36 19,973,300
10,000,000 Goldman Sachs & Co. 04/04/97 5.91 9,995,084
10,000,000 Kingdom of Sweden 06/27/97 5.57 9,870,708 P1 A1+
15,000,000 Merrill Lynch & Company, Incorporated 04/09/97 5.36 14,982,233 P1 A1+
25,000,000 Morgan Stanley, Inc. 05/15/97 5.38 24,837,750 P1 A1+
10,000,000 National Bank of Canada 05/15/97 5.37 9,935,222 P1 A1
10,000,000 Receivable Capital Corporation 04/11/97 5.37 9,985,167 P1 A1
10,000,000 Receivable Capital Corporation 04/15/97 5.39 9,979,156 P1 A1
20,000,000 Receivable Capital Corporation 05/12/97 5.64 19,872,444 P1 A1
10,000,000 Receivable Capital Corporation 04/28/97 5.43 9,959,500 P1 A1
15,000,000 Sigma Finance Corporation 05/01/97 5.46 14,932,750 P1 A1+
20,000,000 Sigma Finance Corporation 05/06/97 5.42 19,895,972 P1 A1+
20,000,000 Sigma Finance Corporation 07/07/97 5.52 19,710,617 P1 A1+
20,000,000 Sigma Finance Corporation 07/25/97 5.57 19,653,722 P1 A1+
15,000,000 Unifunding 04/10/97 5.43 14,979,900 P1 A1
10,000,000 Unifunding 07/29/97 5.54 9,821,831 P1 A1
- --------------- -------------
435,000,000 Total Commercial Paper 432,192,512
- --------------- -------------
<CAPTION>
Domestic Certificates of Deposit (2.81%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 25,000,000 Union Bank of California 07/22/97 5.56% $ 25,000,000 P1 A1
20,000,000 Union Bank of California 04/09/97 5.50 20,000,000 P1 A1
- --------------- -------------
45,000,000 Total Domestic Certificates of Deposit 45,000,000
- --------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
26
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Eurodollar Certificate of Deposit (1.25%)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 20,000,000 Abbey National PLC 08/21/97 5.50% $ 19,994,239 P1 A1+
-------------- -------------
20,000,000 Total Eurodollar Certificate of Deposit 19,994,239
-------------- -------------
<CAPTION>
Japanese Eurodollar Certificates of Deposit (2.00%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 25,000,000 Norinchukin Bank Ltd. 04/03/97 5.48% $ 25,000,014 P1 A1+
7,000,000 Sumitomo Bank 04/25/97 5.80 6,999,434 P1 A1
-------------- -------------
32,000,000 Total Japanese Eurodollar Certificates of Deposit 31,999,448
-------------- -------------
<CAPTION>
Japanese Yankee Certificates of Deposit (6.56%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 20,000,000 Bank of Tokyo - Mitsubishi 04/16/97 5.59% $ 20,000,129 P1 A1
20,000,000 Bank of Tokyo - Mitsubishi 05/13/97 5.51 20,000,230 P1 A1
20,000,000 Fuji Bank, Ltd.(a) 04/14/97 5.55 20,000,072 P1
25,000,000 Fuji Bank, Ltd.(a) 04/07/97 5.55 25,000,041 P1
20,000,000 Norinchukin Bank, Ltd. 04/28/97 5.75 20,000,149 P1 A1+
-------------- -------------
105,000,000 Total Japanese Yankee Certificates of Deposit 105,000,621
-------------- -------------
<CAPTION>
Letter of Credit Commercial Paper (18.90%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 10,000,000 Banco Bradesco (S.A.) Grand Cayman
LOC Barclays Bank PLC 06/06/97 5.42% $ 9,902,283 P1 A1+
10,000,000 Banco Bradesco (S.A.) Grand Cayman
LOC Barclays Bank PLC 04/28/97 5.50 9,959,875 P1 A1+
20,000,000 Banco Rio de La Plata
LOC Bayerische Vereinsbank, A.G. 10/30/97 5.62 19,364,000 P1 A1+
22,000,000 Banco Rio de La Plata
LOC Bayerische Vereinsbank, A.G. 10/29/97 5.59 21,307,568 P1 A1+
10,000,000 Bancomer S.A.
LOC Bank of Montreal 09/24/97 5.72 9,728,667 P1 A1+
20,000,000 Beal Cayman Limited
LOC Westdeutsche Landesbank Girozentrale 06/13/97 5.40 19,785,056 P1 A1+
20,000,000 Beal Cayman Limited
LOC Westdeutsche Landesbank Girozentrale 07/14/97 5.42 19,693,778 P1 A1+
10,000,000 Beal Cayman Limited
LOC Westdeutsche Landesbank Girozentrale 07/07/97 5.40 9,857,464 P1 A1+
10,000,000 Galicia, Buenos Aires Funding Corporation
LOC Dresdner Bank A.G. 09/16/97 5.46 9,753,133 P1 A1+
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
27
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings
-----------------
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>
$ 15,000,000 Garanti Funding Corporation II
LOC Bayerische Vereinsbank, A.G. 06/05/97 5.46% $ 14,854,833 P1 A1+
15,000,000 Garanti Funding Corporation II
LOC Bayerische Vereinsbank, A.G. 06/04/97 5.46 14,857,067 P1 A1+
5,000,000 Guangdong Enterprise Limited
LOC Credit Suisse 05/21/97 5.45 4,963,125 P1 A1+
15,000,000 Guangdong Enterprise Limited
LOC Credit Suisse 08/11/97 5.48 14,706,850 P1 A1+
10,000,000 Guangdong Enterprise Limited
LOC Credit Suisse 05/19/97 5.47 9,929,067 P1 A1+
15,000,000 Hyundai Motor Finance Company
LOC Bank of America 04/25/97 5.50 14,946,500 P1 A1+
10,000,000 Minmetals Capital & Securities, Incorporated
LOC Credit Suisse 05/01/97 5.50 9,955,417 P1 A1+
10,000,000 Minmetals Capital & Securities, Incorporated
LOC Credit Suisse 05/29/97 5.45 9,914,611 P1 A1+
10,000,000 Minmetals Capital & Securities, Incorporated
LOC Credit Suisse 08/12/97 5.43 9,804,194 P1 A1+
15,000,000 Petroleo Brasileiro S.A.
LOC Barclays Bank PLC 05/08/97 5.45 14,918,292 P1 A1+
10,000,000 Petroleo Brasileiro S.A.
LOC Barclays Bank PLC 05/12/97 5.44 9,939,639 P1 A1+
20,000,000 Petroleo Brasileiro S.A.
LOC Barclays Bank PLC 08/15/97 5.50 19,601,067 P1 A1+
15,000,000 Unibanco Brasileiros S.A.
LOC Westdeutsche Landesbank Girozentrale 06/11/97 5.47 14,842,469 P1 A1+
10,000,000 Unibanco Brasileiros S.A.
LOC Westdeutsche Landesbank Girozentrale 04/17/97 5.44 9,975,911 P1 A1+
-------------- -------------
307,000,000 Total Letter of Credit Commercial Paper 302,560,866
-------------- -------------
<CAPTION>
Master Notes (6.87%)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000,000 Donaldson, Lufkin & Jenrette, Inc.(e) 02/05/98 5.49% $ 50,000,000
25,000,000 Goldman Sachs & Co. (f) 08/01/97 6.85 25,000,000
35,000,000 Morgan (J.P.) Securities Inc.(b) 07/08/97 5.44 35,000,000
-------------- -------------
110,000,000 Total Master Notes 110,000,000
-------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
28
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Medium Term Notes (4.37%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000,000 First U.S.A. Credit Master Trust - Series 1995-96
Class A (Steers)(c) 12/10/97 5.44% $ 50,000,000 Aaa AAA
20,000,000 Royal Bank of Canada 01/07/98 5.75 19,998,525 P1 A1+
-------------- -------------
70,000,000 Total Medium Term Notes 69,998,525
-------------- -------------
<CAPTION>
Other Notes (13.28%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,300,000 2150 Investment Company Floating Rate Demand
Taxable Notes - Series 1997(d)
LOC Fifth Third Bank 02/01/17 5.75% $ 1,300,000
5,000,000 California Department of Water Resources
(Control Valley Project) Water System RB - Series R-V(d)
LOC Canadian Imperial Bank of Commerce 12/01/24 5.35 5,000,000
6,000,000 Cheney Brothers Inc.(d)
LOC First Union National Bank of North Carolina 12/01/16 5.70 6,000,000
24,400,000 Cleveland, OH Taxable RB
LOC Credit Suisse/Union Bank of Switzerland 04/07/97 5.39 24,400,000 Aaa AAA
2,075,000 Consolidated Equities, L.L.C.
Taxable VRDN - Series 1995(d)
LOC Old Kent Bank & Trust Co. 12/01/25 5.75 2,075,000
2,600,000 G&J Land Management Variable Tare
Taxable Demand Notes - Series 1996(d)
LOC Fifth Third Bank 12/01/17 5.75 2,600,000
20,900,000 General Electric Engine Receivables 1995-1 Trust
VR Guaranteed Notes(g)
LOC General Electric Capital Corporation 02/14/00 5.74 20,900,000 P1 A1+
9,900,000 General Electric Engine Receivables 1996-1 Trust
VR Guaranteed Notes(h)
LOC General Electric Capital Corporation 02/14/01 5.67 9,900,000
1,000,000 KBL Capital Fund, Inc Taxable VRDN - Series 1995 G(d)
LOC Old Kent Bank & Trust Co. 07/01/17 5.75 1,000,000 A
2,325,000 KBL Capital Fund, Inc. Taxable VRDN - Series 1995 A(d)
LOC Old Kent Bank & Trust Co. 07/01/05 5.75 2,325,000 A
4,400,000 Maryland Health & Higher Educational Facilities
Authority RB (North Arundale Hospital)(d)
LOC Mellon Bank, N.A. 07/01/27 5.75 4,400,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
29
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Other Notes (Continued)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,945,000 Michigan HEFA(d)
LOC Old Kent Bank & Trust Co. 10/01/16 5.75% $ 1,945,000
7,500,000 Mississippi Business Finance Corporation IDRB
(Howard Industries, Inc.) - Series 1995(d)
LOC National Bank of Detroit 06/01/10 5.85 7,500,000 P1
4,500,000 New Federal Cold Storage,
Incorporated Project - Series 199C(d)
LOC National City Bank, Northwest 08/01/11 5.75 4,500,000
10,000,000 New York City General Obligation Bonds - Series B-11
FGIC Insured 05/23/97 5.52 10,000,000
16,800,000 Oakland Alameda County Coliseum Authority Lease RB
(Oakland Coliseum Project) - Series B-2
LOC Canadian Imperial Bank of Commerce 04/03/97 5.34 16,800,000
4,000,000 Prince William County, VA Taxable Notes - Series A(d)
LOC Wachovia Bank & Trust Co., N.A. 03/01/17 5.68 4,000,000 VMIG-1
25,000,000 SSM Trust 1996-1(e) 05/29/97 5.74 25,000,000 P1 A1+
19,000,000 State of Missouri HEFA
(SSM Health Care System) 1995 - Series D(d)
MBIA Insured 06/01/24 5.65 19,000,000 Aaa AAA
11,000,000 State of Oregon Taxable Economic Development RB
(Georgia Pacific Corp.) - Series 1995 B
LOC Commerzbank A.G. 05/09/97 5.55 11,000,000 P1 A1+
7,800,000 Stone Creek, L.L.C.
Taxable Variable Rate Securities - Series 1995(d)
LOC Columbus Bank & Trust Company 08/01/20 5.85 7,800,000 P1
17,500,000 The Medical Clinic Board of The City Mobile, AL
(Spring Hill Medical Complex) Taxable RB(d)
LOC Amsouth Bank N.A. 09/01/11 5.70 17,500,000 P1
1,675,000 Walt Sweeney Ford
Floating Rate Demand Notes - Series 1996(d)
LOC Fifth Third Bank 01/01/12 5.75 1,675,000
6,000,000 Winston - Salem, NC COP 04/02/97 5.38 6,000,000 VMIG-1
-------------- -------------
212,620,000 Total Other Notes 212,620,000
-------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
30
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Repurchase Agreement, Overnight (3.19%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 51,000,000 Donaldson, Lufkin & Jenrette, Inc., dated 03/31/97
(Collateralized by:
$11,087,000 U.S. Treasury Notes,
5.000% to 5.500%, due 01/31/98 to 04/15/00
$9,041,000 U.S. Treasury Bonds, 10.625% to 13.875%,
due 05/15/03 to 08/15/15
$9,400,000 Fannie Mae Medium Term Debentures,
5.910% to 7.590%, due 02/25/00 to 10/04/06
$1,995,000 Fannie Mae Debentures, 5.875% to 6.950%,
due 02/02/06 to 11/13/06
$675,000 Federal Home Loan Medium Term Notes,
5.625% due 02/12/98
$645,000 Freddie Mac Discount Notes, 0.000%, due 04/10/97
$9,500,000 Federal Home Loan Consol Bond,
5.490% to 6.850%, due 10/03/97 to 01/02/98
$5,570,000 Federal Home Loan Discount Note, 0.000%, due 09/08/97
$1,000,000 Farm Credit Systemwide Bond, 5.600%,
due 11/03/97 proceeds $51,009,223) 04/01/97 6.51% $ 51,000,000
-------------- -------------
51,000,000 Total Repurchase Agreement, Overnight 51,000,000
-------------- -------------
<CAPTION>
Short Term Bank Notes (3.12%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 30,000,000 Bank of America 04/18/97 5.47% $ 30,000,000 P1 A1+
20,000,000 Bank of America, San Francisco Bank Notes 07/07/97 5.45 20,000,000 P1 A1+
-------------- -------------
50,000,000 Total Short Term Bank Notes 50,000,000
-------------- -------------
<CAPTION>
Time Deposit (4.06%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 65,000,000 PNC Capital Markets, Inc. 04/01/97 6.75% $ 65,000,000 P1 A1
-------------- -------------
65,000,000 Total Time Deposit 65,000,000
-------------- -------------
<CAPTION>
Yankee Certificates of Deposit (6.25%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 20,000,000 Canadian Imperial Bank of Commerce 04/15/97 5.33% $ 20,000,000 P1 A1+
20,000,000 Canadian Imperial Bank of Commerce 05/21/97 5.56 20,000,000 P1 A1+
15,000,000 National Westminster Bank 04/14/97 5.42 15,000,205 P1 A1+
20,000,000 Rabobank Nederland 04/18/97 5.49 20,000,092 P1 A1+
25,000,000 Societe Generale 07/14/97 5.45 25,000,000 P1 A1+
-------------- -------------
100,000,000 Total Yankee Certificates of Deposit 100,000,297
-------------- -------------
Total Investments (99.66%) (Cost $1,595,366,508+) 1,595,366,508
Cash and Other Assets, Net of Liabilities (0.34%) 5,443,085
-------------
Net Assets (100.00%) $1,600,809,593
==============
+ Aggregate cost for federal income tax purposes is identical.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
31
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF NET ASSETS (CONTINUED)
MARCH 31, 1997
================================================================================
FOOTNOTES:
(a) These are split rated securities, given the highest ratings by at least two
nationally recognized rating agencies.
(b) The interest rate is adjusted monthly based upon the one month LIBOR flat,
daily put option.
(c) The interest rate is reset monthly based upon the one month LIBOR.
(d) These securities have a 7 day put feature exercisable by the Fund at par
value. Rate changes weekly.
(e) The interest rate is adjusted monthly based upon the one month LIBOR rate
plus 5 basis points.
(f) The interest rate is adjusted daily based upon the opening of Federal Funds
plus ten basis points, daily put option.
(g) The interest rate is adjusted weekly based upon the commercial paper
composite plus five basis points, weekly put option.
(h) The interest rate is adjusted weekly based upon one month LIBOR minus one
basis point, weekly put option.
<TABLE>
<CAPTION>
KEY:
<S> <C>
COP = Certificate of Participation RB = Revenue Bond
HEFA = Health and Education Facilities Authority VR = Variable Rate
IDRB = Industrial Development Revenue Bond VRDN = Variable Rate Demand Note
LOC = Letter of Credit
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
32
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
U.S. GOVERNMENT FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 2)
------ ---- ----- ------
U. S. Government Agencies (78.10%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 5,000,000 Federal Farm Credit Bank 05/01/97 5.24% $ 5,000,000
9,000,000 Federal Farm Credit Bank 03/03/98 5.35 9,000,000
3,500,000 Federal Home Loan Bank 07/07/97 5.39 3,450,348
5,000,000 Federal Home Loan Bank 07/10/97 5.37 4,927,292
5,000,000 Federal Home Loan Bank 07/25/97 5.41 4,915,826
5,000,000 Federal Home Loan Bank 08/18/97 5.33 4,899,611
5,000,000 Federal Home Loan Bank 09/16/97 5.66 4,871,550
5,000,000 Federal Home Loan Bank 09/30/97 5.43 4,867,545
5,000,000 Federal Home Loan Mortgage Corporation 04/16/97 5.31 4,989,083
5,000,000 Federal Home Loan Mortgage Corporation 05/02/97 5.32 4,977,396
5,000,000 Federal Home Loan Mortgage Corporation 05/12/97 5.30 4,970,247
5,000,000 Federal Home Loan Mortgage Corporation 05/28/97 5.30 4,958,556
10,000,000 Federal Home Loan Mortgage Corporation 06/13/97 5.40 9,891,919
5,000,000 Federal National Mortgage Association 04/04/97 5.68 4,999,972
5,000,000 Federal National Mortgage Association 04/15/97 5.32 4,989,792
5,000,000 Federal National Mortgage Association 04/28/97 5.38 4,980,350
5,000,000 Federal National Mortgage Association 05/02/97 5.33 4,977,353
7,090,000 Federal National Mortgage Association 05/13/97 5.25 7,047,070
10,000,000 Federal National Mortgage Association 05/16/97 5.38 9,934,125
10,000,000 Federal National Mortgage Association 05/23/97 5.23 9,925,394
5,000,000 Federal National Mortgage Association 07/17/97 5.48 4,921,831
5,000,000 Federal National Mortgage Association 07/21/97 5.41 4,918,754
10,000,000 Federal National Mortgage Association 08/25/97 5.31 9,790,125
3,326,000 Kirksville College of Osteopathic Medicare, Inc.
Educational Loan Revenue Notes - Series A
LOC Student Loan Marketing Association 06/25/97 5.63 3,282,415
5,000,000 Student Loan Marketing Association (a) 04/10/97 5.55 5,000,000
5,000,000 Student Loan Marketing Association (a) 05/08/97 5.56 5,000,000
5,000,000 Student Loan Marketing Association (a) 08/21/97 5.59 5,000,000
5,000,000 Student Loan Marketing Association (a) 09/18/97 5.54 5,000,000
5,000,000 Student Loan Marketing Association (a) 10/03/97 5.45 5,005,237
5,000,000 Tennessee Valley Authority 05/29/97 5.28 4,958,031
-------------- -------------
172,916,000 Total U. S. Government Agencies 171,449,822
-------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Note to Financial Statements.
33
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
U.S. GOVERNMENT FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 2)
------ ---- ----- ------
Repurchase Agreement, Overnight (21.41%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 47,000,000 Morgan (J.P.) Securities, Inc., dated 03/31/97
(Collateralized by:
$25,945,000 Resolution Funding Corporation
Strip Interest 0.000%, due 04/15/18,
$10,000,000 Resolution Funding Corporation Bond
8.625%, due 01/15/21,
$11,870,000 Fannie Mae Medium Term Debentures
0.000%, due 01/28/00,
$5,450,000 Fannie Mae Commercial Paper
7.900%, due 04/10/97,
$13,325,000 Federal Home Loan Discount Note
0.000%, due 04/01/97) proceeds $47,008,225 04/01/97 6.30% $ 47,000,000
-------------- -------------
47,000,000 Total Repurchase Agreement, Overnight 47,000,000
-------------- -------------
Total Investments (99.51%) (Cost $218,449,822+) 218,449,822
Cash and Other Assets, Net of Liabilities (0.49%) 1,071,194
-------------
Net Assets (100.00%) $ 219,521,016
=============
+ 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.
34
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Other Tax Exempt Investments (17.26%)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 4,028,000 Borough of Somerville, NJ (County of Somerset) BAN 02/19/98 3.67% $ 4,036,260
5,000,000 East Allen, Indiana School Corporation TAW 12/31/97 3.78 5,000,000
5,000,000 Jersey City, NJ BAN 02/05/98 3.74 5,002,421 SP-1
2,500,000 Kanawha County, WV Commercial Development
Revenue Refunding Bonds (May Dept. Stores Project) 06/01/97 3.72 2,507,970 A
5,000,000 School District of Greenville County,
SC GO Bonds - Series 1997 03/01/98 3.64 5,037,696
5,000,000 State of Texas TRAN 08/29/97 3.90 5,015,804 VMIG-1 SP-1+
5,000,000 Strafford County, NH TAN 12/30/97 3.75 5,018,228
5,000,000 Suffolk County, NY Brentwood UFSD TAN 06/30/97 4.04 5,004,658
-------------- -------------
36,528,000 Total Other Tax Exempt Investments 36,623,037
-------------- -------------
<CAPTION>
Other Variable Rate Demand Instruments (b) (47.63%)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,900,000 Allegheny County, PA HDA RB
(Allegheny General Hospital) - Series B
LOC Morgan Guaranty Trust Company 09/01/10 3.45% $ 1,900,000 VMIG-1 A1+
4,580,000 Arlington County, VA IDA (Air Force Association Project)
LOC Central Fidelity Bank 07/01/98 3.55 4,580,000
1,000,000 Carthage, MO IDA IDRB (Leggett & Platt, Inc.)
LOC Union Bank of Switzerland 09/01/30 3.60 1,000,000
2,300,000 Charlotte, NC Airport RB
MBIA Insured 07/01/16 3.35 2,300,000 VMIG-1 A1
3,400,000 Daviess County, KY Solid Waste Disposal Facilities RB
(Scott Paper Co. Project) - Series A 12/01/23 3.90 3,400,000 P1 A1+
1,000,000 Delaware County, PA IDA (Scott Paper Company)-Series A 12/01/18 3.45 1,000,000 P1 A1+
1,540,000 Elkhart County, IN EDRB (Burger Diary Corporation Project)
LOC Old Kent Bank & Trust Co. 12/01/11 3.45 1,540,000 A1
1,300,000 Florida HFA MHRB (Falls of Venice Project)
LOC PNC Bank 12/01/11 3.75 1,300,000 P1 A1
1,380,000 Fulton County, GA RDA (Darby Printing Company)
LOC Wachovia Bank & Trust Co., N.A. 04/01/11 3.90 1,380,000
9,400,000 Gulf Coast IDA Solid Waste Disposal RB
(Citgo Petroleum Corporation Project) - Series 1995
LOC NCNB 05/01/25 3.95 9,400,000 VMIG-1
2,480,000 Haleyville, AL IDA IDRB (Cusseta Wood Inc. Project)
LOC Columbus Bank & Trust Company 11/01/04 3.65 2,480,000 P1
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
35
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Other Variable Rate Demand Instruments (b) (Continued)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,325,000 Hamilton County, OH EDRB (Berman Printing Company)
LOC Fifth Third Bank 12/01/08 3.60% $ 3,325,000
1,900,000 Indiana State EDC
(Fischer Enterprise Limited Project) - Series 1989
LOC PNC Bank 12/01/04 3.75 1,900,000
2,000,000 Jackson County, MS PCRB
(Chevron USA Incorporated Project) 12/15/24 3.90 2,000,000 P1
502,000 Jefferson County, KY IDRB (Belknap Incorporation)
LOC Chase Manhattan Bank, N.A. 12/01/14 3.60 502,000 A1
2,600,000 King George County, VA (Birchwood Power Project) - Series A
Credit Suisse 04/01/26 3.90 2,600,000 A1+
1,000,000 Lewisville, IDA Incorporated IDRB
(Benedict Optical Incorporated Project)
LOC Comerica Bank 05/01/08 3.85 1,000,000
5,200,000 Lexington - Fayette Urban County Airport Corporation
LOC Credit Locale de France 04/01/24 3.95 5,200,000 P1 A1+
2,000,000 Massachusetts IDA IDRB (Performance Corregated Project)
LOC National City Bank 03/01/09 3.70 2,000,000
3,300,000 Massachusetts IFA (890 Commonwealth Realty Trust)
LOC The Bank of New York 12/01/11 3.65 3,300,000
400,000 Meridian, MI EDC (Hannah Research & Technology Center)
LOC Barclays Bank PLC 11/15/14 3.45 400,000 A1+
2,000,000 Michigan Higher Education Student Loan - Series XII F
AMBAC Insured 10/01/20 3.45 2,000,000 VMIG-1
1,400,000 Michigan State (Allied Signal) 04/01/99 3.60 1,400,000 A1
870,000 Michigan State Strategic Fund (260 Brown Street)
LOC Comerica Bank 10/01/15 3.40 870,000 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
4,000,000 Michigan Strategic Fund
(National Rubber Michigan Incorporated Project)
LOC National Bank of Canada 09/01/11 3.65 4,000,000 P1
2,000,000 Montgomery County, PA Redevelopment Authority MHRB
(Glenmore Associates Project)
Fannie Mae Collateralized 11/15/25 3.60 2,000,000 A1+
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
36
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Other Variable Rate Demand Instruments (b) (Continued)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,000,000 North Carolina Medical Care
Commission Retirement Community RB - Series B
LOC Lasalle National Bank 11/15/09 3.50% $ 1,000,000 A1+
1,500,000 North Carolina Medical Care Commission (Carol Woods)
LOC Bank of Scotland 04/01/21 4.00 1,500,000 VMIG-1 A1
2,220,000 Northport, AL Multi Family RB (River Run) - Series A
LOC Amsouth Bank N.A. 09/03/15 3.60 2,220,000
2,700,000 Parish of Calcasieu IDRB
(Citgo Petroleum Corporation) - Series 1995
LOC Banque Nationale de Paris 03/01/25 3.95 2,700,000 VMIG-1
1,900,000 Portland, OR IDRB (Oregon Transfer Company)
LOC U.S. National Bank of Oregon 11/01/01 4.03 1,900,000 A1
2,275,000 Portsmouth, VA Redevelopment & Housing Authority
(Chowan Partners)
LOC Central Fidelity Bank 11/01/05 3.55 2,275,000
2,000,000 Richmond, VA Redevelopment & Housing Authority
(Tobacco Row)
LOC Westdeutsche Landesbank Girozentrale 10/01/24 3.60 2,000,000 VMIG-1
2,000,000 Richmond, VA Redevelopment & Housing Authority
(Tobacco Row)
LOC Westdeutsche Landesbank Girozentrale 10/01/24 3.60 2,000,000 VMIG-1
7,000,000 Rosebud County, Forsyth, MT PCRB (Pacificorp)
LOC Deutsche Bank A.G. 12/01/16 3.95 7,000,000
1,350,000 Sewickley Valley Hospital Authority, PA RN
(D.T. Watson Rehabilitation Hospital)
LOC PNC Bank 10/01/97 4.25 1,350,000
500,000 Shelby County, TN Health Educational & Housing
(Rhodes College)
LOC National Westminster Bank PLC 08/01/10 3.45 500,000 A1+
4,000,000 Washington State HFC RB
(Meridian Court Apartments Project) - Series 1996
LOC Bank of America 12/01/28 3.50 4,000,000 Aa3
3,200,000 West Side Calhoun County,
Navigation District Sewer & Solid Waste Disposal
(BP Chemicals Inc.) 04/01/31 3.90 3,200,000 A1+
4,600,000 Yakima County Public Corporation RB
(Michelson Packaging Project)
LOC Bank of America 08/01/06 3.50 4,600,000
-------------- -------------
101,022,000 Total Other Variable Rate Demand Instruments 101,022,000
-------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
37
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Put Bonds (c) (9.54%)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,855,000 City of Dayton, KY Industrial Building RB
(RADAC Corporation) - Series 1994
LOC Fifth Third Bank 04/01/97 4.00% $ 1,855,000
2,500,000 Greater East, TX
Higher Education Student Loan Authority - Series 1993B
LOC Student Loan Marketing Association 06/01/97 3.85 2,500,000 VMIG-1 A1+
6,500,000 Hartford County, MD IDRB (A.O. Smith)
LOC Bank One Milwaukee, N.A. 03/03/98 3.75 6,500,000
3,340,000 Illinois Housing Development Authority
(Homeowners Mortgage) RB - Series - F2 12/18/97 3.70 3,340,000
3,000,000 Tennessee Housing Development Agency
(Home Ownership Program) 02/19/98 3.75 3,000,000 VMIG-1 A1+
3,040,000 Vermont State Educational & Health Building Finance Agency
(Middlebury College) 11/01/97 3.75 3,040,000 A1+
-------------- -------------
20,235,000 Total Put Bonds 20,235,000
-------------- -------------
<CAPTION>
Tax Exempt Commercial Paper (18.13%)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 4,300,000 City of Burlington, KS PCRB (Kansas City Power and Light)
LOC Deutsche Bank A.G. 05/21/97 3.45% $ 4,300,000 P1 A1+
1,000,000 Indiana Development Finance Authority
Solid Waste Disposal RB
(Pure Air on the Lake Partner)
LOC Fuji Bank, Ltd. 04/03/97 3.35 1,000,000 P1 A1
5,000,000 Mashantucket, CT
(Western) Pequot Tribe Tax Exempt CP - Series 1996
LOC Bank of America 04/10/97 3.50 5,000,000 P1 A1+
5,950,000 Michigan State Building Authority - Series 1
LOC Canadian Imperial Bank of Commerce 05/01/97 3.55 5,950,000 P1 A1+
7,500,000 Ohio Air Quality Development Authority, OH
PCRB - Series 1988 (Duquesne Light Co.)
LOC Toronto-Dominion Bank 06/18/97 3.50 7,500,000 A1+
4,000,000 Ohio Water Development Authority Solid Waste Disposal
RB - Series 1991A (Pure Air on the Lake)
LOC Toronto-Dominion Bank 04/03/97 3.35 4,000,000 A1+
1,100,000 Sarasota County, FL Public Hospital District HRB
(Sarasota Memorial Hospital) 06/25/97 3.55 1,100,000 VMIG-1
2,600,000 Sarasota County, FL Public Hospital District HRB
(Sarasota Memorial Hospital) 06/25/97 3.55 2,600,000 VMIG-1
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
38
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Tax Exempt Commercial Paper (Continued)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 7,000,000 Southern Minnesota Municipal Power Agency
(Power Supply System) CP - Series B
LOC Credit Suisse 04/03/97 3.20% $ 7,000,000 P1 A1
-------------- -------------
38,450,000 Total Tax Exempt Commercial Paper 38,450,000
-------------- -------------
<CAPTION>
Variable Rate Demand Instruments - Participations (b) (0.94%)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,000,000 New Jersey State EDA IDRB
(Hartz Mountain Industries Project)
LOC Chase Manhattan Bank, N.A. 01/01/02 5.53% $ 1,000,000 P1 A1
1,000,000 New Jersey State EDA IDRB
(Harrison Riverside Project))
LOC Chase Manhattan Bank, N.A. 01/01/02 5.53 1,000,000 P1 A1
-------------- -------------
2,000,000 Total Variable Rate Demand Instruments - Participations 2,000,000
-------------- -------------
<CAPTION>
Variable Rate Demand Instruments - Private Placements (b) (6.12%)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 5,185,000 El Paso Housing Finance Corporation MHRB
(Viva Apartment Project) - Series 1993
LOC General Electric Capital Corporation 09/01/23 3.65% $ 5,185,000 A1+
930,000 Jefferson County, MO IDA IDRB (Holley Partnership)
LOC Chase Manhattan Bank, N.A. 02/01/04 5.53 930,000 P1 A1
771,154 New Jersey State EDA IDRB (Henry Modelle & Company)
LOC Chase Manhattan Bank, N.A. 09/01/00 5.53 771,154 P1 A1
2,420,000 Phoenix, AZ IDA Multi-Family Housing RB
(Marines Mointe Apartments Project) - Series A
LOC General Electric Capital Corporation 10/01/23 3.65 2,420,000 A1+
1,400,000 Tyler House Certificate Trust
Certificates of Participation - Series 1995A
LOC PNC Bank 08/01/25 3.85 1,400,000 VMIG-1
2,281,000 York County, PA IDA IDRB
(Manor Care of Kingston Court Incorporated)
LOC Chase Manhattan Bank, N.A. 12/01/08 5.53 2,281,000 P1 A1
-------------- -------------
12,987,154 Total Variable Rate Demand Instruments - Private Placements 12,987,154
-------------- -------------
Total Investments (99.62%) (Cost $211,317,191+) 211,317,191
Cash and Other Assets, Net of Liabilities (0.38%) 799,175
-------------
Net Assets (100.00%) $ 212,116,366
=============
+ Aggregate cost for federal income tax purposes is identical.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
39
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
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>
<CAPTION>
KEY:
<C> <S>
BAN = Bond Anticipation Note IDRB = Industrial Development Revenue Bond
CP = Commercial Paper 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
GO = General Obligation RB = Revenue Bond
HDA = Housing Development Authority RDA = Revenue Development Authority
HFA = Housing Finance Authority RN = Revenue Note
HFC = Housing Finance Commission TAN = Tax Anticipation Note
HRB = Hospital Revenue Bond TAW = Tax Anticipation Warrant
IDA = Industrial Development Authority TRAN = Tax and Revenue Anticipation Note
UFSD = Unified School District
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
40
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Cortland General U.S. Government Municipal Money
Money Market Fund Fund Market Fund
----------------- --------------- ---------------
ASSETS:
<S> <C> <C> <C>
Investments in securities*........... $ 1,595,366,508 $ 218,449,822 $ 211,317,191
Cash................................. 2,712,921 724,750 -0-
Interest receivable.................. 5,495,743 569,780 1,376,544
------------------ ----------------- ---------------
Total Assets..................... 1,603,575,172 219,744,352 212,693,735
<CAPTION>
LIABILITIES:
<S> <C> <C> <C>
Dividends payable.................... 205,284 27,831 16,247
Management fee payable............... 1,025,307 143,510 142,498
Payable for securities purchased..... 1,100,000 -0- -0-
Other accounts payable............... 434,988 51,995 418,624
------------------ ----------------- ----------------
Total Liabilities................ 2,765,579 223,336 577,369
------------------ ----------------- ----------------
NET ASSETS............................. $ 1,600,809,593 $ 219,521,016 $ 212,116,366
================== ================= ================
<CAPTION>
SHARES OUTSTANDING:
<S> <C> <C> <C>
Cortland Shares...................... 1,162,017,759 164,945,330 153,340,264
Live Oak Shares...................... 441,089,617 55,218,521 58,800,786
Net asset value, offering and redemption
price per share, all classes
(net assets/shares).................. $ 1.00 $ 1.00 $ 1.00
================== ================= ================
</TABLE>
* Including repurchase agreements amounting to $51,000,000 and $47,000,000
for the Cortland General Money Market Fund and U.S. Government Fund,
respectively.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
41
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Cortland General U.S. Government Municipal Money
Money Market Fund Fund Market Fund
----------------- --------------- ---------------
INVESTMENT INCOME
<S> <C> <C> <C>
Interest Income......................... $ 77,338,407 $ 12,850,479 $ 8,116,106
-------------- -------------- --------------
Expenses:
Management fee--Note 3(a)............. 10,885,158 1,851,957 1,698,486
Distribution support and services
----Note 3(c):
Cortland shares................... 2,618,147 479,697 419,942
Live Oak shares................... 751,269 100,680 108,270
Other expenses........................ 71,167 36,328 11,106
-------------- -------------- --------------
Total Expenses.................... 14,325,741 2,468,662 2,237,804
Expenses waived by
Manager--Note 3(a) and (c)........... ( 57,065) ( 102,784) ( 19,127)
-------------- -------------- --------------
Net Expenses...................... 14,268,676 2,365,878 2,218,677
-------------- -------------- --------------
Net Investment Income................... $ 63,069,731 10,484,601 5,897,429
<CAPTION>
NET REALIZED GAIN
ON INVESTMENTS
<S> <C> <C> <C>
Net realized gain on investments........ 63,635 6,270 -0-
-------------- -------------- --------------
Increase in net assets from operations.. $ 63,133,366 $ 10,490,871 $ 5,897,429
============== ============== ==============
</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,
1997 1996 1997 1996 1997 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income....... $ 63,069,731 $ 62,409,651 $ 10,484,601 $ 12,079,237 $ 5,897,429 $ 7,789,068
Net realized gain (loss) on
investments............. 63,635 182,364 6,270 ( 22,060) -0- 2,754
------------ ----------- ------------ ------------ ------------ ------------
Increase in net assets
from operations......... 63,133,366 62,592,015 10,490,871 12,057,177 5,897,429 7,791,822
Distributions
to shareholders from:
Net investment income:
Cortland shares........... ( 46,314,882) ( 56,739,267) ( 8,230,482) ( 11,281,834) ( 4,436,681)+ ( 7,250,573)+
Live Oak shares........... ( 16,876,826) ( 5,536,157) ( 2,235,131) ( 766,391) ( 1,475,242)+ ( 524,001)+
Capital share
transactions net (Note 4):
Cortland shares........... 559,763 165,048,002 ( 90,947,715) 36,908,866 ( 63,128,999) ( 7,599,135)
Live Oak shares........... 90,104,978 350,984,640 7,893,226 47,325,294 9,140,492 49,660,294
------------- ------------ ------------ ------------ ------------ ------------
Total increase (decrease)... 90,606,399 516,349,233 ( 83,029,231) 84,243,112 ( 54,003,001) 42,078,407
Net assets:
Beginning of year........... 1,510,203,194 993,853,961 302,550,247 218,307,135 266,119,367 224,040,960
------------- ------------ ------------ ------------ ------------- ------------
End of year................. $ 1,600,809,593 $1,510,203,194 $ 219,521,016 $ 302,550,247 $ 212,116,366 $ 266,119,367
============== ============= ============ ============ ============ ============
Undistributed net
investment income........ $ 28,197 $ 150,174 $ 50,000 $ 31,012 -0- $ 14,494
+ Designated as exempt-interest dividends for regular 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 Cortland 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, 1997, there were 9,571,788 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 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.
- --------------------------------------------------------------------------------
44
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
Note 2-Significant Accounting Policies: (Continued)
(e) Federal income taxes: It is the policy of each Fund to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders by complying with the applicable
sections of the Internal Revenue Code, and to make distributions of income
(including net realized capital gains) sufficient to relieve it from all
federal income taxes. Accordingly, no provision for federal income taxes is
required. At March 31, 1997, Cortland General Fund, U.S. Government Fund
and Municipal Fund had unused capital loss carryforwards of approximately
$2,325,981, $715,280 and $32,156, respectively, available for Federal
income tax purposes to be applied against future securities profit, if any.
If not applied against future securities profit, $721,115 and $1,604,866
will expire in the years 2003 and 2004, respectively, for Cortland General
Fund. $264,039 and $451,241 will expire in the years 2003 and 2004,
respectively, for U.S. Government Fund. $16,757, $3,530 and $11,869 will
expire in the years 2001, 2002 and 2003, respectively, for Municipal Fund.
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.
(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, 1997, the manager voluntarily waived investment
management fees of $42,433 and $7,567 for the Cortland shares and Live Oak
shares, respectively, of the Cortland U.S. Government Fund.
- --------------------------------------------------------------------------------
45
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
Note 3-Management Fee and Other Transactions With Affiliates: (Continued)
During the year ended March 31, 1997, the Distributor waived Distribution
support and services fees of $57,065, $52,784 and $19,127 for the Live Oak
shares of the Cortland General Fund, U.S. Government Fund and Municipal Fund,
respectively.
Note 4-Capital Share Transactions:
At March 31, 1997, 5 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 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,
1997 1996 1997 1996 1997 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cortland Shares
Shares sold.............. 3,372,653,022 5,692,461,972 482,519,139 1,147,151,347 636,672,511 1,118,581,921
Dividends reinvested..... 46,616,699 56,469,119 8,302,991 11,224,107 4,476,740 7,224,068
------------- ------------- ------------- ------------- ------------- -------------
3,419,269,721 5,748,931,091 490,822,130 1,158,375,454 641,149,251 1,125,805,989
Shares redeemed.......... (3,418,709,958) (5,583,883,089) ( 581,769,845) (1,121,466,588) ( 704,278,250) (1,133,405,124)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease).. 559,763 165,048,002 ( 90,947,715) 36,908,866 ( 63,128,999) ( 7,599,135)
============= ============= ============= ============= ============= =============
Live Oak Shares*
Shares sold.............. 1,692,487,353 803,496,773 198,329,103 107,188,689 195,656,417 108,031,220
Dividends reinvested..... 16,917,952 5,399,043 2,241,698 747,543 1,478,139 512,060
------------- ------------- ------------- ------------- ------------- -------------
1,709,405,305 808,895,816 200,570,801 107,936,232 197,134,556 108,543,280
Shares redeemed........... (1,619,300,327) ( 457,911,177) ( 192,677,575) ( 60,610,937) ( 187,994,064) ( 58,882,986)
------------- ------------- ------------- ------------- ------------- -------------
Net increase.............. 90,104,978 350,984,639 7,893,226 47,325,295 9,140,492 49,660,294
============= ============= ============== ============= ============= =============
* Live Oak shares commenced distribution on November 16, 1995.
The components of net assets at March 31, are as follows:
<CAPTION>
Cortland General Municipal Money
Money Market Fund U.S. Government Fund Market Fund
------------------------------ ----------------------------- ------------------------------
March 31, 1997 March 31, 1997 March 31, 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Paid-in capital............ $1,603,107,376 $ 220,163,851 $ 212,141,050
Accumulated net
realized losses......... ( 2,325,980) ( 692,835) ( 24,684)
Undistributed net
investment income....... 28,197 50,000 -0-
-------------- ------------- -------------
Total net assets........... $1,600,809,593 $ 219,521,016 $ 212,116,366
============== ============= =============
</TABLE>
- --------------------------------------------------------------------------------
46
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
Note 5-Financial Highlights:
Reference is made to page 3 of the Prospectus for the Selected Financial
Information
- --------------------------------------------------------------------------------
47
<PAGE>
- --------------------------------------------------------------------------------
LIVE OAK 600 Fifth Avenue, New York, NY 10020
SHARES (212) 830-5280
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
August 1, 1997
Relating to the Live Oak Shares Prospectus
dated August 1, 1997
This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with a Prospectus which may be obtained from your securities
dealer or by writing to Reich & Tang Distributors L.P., 600 Fifth Avenue, New
York, New York 10020 or toll free at (800) 433-1918.
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Table of Contents
- -------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INTRODUCTION
The Company, Cortland Trust, Inc., is a money market mutual fund. The rules and
regulations of the United States Securities and Exchange Commission (the "SEC")
require all mutual funds to furnish prospective investors certain information
concerning the activities of the company being considered for investment. This
information is included in a Prospectus dated August 1, 1997, relating to each
of the three money market portfolios comprising the Company, which may be
obtained without charge from Reich & Tang Distributors L.P. (the "Distributor").
Investors may also contact securities dealers authorized by the Distributor to
distribute the Company's shares in order to obtain a Prospectus. Some of the
information required to be in this Statement of Additional Information is also
included in the current Prospectus of the Company; and, in order to avoid
repetition, reference will be made to sections of the Prospectus. Additionally,
the Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the SEC. Copies
of the registration statement, including items omitted from the Prospectus and
this Statement of Additional Information, may be obtained from the SEC by paying
the charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE COMPANY
THE COMPANY AND ITS SHARES
The Company is a no-load, open-end diversified investment company. The Company
was initially organized as a Massachusetts business trust pursuant to an
Agreement and Declaration of Trust dated October 31, 1984, but had no operations
prior to May 9, 1985. On July 31, 1989, the Company was reorganized from a
Massachusetts business trust into a Maryland corporation, pursuant to an
Agreement and Plan of Reorganization approved by the shareholders on July 31,
1989. The shares of the Company are divided into three portfolios constituting
separate portfolios of investments, with various investment objectives and
policies (the "Portfolios") and, in turn, each Portfolio is divided into classes
(each such class is referred to herein as a "Fund" and collectively as the
"Funds"):
Live Oak General Money Market Fund
Live Oak U.S. Government Fund
Live Oak Municipal Money Market Fund
Each Portfolio issues shares of common stock in the Company. Shares of the
Company have equal rights with respect to voting, except that the holders of
shares of a particular Portfolio will have the exclusive right to vote on
matters affecting only the rights of the holders of such Portfolio. Each share
of a Portfolio bears equally the expenses of such Portfolio.
As used in the Prospectus, the term "majority of the outstanding shares" of the
Company or of a particular Portfolio means, respectively, the vote of the lesser
of (i) 67% or more of the shares of the Company or such Portfolio present at a
meeting, if the holders of more than 50% of the outstanding shares of the
Company or such Portfolio are present or represented by proxy or (ii) more than
50% of the outstanding shares of the Company or such Portfolio.
Shareholders of the Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of the Company
voting together for the election of directors may elect all of the members of
the Board of Directors. In such event, the remaining holders cannot elect any
members of the Board of Directors.
The Board of Directors may classify or reclassify any unissued shares to create
a new class or classes in addition to those already authorized by setting or
changing in any one or more respects, from time to time, prior to the issuance
of such shares, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption, of such shares. Any such classification or
reclassification will comply with the provisions of the Investment Company Act
of 1940, as amended (the "1940 Act").
The Articles of Incorporation, as supplemented, permit the Directors to issue
the following number of full and fractional shares, par value $.001, of the
Portfolios: 2,000,000,000 shares of the Cortland General Money Market Fund (of
which 100,000,000 shares are classified as the Pilgrim America Shares and
400,000,000 shares are classified as Live Oak General Money Market Fund Shares);
600,000,000 shares of the U.S. Government Fund (of which 100,000,000 shares are
classified as Live Oak U.S. Government Fund Shares); and 600,000,000 shares of
the Municipal Money Market Fund (of which 100,000,000 shares are classified as
Live Oak Municipal Money Market Fund Shares). Each Fund share is entitled to
participate pro rata in the dividends and distributions from that Fund.
Additional information concerning the rights of share ownership is set forth in
each Prospectus.
The assets received by the Company for the issue or sale of shares of each
Portfolio and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of creditors, are allocated to that Portfolio, and
constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio are segregated and are charged with the expenses with respect to
that Portfolio and with a share of the general expenses of the Company as
described below under "Expenses." While the expenses of the Company are
allocated to the separate books of account of each
2
<PAGE>
Portfolio, certain expenses may be legally chargeable against the assets of all
three Portfolios. Also, certain expenses may be allocated to a particular class
of a Portfolio. See "Expenses."
The Articles of Incorporation provide that to the fullest extent that
limitations on the liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of the Company shall
have any liability to the Company or to its shareholders for damages.
The Articles of Incorporation further provide that the Company shall indemnify
and advance expenses to its currently acting and its former directors to the
fullest extent that indemnification of directors is permitted by the Maryland
General Corporation Law; that the Company shall indemnify and advance expenses
to its officers to the same extent as its directors and to such further extent
as is consistent with law and that the Board of Directors may through By-law,
resolution or agreement make further provisions for indemnification of
directors, officers, employees and agents to the fullest extent permitted by the
Maryland General Corporation Law. However, nothing in the Articles of
Incorporation protects any director or officer of the Company against any
liability to the Company or to its shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
As described in each Prospectus, the Company will not normally hold annual
shareholders' meetings. Under Maryland law and the Company's By-Laws, an annual
meeting is not required to be held in any year in which the election of
directors is not required to be acted upon under the 1940 Act. At such time as
less than a majority of the directors have been elected by the shareholders, the
directors then in office will call a shareholders' meeting for the election of
directors.
Except as otherwise disclosed in each Prospectus and in this Statement of
Additional Information, the directors shall continue to hold office and may
appoint their successors.
DIRECTORS AND OFFICERS
The directors and executive officers of the Company and their principal
occupations during the last five years are set forth below. Unless otherwise
noted, the address of each director and officer is 600 Fifth Avenue, New York,
New York 10020.
STEVEN W. DUFF, 43 - President and Director 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, 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, 72 - 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, and of Volvo North America
Corporation, 535 Madison Avenue, New York, NY 10022. President of Volvo North
America Corporation.
DAVID C. MELNICOFF, 77 - 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, 40 - 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 AEW Commercial Mortgage Securities, Inc., 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.
3
<PAGE>
RONDA FELDMAN, 51 - 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, 46 - Vice President of the Company, is Vice President of the
Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. which she was associated with from
December 1977 to September 1993. Ms. Flewharty is also Vice President of
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc., Florida
Daily Municipal Income Fund, Institutional Daily Income Fund, Inc., Michigan
Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc.,
New York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., Short Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc.
DANA E. MESSINA, 40 - 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, 48 - 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, 49 - 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 AEW Commercial Mortgage Securities, Inc.,
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>
<S> <C> <C> <C> <C>
COMPENSATION TABLE
(1) (2) (3) (4) (5)
Name of Person, Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation from
Position from Registrant for Benefits Accrued as Benefits upon Fund and Fund Complex
Fiscal Year Part of Fund Expenses Retirement Paid to Directors*
Owen Daly II, $15,000 0 0 $15,000 (1 Fund)
Director
Albert R. Dowden, $15,000 0 0 $15,000 (1 Fund)
Director
David C. Melnicoff, $15,000 0 0 $15,000 (1 Fund)
Director
James L. Schultz $15,000 0 0 $15,000 (1 Fund)
Director
* The total compensation paid to such persons by the Fund and Fund Complex
for the fiscal year ending March 31, 1997 and, with respect to certain of
the funds in the Fund Complex, estimated to be paid during the fiscal year
ending March 31, 1997. The parenthetical number represents the number of
investment companies (including the Fund) from which such person receives
compensation that are considered part of the same Fund complex as the
Fund, because, among other things, they have a common investment advisor.
</TABLE>
MANAGER AND INVESTMENT ADVISOR
Reich & Tang Asset Management L.P., a Delaware limited partnership, with its
principal offices at 600 Fifth Avenue, New York, New York 10020, serves as the
manager and investment advisor of the Company and its three Funds pursuant to
agreements with the Funds dated August 30, 1996 (the "Management/Investment
Advisory Agreements").
4
<PAGE>
Under the Management/Investment Advisory Agreements, Reich & Tang Asset
Management L.P. (the "Manager") provides, either directly or indirectly through
contracts with others, all services required for the management of the Company.
The Manager bears all ordinary operating expenses associated with the Company's
operation except: (a) the fees of the Directors who are not "interested persons"
of the Company, as defined by the 1940 Act, and the travel and related expenses
of the Directors incident to their attending shareholders', directors' and
committee meetings, (b) interest, taxes and brokerage commissions (which are
expected to be insignificant), (c) extraordinary expenses, if any, including but
not limited to legal claims and liabilities and litigation costs and any
indemnification related thereto, (d) shareholder service or distribution fees
payable by the Company under the plans of distribution described under the
heading "Distributor" below, and (e) membership dues of any industry
association. Additionally, the Manager has assumed all expenses associated with
organizing the Company and all expenses of registering or qualifying the
Company's shares under federal and state securities laws.
The Manager was, at June 30, 1997, investment manager, advisor or supervisor
with respect to assets aggregating in excess of $9.3 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.
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. On August 30, 1996, The New
England Mutual Life Insurance Company ("The New England") and Metropolitan Life
Insurance Company ("MetLife") merged, with MetLife being the continuing company.
The Manager remains an indirect wholly-owned subsidiary of NEICLP, but Reich &
Tang Asset Management, Inc., its sole general partner, is now an indirect
subsidiary of MetLife. Also, MetLife New England Holdings, Inc., a wholly-owned
subsidiary of MetLife, owns approximately 48.5% of the outstanding limited
partnership interest of NEICLP and may be deemed a "controlling person" of the
Manager. Reich & Tang, Inc. owns approximately 16% of the outstanding
partnership units of NEICLP.
MetLife is a mutual life insurance company with assets of $297.6 billion at
December 31, 1996. It is the second largest life insurance company in the United
States in terms of total assets. MetLife provides a wide range of insurance and
investment products and services to individuals and groups and is the leader
among United States life insurance companies in terms of total life insurance in
force, which exceeded $1.6 trillion at December 31, 1996 for MetLife and its
insurance affiliates. MetLife and its affiliates provide insurance or other
financial services to approximately 36 million people worldwide.
NEIC is a holding company offering a broad array of investment styles across a
wide range of asset categories through twelve subsidiaries, divisions and
affiliates offering a wide array of investment styles and products to
institutional clients. Its business units include AEW Capital Management, L.P.,
Back Bay Advisors, L.P., Graystone Partners, L.P., Harris Associates, L.P.,
Jurika & Voyles, L.P., Loomis, Sayles & Co., L.P., MC Management, L.P., New
England Fund, L.P., New England Funds Management, L.P., Reich & Tang Asset
Management L.P., Vaughan-Nelson, Scarborough & McConnell L.P. and Westpeak
Investment Advisors, L.P. These affiliates in the aggregate are investment
advisors or managers to 69 other registered investment companies.
The merger between The New England and MetLife resulted in an "assignment" of
the Management/Investment Advisory Agreements relating to each Fund. Under the
1940 Act, such an assignment caused the automatic termination of the agreements.
On November 14, 1995, the Board of Directors, including a majority of the
directors who are not interested persons (as defined in the 1940 Act) of the
Fund or the Manager, approved Management/Investment Advisory Agreements
effective August 30, 1996, which has a term which extends to June 30, 1998 and
may be continued thereafter for successive twelve-month periods beginning each
July 1, provided that such continuance is specifically approved annually by
majority vote of the Fund's outstanding voting securities or by its Board of
Directors, and in either case by a majority of the directors who are not parties
to the Management/ Investment Advisory Agreements or interested persons of any
such party, by votes cast in person at a meeting called for the purpose of
voting on such matter.
The Management/ Investment Advisory Agreements were approved by each Fund on
March 28, 1996 and each contains the same terms and conditions governing the
Manager's investment management responsibilities as the Fund's previous
Management/ Investment Advisory Agreement with the Manager, except as to the
date of execution and termination.
Pursuant to the terms of the Management/ Investment Advisory Agreements, the
Manager manages the investments of each of the Funds, subject at all times to
the policies and control of the Company's Board of Directors. The Manager
5
<PAGE>
obtains and evaluates economic, statistical and financial information to
formulate and implement investment policies for the Funds. The Manager shall not
be liable to the Funds or to their shareholders except in the case of the
Manager's willful misfeasance, bad faith, gross negligence or reckless disregard
of duty.
Under the Management/Investment Advisory Agreements, the Manager: (a) supervises
and manages all aspects of the Company's operations and the operations of each
of the Company's three Portfolios; (b) furnishes the Company with such office
space, heat, light, utilities, equipment and personnel as may be necessary for
the proper operation of the Portfolios and the Company's principal executive
office; (c) monitors the performance by all other persons furnishing services to
the Company on behalf of each Portfolio and the shareholders thereof and
periodically reports on such performance to the Board of Directors; (d)
investigates, selects and conducts relationships on behalf of the Company with
custodians, depositories, accountants, attorneys, underwriters, brokers and
dealers, insurers, banks, printers and other service providers and entities
performing services to the Portfolios and their shareholders; (e) furnishes the
Portfolios with all necessary accounting services; and (f) reviews and
supervises the preparation of all financial, tax and other reports and
regulatory filings. The expenses of furnishing the foregoing are borne by the
Manager. See "Expenses" below.
In consideration of the services to be provided by the Manager and the expenses
to be borne by the Manager under the Management/Investment Advisory Agreements,
the Manager receives annual fees from each of the Portfolios, calculated daily
and paid monthly, of 0.800% of the first $500 million of the Company's average
daily net assets, 0.775% of the average daily net assets of the Company in
excess of $500 million but less than $1 billion, 0.750% of the average daily net
assets of the Company in excess of $1 billion but less than $1.5 billion, plus
0.725% of the Company's average daily net assets in excess of $1.5 billion. The
Company's comprehensive fee is higher than most other money market mutual funds
which do not offer services that the Company offers. However, most other funds
bear certain expenses that are borne by the Manager. During the fiscal years
ended March 31, 1995, March 31, 1996 and March 31, 1997 the Company paid to the
Manager the management fees set forth in the table below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Year Management Fees
1995 Payable Waived Paid
---- ------- ------ ----
Cortland General $7,188,114 $124,695 $7,063,419
U.S. Government 1,704,092 17,874 1,686,218
Municipal 1,755,183 0 1,755,183
1996
Cortland General $9,878,992 $0 $9,878,992
U.S. Government 1,964,097 0 1,964,097
Municipal 1,981,507 0 1,981,507
1997
Cortland General $10,885,158 $0 $10,885,158
U.S. Government 1,851,957 50,000 1,801,957
Municipal 1,698,486 0 1,698,486
</TABLE>
The Management/Investment Advisory Agreements were approved by the Board of
Directors, including a majority of directors who are not interested persons (as
defined in the 1940 Act), of the Portfolios or the Manager, effective August 30,
1996. The new Management/Investment Advisory Agreements were last approved for
continuance on June 20, 1997 and will continue thereafter if they are
specifically approved at least annually by the Board of Directors and by the
affirmative vote of a majority of the directors who are not parties to such
Management/Investment Advisory Agreements or "interested persons" of any such
party by votes cast in person at a meeting called for such purpose. The
Portfolios or the Manager may terminate the Management/Investment Advisory
Agreements on 60 days' written notice without penalty. Each
Management/Investment Advisory Agreement terminates automatically in the event
of its "assignment," as defined in the 1940 Act. The Manager shall not be liable
to the Portfolios or to their shareholders for any act or omission by the
Manager or for any loss sustained by a Fund or its shareholders except in the
case of the Manager's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty. The Company's (Portfolios') right to use the name
"Cortland" in its name in any form or combination may terminate upon termination
of the Manager as the Company's (Portfolios') investment manager.
Pursuant to the terms of the Management/Investment Advisory Agreements, the
Manager: (a) provides the Company with certain executive, administrative and
clerical services as are deemed advisable by the Board of Directors; (b)
arranges, but does not pay for, the periodic updating of prospectuses and
statements of additional information and supplements thereto, proxy materials,
tax returns, reports to each Portfolio's shareholders and reports to and filings
6
<PAGE>
with the SEC and state Blue Sky authorities; (c) provides the Board of Directors
on a regular basis with financial reports and analyses of the Portfolios'
operations and the operation of comparable investment companies; (d) obtains and
evaluates pertinent information about significant developments and economic,
statistical and financial data, domestic, foreign or otherwise, whether
affecting the economy generally or any of the Portfolios and whether concerning
the individual issuers whose securities are included in the portfolios of the
Company's three Portfolios; (e) determines which issuers and securities shall be
represented in the Portfolios' portfolios and regularly reports thereon to the
Company's Board of Directors; (f) formulates and implements continuing programs
for the purchases and sales of securities for the Portfolios; and (g) takes, on
behalf of the Portfolios, all actions which appear to be necessary to carry into
effect such purchase and sale programs, including the placing of orders for the
purchase and sale of portfolio securities. Any investment program undertaken by
the Manager will at all times be subject to the policies and control of the
Board of Directors. The Manager shall not be liable to the Portfolios or to
their shareholders for any act or omission by the Manager or for any loss
sustained by a Portfolio or its shareholders except in the case of the Manager's
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
EXPENSES
Pursuant to the Management/Investment Advisory Agreements, the Manager
furnishes, without cost to the Company, the services of the President, Secretary
and one or more Vice Presidents of the Company and such other personnel as are
required for the proper conduct of the Portfolios' affairs and to carry out
their obligations under the Management/Investment Advisory Agreements. Pursuant
to the Management/Investment Advisory Agreements, the Manager maintains, at its
expense and without cost to the Portfolios, a trading function in order to carry
out its obligations to place orders for the purchase and sale of portfolio
securities for the Portfolios. The Manager, on behalf of its affiliate, Reich &
Tang Distributors L.P. (the "Distributor"), pays out of the management fees from
each of the Funds and payments under a Plan of Distribution (see "Distributor
and Plans of Distribution") the expenses of printing and distributing
prospectuses and statements of additional information and any other promotional
or sales literature used by the Distributor or furnished by the Distributor to
purchasers or dealers in connection with the public offering of the Portfolios'
shares, the expenses of advertising in connection with such public offering and
all legal expenses in connection with the foregoing.
Except as set forth below, the Manager pays all expenses of the Portfolios,
including, without limitation: the charges and expenses of any registrar, any
custodian or depository appointed by the Company for the safekeeping of its
cash, portfolio securities and other property, and any stock transfer, dividend
or accounting agent or agents appointed by the Company; all fees payable by the
Company to federal, state or other governmental agencies; the costs and expenses
of engraving or printing certificates representing shares of the Company (the
Company does not issue share certificates at the present time); all costs and
expenses in connection with the registration and maintenance of registration of
the Portfolios and their shares with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting, and distributing
prospectuses and statements of additional information of the Company and
supplements thereto to the Company's shareholders and to potential shareholders
of the Portfolios; all expenses of shareholders' meetings and of preparing,
printing and mailing of proxy statements and reports to shareholders; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Portfolios' shares; routine fees and expenses of
legal counsel and of independent accountants, in connection with any matter
relating to the Company; postage; insurance premiums on property or personnel
(including officers and directors) of the Company which inure to its benefit;
and all other charges and costs of the Portfolios' operations unless otherwise
explicitly assumed by the Company. The Company is responsible for payment of the
following expenses not borne by the Manager: (a) the fees of the directors who
are not "interested persons" of the Company, as defined by the 1940 Act, and
travel and related expenses of the directors for attendance at meetings, (b)
interest, taxes and brokerage commissions (which can be expected to be
insignificant), (c) extraordinary expenses, if any, including, but not limited
to, legal claims and liabilities and litigation costs and any indemnification
related thereto, (d) any shareholder service or distribution fee payable by the
Company under the plan of distribution described below, and (e) membership dues
of any industry association.
Expenses which are attributable to any of the Company's Portfolios are charged
against the income of such Portfolio in determining net income for dividend
purposes. Expenses of the Company which are not directly attributable to the
operations of any single Portfolio are allocated among the Portfolios based upon
the relative net assets of each Portfolio.
The Manager has agreed to reduce its aggregate fees for any fiscal year, or to
reimburse each Portfolio, to the extent required so that the amount of the
ordinary expenses of each Portfolio (excluding brokerage commissions, interest,
taxes and extraordinary expenses such as litigation costs) paid or incurred by
any of the Portfolios do not exceed the expense limitations applicable to the
Portfolios imposed by the securities laws or regulations of those states or
jurisdictions in which such Portfolio's shares are registered or qualified for
sale. Currently, the most restrictive of such expense limitations would require
the Manager to reduce its respective fees to the extent required so that
ordinary
7
<PAGE>
expenses of a Portfolio (excluding interest, taxes, brokerage commissions and
extraordinary expenses) for any fiscal year do not exceed 2 1/2% of the first
$30 million of the Portfolio's average daily net assets, plus 2% of the next $70
million of the Portfolio's average daily net assets, plus 1 1/2% of the
Portfolio's average daily net assets in excess of $100 million. Expense
reductions under state securities laws are unlikely because most of the expenses
of the Company can be expected to be borne by the Manager.
DISTRIBUTOR AND PLANS OF DISTRIBUTION
The Distributor serves as the principal underwriter of the Company's shares
pursuant to Distribution Agreements dated September 15, 1993. The Distributor
has an office located at 600 Fifth Avenue, New York, New York 10020.
Pursuant to the Distribution Agreements, the Distributor: (a) solicits and
receives orders for the purchase of shares of the Portfolios, accepts or rejects
such orders on behalf of the Company in accordance with the Company's currently
effective Prospectuses and transmits such orders as are accepted to the Company
as promptly as possible; (b) receives requests for redemptions and transmits
such redemption requests to the Company as promptly as possible; (c) responds to
inquiries from shareholders concerning the status of their accounts and the
operation of the Company; and (d) provides daily information concerning yields
and dividend rates to shareholders. The Distributor shall not be liable to the
Company or to its shareholders for any act or omission or any loss sustained by
the Company or its shareholders except in the case of the Distributor's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Distributor receives no compensation from the Company for its services.
On November 9, 1995, the Distributor entered into a Primary Dealer Agreement
with Interstate Johnson/ Lane in order to provide for the offer and sale of the
Funds.
Each Portfolio has adopted a plan of distribution under Rule 12b-1 of the 1940
Act (the "Plans") with respect to the Funds. Pursuant to the Funds' Plans, the
Distributor may pay certain promotional and advertising expenses and may
compensate certain registered securities dealers (including Interstate
Johnson/Lane) and financial institutions for services provided in connection
with the processing of orders for purchase or redemption of the shares of the
Company and furnishing other shareholder services. Payments by the Distributor
are paid out of the management fees and distribution plan payments received by
the Manager and/or its affiliates from each of the Funds, out of past profits or
from any other source available to the Distributor. Interstate Johnson/Lane may
enter into shareholder processing and service agreements (the "Shareholder
Service Agreements") with any securities dealer who is registered under the
Securities Exchange Act of 1934 and a member in good standing of the National
Association of Securities Dealers, Inc., and with banks and other financial
institutions which may wish to establish accounts or sub-accounts on behalf of
their customers ("Shareholder Service Agents"). For processing investor purchase
and redemption orders, responding to inquiries from Fund shareholders concerning
the status of their accounts and operations of the Funds and communicating with
Interstate Johnson/Lane and the Distributor, the Company may pay each such
Shareholder Service Agent (or if no Shareholder Service Agent provides services,
the Distributor, to cover expenditures for advertising, sales literature and
other promotional materials on behalf of the Company) an amount not to exceed on
an annual basis 0.20% of the aggregate average daily net assets that such
Shareholder Service Agent's customers maintain with the Funds during the term of
any Shareholder Service Agreement. During the fiscal year ended March 31, 1997,
the amount payable to the Company was $751,269, $100,680 and $108,270 for
expenses incurred pursuant to the Live Oak distribution plans for the Cortland
General Money Market Fund Class, the U.S. Government Fund Class and the
Municipal Money Market Fund Class, respectively, of this amount $57,065, $52,784
and $19,127 was voluntarily waived for the Cortland General Money Market Fund
Class, the U.S. Government Fund Class, and the Municipal Money Market Fund
Class, respectively, all of which amounts were spent in payment to financial
intermediaries in connection with the distribution of such portfolios' shares.
During the fiscal year ended March 31, 1996, the Company paid $217,333, $15,330
and $30,979 for expenses incurred pursuant to the Live Oak distribution plans
for the Cortland General Money Market Fund Class, the U.S. Government Fund Class
and the Municipal Money Market Fund Class, respectively, all of which amounts
were spent in payment to financial intermediaries in connection with the
distribution of such portfolios' shares. The Company also offers other classes
of shares of the Portfolios with different distribution arrangements designed
for institutional and other categories of investors.
The Distributor, under the Plans, may also make payments to Interstate
Johnson/Lane and/or Shareholder Service Agents out of the investment management
fees received by the Manager from each of the Funds, out of its past profits or
from any other source available to the Distributor. During the fiscal year ended
March 31, 1997, the Distributor paid Shareholder Service Agents $5,142,902,
$907,365 and $766,048, on behalf of the Cortland General Money Market Fund, the
U.S. Government Fund and the Municipal Money Market Fund, respectively, under
the Plans.
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The fees payable to Shareholder Service Agents under Shareholder Service
Agreements are negotiated by the Distributor. The Distributor will report
quarterly to the Board of Directors on the rate to be paid under each such
agreement and the amounts paid or payable under such agreements. The rate of
payment will be based upon the Distributor's analysis of: (1) the contribution
that the Shareholder Service Agent makes to each of the Portfolios by increasing
assets under management and reducing expense ratios; (2) the nature, quality and
scope of services being provided by the Shareholder Service Agent; (3) the cost
to the Company if shareholder services were provided directly by the Company or
other authorized persons; (4) the costs incurred by the Shareholder Service
Agent in connection with providing services to shareholders; and (5) the need to
respond to competitive offers of others, which could result in assets being
withdrawn from a Portfolio and an increase in the expense ratio for any of the
Portfolios.
The Distribution Agreements for each of the Funds were last approved by the
Board of Directors on June 25, 1997, 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.
The Plans may not be amended to increase the maximum amount of payments by the
Company or the Manager to its Shareholder Service Agents without shareholder
approval, and all material amendments to the provisions of the Plans must be
approved by the Board of Directors and by the directors who have no direct or
indirect financial interest in the Plans, by votes cast in person at a meeting
called for the purpose of such vote. Each Fund or the Distributor may terminate
the Distribution Agreements on 60 days' written notice without penalty. The
Distribution Agreements terminate automatically in the event of their
"assignment," as defined in the 1940 Act. The services of the Distributor to the
Funds are not exclusive, and it is free to render similar services to others.
The Plans may also be terminated by each of the Funds or by the Manager or in
the event of their "assignment," as defined in the 1940 Act, on the same basis
as the Distribution Agreements.
Although it is a primary objective of the Plans to reduce expenses of the
Portfolios by fostering growth in the Portfolios' net assets, there can be no
assurance that this objective of the Plans will be achieved; however, based on
the data and information presented to the Board of Directors by the Manager and
the Distributor, the Board of Directors determined that there is a reasonable
likelihood that the benefits of growth in the size of the Portfolios can be
accomplished under the Plans.
When the Board of Directors approved the Distribution Agreements, the Primary
Dealer Agreement, the forms of Shareholder Service Agreement and the Plans, the
Board of Directors requested and evaluated such information as they deemed
reasonably necessary to make an informed determination that the Distribution
Agreements, Plans and related agreements should be approved. They considered and
gave appropriate weight to all pertinent factors necessary to reach the good
faith judgment that the Distribution Agreements, Plans and related agreements
would benefit the Portfolios and their respective shareholders.
The Board of Directors reviewed, among other things, (1) the nature and extent
of the services to be provided by the Manager, the Distributor, Interstate
Johnson/Lane and the Shareholder Service Agents, (2) the value of all benefits
received by the Manager, (3) the overhead expenses incurred by the Manager
attributable to services provided to the Company's shareholders, and (4)
expenses of the Company being assumed by the Manager.
In connection with the approval of the Plans, the Board of Directors also
determined that the Portfolios would be expected to receive at least the
following benefits:
1) The Distributor and Shareholder Service Agents will furnish rapid access by
a shareholder to his Portfolio account for the purpose of effecting
executions of purchase and redemption orders.
2) The Distributor and Shareholder Service Agents will provide prompt,
efficient and reliable responses to inquiries of a shareholder concerning
his account status.
3) The Company's ability to sustain a relatively predictable flow of cash for
investment purposes and to meet redemptions facilitates more successful,
efficient portfolio management and the achievement of each of the
Portfolios' fundamental policies and objectives of providing stability of
principal, liquidity, and, consistent with the foregoing, the highest
possible current income, is enhanced by a stable network of distribution.
4) A successful distribution effort will assist the Manager in maintaining and
increasing the organizational strength needed to serve the Company.
5) The establishment of an orderly system for processing sales and redemptions
is also important to the Company's goal of maintaining the constant net
asset value of each Portfolio's shares, which most shareholders depend
upon. By identifying potential investors whose needs are served by the
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objectives of the Portfolio, a well-developed, dependable network of
Shareholder Service Agents may help to curb sharp fluctuations in rates of
redemptions and sales, thereby reducing the chance that an unanticipated
increase in net redemptions could adversely affect the ability of the
Portfolios to stabilize their net asset values per share.
6) The Company expects to share in the benefits of growth in the Portfolios'
net assets by achieving certain economies of scale based on a reduction in
the management fees, although the Manager will receive a larger fee if net
assets grow.
The Plans will only make payments for expenses actually incurred by the
Distributor. The Plans will not carry over expenses from year to year and if a
Plan is terminated in accordance with its terms, the obligations of a Portfolio
to make payments to the Distributor pursuant to the Plan will cease and the
Portfolio will not be required to make any payments past the date the Plan
terminates.
The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit federally chartered or supervised banks from engaging in the business
of underwriting, selling or distributing securities. Accordingly, the
Distributor will engage banks as shareholder service agents only to perform
administrative and shareholder servicing functions. While the matter is not free
from doubt, the management of the Company believes that such laws should not
preclude a bank from acting as a shareholder service agent. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a bank
were prohibited from so acting, shareholder clients of such bank would be
permitted to remain Fund shareholders and alternate means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of Fund might occur and shareholders serviced by such bank might no
longer be able to avail themselves of any automatic investment or other services
then being provided by such bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences.
State law may, in some jurisdictions, differ from the foregoing discussion of
the Glass-Steagall Act and from other applicable federal law. Prior to entering
into shareholder servicing agreements with banks in Texas, the Distributor will
obtain a representation from such banks that they are either registered as
dealers in Texas, or that they will not engage in activities that would
constitute acting as dealers under Texas State law.
Custodian
Investors Fiduciary Trust Company acts as custodian for the Company's portfolio
securities and cash. Investors Fiduciary Trust Company receives such
compensation from the Manager for its services in such capacity as is agreed to
from time to time by Investors Fiduciary Trust Company and the Manager. The
address of Investors Fiduciary Trust Company is 127 West 10th Street, Kansas
City, Missouri 64105.
Transfer Agent
The Company acts as its own transfer agent with respect to the Funds. All costs
associated with performing such services are borne by the Manager.
Sub-Accounting
The Manager, at its expense, will provide sub-accounting services to all
shareholders and maintain information with respect to underlying owners.
Principal Holders of Securities
On June 30, 1997 there were 2,236,979,166 shares of the Portfolios outstanding.
As of June 30, 1997 the amount of shares owned by all officers and directors of
the Portfolios as a group was less than 1% of the outstanding shares of the
Portfolios. To the best of the knowledge of the company, no person or entity
held 5% or more of the outstanding voting securities of any of the Portfolios.
Reports
The Company furnishes shareholders with semi-annual reports containing
information about the Portfolios and their operations, including a schedule of
investments held by the Portfolios and the financial statements for each
Portfolio. The annual financial statements are audited by the Company's
independent auditors. The Board of Directors has selected Ernst & Young LLP, 787
Seventh Avenue, New York, NY 10019, as the Company's independent auditors to
audit the Portfolios' financial statements and to review the Portfolios' tax
returns.
SHARE PURCHASES AND REDEMPTIONS
Purchases and Redemptions
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A complete description of the manner in which the Company's shares may be
purchased, redeemed or exchanged appears in the Prospectus under the captions
"How to Purchase Shares," "How to Redeem Shares," and "Exchange Privilege."
The possibility that shareholders who maintain accounts of less than $500 in
value will be subject to mandatory redemption is also described under the
caption "How to Redeem Shares." If the Board of Directors authorizes mandatory
redemption of such small accounts, the holders of shares with a value of less
than $500 will be notified that they must increase their investment to $500 or
their shares will be redeemed on or after the 60th day following such notice or
pay a fee. Involuntary redemptions will not be made if the decline in value of
the account results from a decline in the net asset value of a share of any of
the Portfolios. The Company does not presently redeem such small accounts and
does not currently intend to do so.
The right of redemption may be suspended or the date of payment postponed when
(a) trading on the New York Stock Exchange is restricted, as determined by
applicable rules and regulations of the SEC, (b) the New York Stock Exchange is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposal of portfolio securities or the valuation of the net
assets of a Portfolio not reasonably practicable.
NET ASSET VALUE DETERMINATION
The net asset values of the Portfolios are determined twice daily as of 12 noon
and 4:15 p.m. Eastern time on each day the New York Stock Exchange and the
Company's custodian are open for business.
For the purpose of determining the price at which shares of the Portfolios are
issued and redeemed, the net asset value per share is calculated immediately
after the daily dividend declaration by: (a) valuing all securities and
instruments of a Portfolio as set forth below; (b) deducting such Portfolio's
liabilities; (c) dividing the resulting amount by the number of shares
outstanding of such Portfolio; and (d) rounding the per share net asset value to
the nearest whole cent. As discussed below, it is the intention of the Company
to maintain a net asset value per share of $1.00 for each of the Portfolios.
The debt instruments held in each of the Portfolio's portfolios are valued on
the basis of amortized cost. This method involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price a Portfolio would receive if it sold the entire
portfolio. During periods of declining interest rates, the daily yield for a
Portfolio, computed as described under the caption "Dividends and Tax Matters"
below, may be higher than a similar computation made by a fund with identical
investments utilizing a method of valuation based upon market prices and
estimates of market prices for all of its portfolio instruments. Thus, if the
use of amortized cost by a Portfolio results in a lower aggregate portfolio
value for such Portfolio on a particular day, a prospective investor in the
Portfolio would be able to obtain a somewhat higher yield than would result from
an investment in a fund utilizing solely market values, and existing investors
in such Portfolio would receive less investment income. The converse would apply
in a period of rising interest rates.
As it is difficult to evaluate the likelihood of exercise or potential benefit
of a Stand-by Commitment, described under the caption "Investment Program -
Stand-by Commitments," such commitments will be considered to have no value,
regardless of whether any direct or indirect consideration is paid for such
commitments. Where the Municipal Money Market Portfolio has paid for a Stand-by
Commitment, its cost will be reflected as unrealized depreciation for the period
during which the commitment is held.
The valuation of the portfolio instruments based upon their amortized cost, the
calculation of each Portfolio's per share net asset value to the nearest whole
cent and the concomitant maintenance of the net asset value per share of $1.00
for each of the Portfolios is permitted in accordance with applicable rules and
regulations of the SEC, which require the Portfolios to adhere to certain
conditions. Each Portfolio maintains a dollar-weighted average portfolio
maturity of 90 days or less, purchases only instruments having remaining
maturities of thirteen months or less and invests only in securities determined
by the Manager to be of high quality with minimal credit risk. The Board of
Directors is required to establish procedures designed to stabilize, to the
extent reasonably possible, each Portfolio's price per share at $1.00 as
computed for the purpose of sales and redemptions. Such procedures include
review of a Portfolio's portfolio holdings by the Board of Directors, at such
intervals as they may deem appropriate, to determine whether the net asset value
calculated by using available market quotations or other reputable sources for a
Portfolio deviates from $1.00 per share and, if so, whether such deviation may
result in material dilution or is otherwise unfair to existing holders of the
shares of the Portfolio. In the event the Board of Directors determines that
such a deviation exists for a Portfolio, it will take such corrective action as
the Board of Directors deems necessary and appropriate, including the sale of
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten the average portfolio maturity; the withholding of dividends; redemption
of shares in kind; or the establishment of a net asset value per share by using
available market quotations.
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DIVIDENDS AND TAX MATTERS
Dividends
All of the net income earned by each Portfolio is declared daily as dividends to
the respective holders of record of each Portfolio. Net income for each of the
Portfolios for dividend purposes (from the time of the immediately preceding
determination thereof) consists of (a) interest accrued and discount earned, if
any, on the assets of each Portfolio and any general income of the Company
prorated to such Portfolio based on the relative net assets of such Portfolio,
less (b) amortization of premium and accrued expenses for the applicable
dividend period attributable directly to such Portfolio and general expenses of
the Company prorated to such Portfolio based on the relative net assets of such
Portfolio. The amount of discount or premium on instruments in each Portfolio's
portfolio is fixed at the time of purchase of the instruments. See "Net Asset
Value Determination" above. Realized gains and losses on portfolio securities
held by each Portfolio will be reflected in the net asset value of such
Portfolio. Each Portfolio expects to distribute any net realized short-term
gains of such Portfolio at least once each year, although it may distribute them
more frequently if necessary in order to maintain such Portfolio's net asset
value at $1.00 per share. The Portfolios do not expect to realize net long-term
capital gains.
Should any of the Portfolios incur or anticipate any unusual expense, loss or
depreciation which would adversely affect the net asset value per share or net
income per share of a Portfolio for a particular period, the Board of Directors
would at that time consider whether to adhere to the present dividend policy
described above or to revise it in light of then prevailing circumstances. For
example, if the net asset value per share of a Portfolio were reduced, or was
anticipated to be reduced, below $1.00, the Board of Directors may suspend
further dividend payments with respect to that Portfolio until the net asset
value per share returns to $1.00. Thus, such expense or loss or depreciation
might result in a shareholder receiving no dividends for the period during which
he held shares of the Portfolio and/or in his receiving upon redemption a price
per share lower than the price which he paid.
Dividends on a Portfolio's shares are normally payable on the first day
following the date that a share purchase or exchange order is effective and on
the date that a redemption order is effective. The net income of a Portfolio for
dividend purposes is determined as of 12:00 noon Eastern time on each "business
day" of the Company, as defined in the Prospectus and immediately prior to the
determination of each Portfolio's net asset value on that day. Dividends are
declared daily and reinvested in additional full and fractional shares of each
Portfolio at net asset value. A shareholder may elect to have the declared
dividends paid monthly to him by check.
Tax Matters
The following is only a summary of certain additional tax considerations
generally affecting the Portfolios and their shareholders that are not described
in the Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of each Portfolio or its shareholders, and the discussions here
and in the Prospectus are not intended as substitutes for careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Portfolio has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, each Portfolio is not subject to federal income
tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) and, with respect
to the Municipal Money Market Fund, at least 90% of its tax-exempt income (net
of expenses allocable thereto) for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that are
described below. Distributions by a Portfolio made during the taxable year or,
under specified circumstances, within twelve months after the close of the
taxable year, will be considered distributions of income and gains of the
taxable year and will therefore satisfy the Distribution Requirement. If a Fund
has net capital loss (i.e., the excess of capital losses over capital gains) for
any year, the amount therof may be carried forward up to eight years and treated
as a short-term capital loss which can be used to offset capial gains in such
years. As of March 31, 1997, Cortland General Fund, U.S. Government Fund and
Municipal Fund had capital loss carryforwards of approximately $2,325,981,
$715,280, $32,156 respectively, which expire through 2004, 2004 and 2003,
respectively. Under code Sections 382, and 383, if a Fund has an "ownership
change, " then such Fund's use of its capital loss carryforwards in any year
following the ownership change will be limited to an amount equal to the net
asset value of the Fund immediately prior to the ownership change multiplied by
the long-term tax-exempt rate (which is published monthly by the Internal
Revenue Service (the "IRS")) in effect for the month in which the ownership
change occurs (the rate for June is 5.64%). The Funds will use their best
efforts to avoid having an ownership change. However, because of circumstances
which may be beyond the control or knowledge of a Fund, there can be no
assurance that a Fund will not have, or has not already had, an ownership
change. If a Fund has or has had an ownership change, then any capital gain net
income for any year following the ownership change in excess of the annual
limitation on the capital loss carryforwards will have to be distributed by the
Fund and will be taxable to shareholders as described under "Fund Distributions"
below.
In addition to satisfying the Distribution Requirement, a regulated investment
company must: (1) derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (the "Income Requirement"); and (2) derive less than 30% of its gross
income (exclusive of certain gains on designated hedging transactions that are
offset by realized or unrealized losses on offsetting positions) from the sale
or other disposition of stock, securities or foreign currencies (or options,
futures or forward contracts thereon) held for less than three months (the
"Short-Short Gain Test"). For purposes of these calculations, gross income of
the Municipal Money Market Portfolio includes tax-exempt income. However,
foreign currency gains, including those derived from options, futures and
forwards, will not in any event be characterized as Short-Short Gain if they are
directly related to the regulated investment company's investments in stock or
securities (or options or futures
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thereon). Because of the Short-Short Gain Test, a Portfolio may have to limit
the sale of appreciated securities that it has held for less than three months.
However, the Short-Short Gain Test will not prevent a Portfolio from disposing
of investments at a loss, since the recognition of a loss before the expiration
of the three-month holding period is disregarded for this purpose. Interest
(including original issue discount) received by a Portfolio at maturity or upon
the disposition of a security held for less than three months will not be
treated as gross income derived from the sale or other disposition of such
security within the meaning of the Short-Short Gain Test. However, income that
is attributable to realized market appreciation will be treated as gross income
from such sale or other disposition.
In general, gain or loss recognized by a Portfolio on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including municipal obligations) purchased by
a Portfolio at a market discount (generally, at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of the
market discount which accrued during the period of time the Portfolio held the
debt obligation.
Treasury Regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) for any taxable year,
to elect (unless it has made a taxable year election for excise tax purposes as
discussed below) to treat all or any part of any net capital loss, any net
long-term capital loss or any net foreign currency loss incurred after October
31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, each Portfolio must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each
Portfolio's taxable year, at least 50% of the value of the Portfolio's assets
must consist of cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and securities of other issuers (as to
each of which the Portfolio has not invested more than 5% of the value of the
Portfolio's total assets in securities of such issuer and does not hold more
than 10% of the outstanding voting securities of such issuer), and no more than
25% of the value of its total assets may be invested in the securities of any
one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which the Portfolio
controls and which are engaged in the same or similar trades or businesses. For
purposes of the asset diversification test, obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government such as the Federal
Agricultural Mortgage Corporation, the Farm Credit System Financial Assistance
Corporation, a Federal Home Loan Bank, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Government National
Mortgage Corporation, and the Student Loan Marketing Association are treated as
U.S. Government securities.
If for any taxable year a Portfolio does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Portfolio's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to at least the sum of
98% of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or, at
the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
(Tax-exempt interest on municipal obligations is not subject to the excise tax.)
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1) reduce
its capital gain net income (but not below its net capital gain) by the amount
of any net ordinary loss for the calendar year; and (2) exclude foreign currency
gains and losses incurred after October 31 of any year (or after the end of its
taxable year if it has made a taxable year election) in determining the amount
of ordinary taxable income for the current calendar year (and, instead, include
such gains and losses in determining ordinary taxable income for the succeeding
calendar year).
Each Portfolio intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that a Portfolio may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
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PORTFOLIO DISTRIBUTIONS
Each Portfolio anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they will not qualify for the 70% dividends-received deduction
for corporate shareholders.
Each Portfolio may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Portfolio currently intends to distribute any
such amounts. Net capital gain that is distributed and designated as a capital
gain dividend will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Portfolio prior to the date on which the
shareholder acquired his shares.
Conversely, if a Portfolio elects to retain its net capital gain, the Portfolio
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If a Portfolio elects to retain its
net capital gain, it is expected that the Portfolio also will elect to have
shareholders of record on the last day of its taxable year treated as if each
received a distribution of his pro rata share of such gain, with the result that
each shareholder will be required to report his pro rata share of such gain on
his tax return as long-term capital gain, will receive a refundable tax credit
for his pro rata share of tax paid by the Portfolio on the gain, and will
increase the tax basis for his shares by an amount equal to the deemed
distribution less the tax credit.
The Municipal Money Market Portfolio intends to qualify to pay exempt-interest
dividends by satisfying the requirement that at the close of each quarter of the
Municipal Money Market Portfolio's taxable year at least 50% of the Portfolio's
total assets consists of tax-exempt municipal obligations. Distributions from
the Municipal Money Market Portfolio will constitute exempt-interest dividends
to the extent of the Portfolio's tax-exempt interest income (net of expenses and
amortized bond premium). Exempt-interest dividends distributed to shareholders
of the Municipal Money Market Portfolio are excluded from gross income for
federal income tax purposes. However, shareholders required to file federal
income tax returns will be required to report the receipt of exempt-interest
dividends on their returns. Moreover, while exempt-interest dividends are
excluded from gross income for federal income tax purposes, they may be subject
to alternative minimum tax ("AMT") in certain circumstances and may have other
collateral tax consequences as discussed below. Distributions by the Municipal
Money Market Portfolio of any investment company taxable income or of any net
capital gain will be taxable to shareholders as discussed above.
AMT is imposed in addition to, but only to the extent it exceeds, the regular
tax and is computed at a maximum marginal rate of 28% for noncorporate taxpayers
and 20% for corporate taxpayers on the excess of the taxpayer's alternative
minimum taxable income ("AMTI") over an exemption amount. Exempt-interest
dividends derived from certain "private activity" municipal obligations issued
after August 7, 1986 will generally constitute an item of tax preference
includable in AMTI for both corporate and noncorporate taxpayers. In addition,
exempt-interest dividends derived from all municipal obligations, regardless of
the date of issue, must be included in adjusted current earnings, which are used
in computing an additional corporate preference item (i.e., 75% of the excess of
a corporate taxpayer's adjusted current earnings over its AMTI (determined
without regard to this item and the AMT net operating loss deduction))
includable in AMTI.
Exempt-interest dividends must be taken into account in computing the portion,
if any, of social security or railroad retirement benefits that must be included
in an individual shareholder's gross income and subject to federal income tax.
Further, a shareholder of the Municipal Money Market Portfolio is denied a
deduction for interest on indebtedness incurred or continued to purchase or
carry shares of the Municipal Money Market Portfolio. Moreover, a shareholder
who is (or is related to) a "substantial user" of a facility financed by
industrial development bonds held by the Municipal Money Market Portfolio will
likely be subject to tax on dividends paid by the Municipal Money Market
Portfolio which are derived from interest on such bonds. Receipt of
exempt-interest dividends may result in other collateral federal income tax
consequences to certain taxpayers, including financial institutions, property
and casualty insurance companies and foreign corporations engaged in a trade or
business in the United States. Prospective investors should consult their own
tax advisers as to such consequences.
Investment income that may be received by the Cortland General Money Market
Portfolio from sources within foreign countries may be subject to foreign taxes
withheld at the source. The United States has entered into tax treaties with
many foreign countries which entitle the Cortland General Money Market Portfolio
to a reduced rate of, or exemption from, taxes on such income. It is impossible
to determine the effective rate of foreign tax in advance since the amount of
the Cortland General Money Market Portfolio's assets to be invested in various
countries is not known.
Distributions by a Portfolio that do not constitute ordinary income dividends,
exempt-interest dividends or capital gain dividends will be treated as a return
of capital to the extent of (and in reduction of) the shareholder's tax basis in
his shares; any excess will be treated as gain from the sale of his shares, as
discussed below.
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Distributions by a Portfolio will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Portfolio (or of another fund). Shareholders receiving
a distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of the Portfolio reflects undistributed
net investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Portfolio, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although they economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Portfolio into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Portfolio) on December
31 of such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
Each Portfolio will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Portfolio that it is not subject to backup withholding or that it
is an "exempt recipient" (such as a corporation).
SALE OR REDEMPTION OF PORTFOLIO SHARES
Each Portfolio seeks to maintain a stable net asset value of $1.00 per share;
however, there can be no assurance that the Portfolios will do this. In such a
case, a shareholder will recognize gain or loss on the sale or redemption of
shares of a Portfolio in an amount equal to the difference between the proceeds
of the sale or redemption and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of a Portfolio within 30 days before or after
the sale or redemption. In general, any gain or loss arising from (or treated as
arising from) the sale or redemption of shares of a Portfolio will be considered
capital gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. However, any capital loss arising from the
sale or redemption of shares held for six months or less will be disallowed to
the extent of the amount of exempt-interest dividends received on such shares
and (to the extent not disallowed) will be treated as a long-term capital loss
to the extent of the amount of capital gain dividends received on such shares.
For this purpose, the special holding period rules of Code Section 246(c)(3) and
(4) generally will apply in determining the holding period of shares. Long-term
capital gains of noncorporate taxpayers are currently taxed at a maximum rate
11.6% lower than the maximum rate applicable to ordinary income. Capital losses
in any year are deductible only to the extent of capital gains plus, in the case
of a noncorporate taxpayer, $3,000 of ordinary income.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from a Portfolio is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Portfolio is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends paid to
a foreign shareholder will be subject to U.S. withholding tax at the rate of 30%
(or lower applicable treaty rate) upon the gross amount of the dividend. Such a
foreign shareholder would generally be exempt from U.S. federal income tax on
gains realized on the sale of shares of a Portfolio, capital gain dividends and
exempt-interest dividends and amounts retained by the Portfolio that are
designated as undistributed capital gains.
If the income from a Portfolio is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Portfolio will be subject to U.S. federal income tax at the rates applicable to
U.S. citizens or domestic corporations.
In the case of a foreign noncorporate shareholder, a Portfolio may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholder furnishes the Portfolio with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Portfolio, including
the applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION AND LOCAL TAX CONSIDERATIONS
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The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends, exempt-interest
dividends and capital gain dividends from regulated investment companies often
differ from the rules for U.S. federal income taxation described above.
Shareholders are urged to consult their tax advisers as to the consequences of
these and other state and local tax rules affecting investment in a Portfolio.
YIELD INFORMATION
The yield for each Portfolio can be obtained by calling your securities dealer
or the Distributor at (212) 830-5280 if calling from New Jersey, Alaska or
Hawaii, or by calling toll free at (800) 433-1918 if calling from elsewhere in
the continental U.S. Quotations of yield on the Portfolios may also appear from
time to time in the financial press and in advertisements.
The current yields quoted will be the net average annualized yield for an
identified period, usually seven consecutive calendar days. Yield for a
Portfolio will be computed by assuming that an account was established with a
single share of such Portfolio (the "Single Share Account") on the first day of
the period. To arrive at the quoted yield, the net change in the value of that
Single Share Account for the period (which would include dividends accrued with
respect to the share, and dividends declared on shares purchased with dividends
accrued and paid, if any, but would not include realized gains and losses or
unrealized appreciation or depreciation) will be multiplied by 365 and then
divided by the number of days in the period, with the resulting figure carried
to the nearest hundredth of 1%. The Company may also furnish a quotation of
effective yield for each Portfolio that assumes the reinvestment of dividends
for a 365 day year and a return for the entire year equal to the average
annualized yield for the period, which will be computed by compounding the
unannualized current yield for the period by adding 1 to the unannualized
current yield, raising the sum to a power equal to 365 divided by the number of
days in the period, and then subtracting 1 from the result. Historical yields
are not necessarily indicative of future yields. Rates of return will vary as
interest rates and other conditions affecting money market instruments change.
Yields also depend on the quality, length of maturity and type of instruments in
each Portfolio's portfolio and each Portfolio's operating expenses. Quotations
of yields will be accompanied by information concerning the average weighted
maturity of the Portfolios. Comparison of the quoted yields of various
investments is valid only if yields are calculated in the same manner and for
identical limited periods. When comparing the yield for one of the Portfolios
with yields quoted with respect to other investments, shareholders should
consider (a) possible differences in time periods, (b) the effect of the methods
used to calculate quoted yields, (c) the quality and average-weighted maturity
of portfolio investments, expenses, convenience, liquidity and other important
factors, and (d) the taxable or tax-exempt character of all or part of dividends
received.
INVESTMENT PROGRAMS AND RESTRICTIONS
Investment Programs
Information concerning the fundamental investment objectives of the Company and
each Portfolio is set forth in the Prospectus, respectively, under the captions
"Investment Programs" or "Investment Program." The principal features of the
investment programs and the primary risks associated with those investment
programs of the Company and the Portfolios are discussed in the Prospectus under
the aforementioned captions.
The following is a more detailed description of the portfolio instruments
eligible for purchase by the Portfolios which augments the summary of the
Company's and the Portfolios' investment programs which appears in the
Prospectus, under the aforementioned captions. The Company seeks to achieve its
objectives by investing in portfolios of short-term instruments rated high
quality by a major rating service or determined to be of high quality by the
Manager under the supervision of the Board of Directors.
Subsequent to its purchase by a Portfolio, a particular issue of Money Market
Obligations or Municipal Securities, as defined in the Prospectus under the
aforementioned captions may cease to be rated, or its rating may be reduced
below the minimum required for purchase by the Portfolios. Neither event
requires the elimination of such obligation from a Portfolio's portfolio, but
the Manager will consider such an event to be relevant in its determination of
whether the Portfolio should continue to hold such obligation in its portfolio.
To the extent that the ratings accorded by a nationally recognized statistical
rating organization ("NRSRO") for Money Market Obligations or Municipal
Securities may change as a result of changes in these rating systems, the
Company will attempt to use comparable ratings as standards for its investments
in Money Market Obligations and Municipal Securities in accordance with the
investment policies contained herein.
The Municipal Money Market Fund may, from time to time, on a temporary or
defensive basis, invest in U.S. Government Obligations, Money Market Obligations
and repurchase agreements. The Municipal Money Market Fund may invest in these
temporary investments, for example, due to market conditions or pending
investment of proceeds from sales of shares or proceeds from the sale of
portfolio securities or in anticipation of redemptions. Although interest
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earned from such temporary investments will be taxable as ordinary income, the
Municipal Money Market Fund intends to minimize taxable income through
investment, when possible, in short-term tax-exempt securities, which may
include shares of investment companies whose dividends are tax-exempt. (See
"Investment Programs and Restrictions - Investment Restrictions" for limitations
on the Municipal Money Market Fund's investment in repurchase agreements and
shares of other investment companies.) It is a fundamental policy of the
Municipal Money Market Fund that the Municipal Money Market Fund's assets will
be invested so that at least 80% of the Municipal Money Market Fund's income
will be exempt from federal income taxes. However, there is no limitation on the
percentage of such income which may constitute an item of tax preference and
which may therefore give use to an alternative minimum tax liability for
individual shareholders. The Municipal Money Market Fund may hold cash reserves
pending the investment of such reserves in Municipal Securities or short-term
tax-exempt securities.
The investment objectives and policies of the Company are "fundamental" only
where noted. Fundamental policies may only be changed by a vote of the majority
of the outstanding shares of the affected Portfolios. (See "General Information
About the Company - The Company and its Shares.") There can be no assurance that
the Portfolios' objectives will be achieved.
The following is a more detailed description of the portfolio instruments
eligible for purchase by the Company's three Portfolios which augments the
summary of each Portfolio's investment program which appears in the Prospectus
under the captions "Investment Programs" or "Investment Program," respectively.
The Company seeks to achieve the objectives of its Portfolios by investing in
money market instruments.
The U.S. Government Fund limits investments to U.S. Government Obligations
consisting of marketable securities and instruments issued or guaranteed by the
U.S. Government or by certain of its agencies or instrumentalities. Direct
obligations are issued by the U.S. Treasury and include bills, certificates of
indebtedness, notes and bonds. Obligations of U.S. Government agencies and
instrumentalities ("Agencies") are issued by government-sponsored agencies and
enterprises acting under authority of Congress. Certain Agencies are backed by
the full faith and credit of the U.S. Government, and others are not.
The Cortland General Money Market Fund's investments may include, in addition to
direct U.S. Government Obligations, the following investments:
Agencies that are not backed by the full faith and credit of the U.S.
Government, such as obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank.
Bank Instruments which consist mainly of certificates of deposit, bankers'
acceptances and time deposits. Certificates of deposit represent short-term
interest-bearing deposits of commercial banks and against which certificates
bearing fixed rates of interest are issued. Bankers' acceptances are short-term
negotiable drafts endorsed by commercial banks, which arise primarily from
international commercial transactions. Time deposits are non-negotiable deposits
maintained in a bank for a specified period of time at a stated interest rate.
The Cortland General Money Market Fund limits investments to bank instruments
described in each Prospectus under the captions "Investment Programs" and
"Investment Program."
Corporate Commercial Instruments which consist of short-term unsecured
promissory notes issued by corporations to finance short-term credit needs. (See
"Investment Program and Restrictions - Investment Ratings" herein for
information with respect to commercial paper ratings.) Among the instruments
that the Cortland General Money Market Fund may purchase are variable amount
master demand notes, which are unsecured demand notes that permit investment of
fluctuating amounts of money at variable rates of interest pursuant to
arrangements between the issuer and the payee or its agent whereby the
indebtedness on the notes may vary and the interest rate is periodically
redetermined.
In addition, the Cortland General Money Market Fund may purchase loan
participation certificates, which consist of interests in loans made by banks to
corporations, where both the bank and the corporation meet the Company's credit
standards. The Cortland General Money Market Portfolio generally purchases loan
participation certificates maturing in seven days or less.
The Municipal Money Market Fund endeavors to achieve its objective by investing
in the following securities. Municipal Securities in which the Municipal Money
Market Fund may invest include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Securities may be issued include the refunding of
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In addition,
certain types of industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide for the construction, equipment,
repair or improvement of privately operated housing facilities, airport, mass
transit, industrial, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. The interest paid on such bonds may be exempt
from federal income tax, although current federal tax laws place substantial
limitations on the purposes and size of such issues. Such obligations are
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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 the Manager and the Board of Directors of the Company) without reference to
the guarantee or letter of credit of a banking institution, the banking
institution will not be deemed to be an issuer for the purpose of applying the
foregoing 10% limitation.
From time to time, various proposals to restrict or eliminate the federal income
tax exemption for interest on Municipal Securities have been introduced before
Congress. Similar proposals may be introduced in the future, and if enacted, the
availability of Municipal Securities for investment by the Municipal Money
Market Fund could be adversely affected. In such event, the Board of Directors
would reevaluate the investment objective and policies and submit possible
changes in the structure of the Municipal Money Market Fund for the
consideration of shareholders.
The Company may enter into the following arrangements with respect to all three
Portfolios:
1) Repurchase Agreements under which the purchaser (for example, one of the
Portfolios) acquires ownership of an obligation (e.g., a debt instrument or
time deposit) and the seller agrees, at the time of the sale, to repurchase
the obligation at a mutually agreed upon time and price, thereby
determining the yield during the purchaser's holding period. This
arrangement results in a fixed rate of return insulated from market
fluctuations during such period. Although the underlying collateral for
repurchase agreements may have maturities exceeding one year, a Portfolio
will not enter into a repurchase agreement if as a result of such
transaction more than 10% of a Portfolio's total assets would be invested
in illiquid securities, including repurchase agreements expiring in more
than seven days. A Portfolio may, however, enter into a "continuing
contract" or "open" repurchase agreement under which the seller is under a
continuing obligation to repurchase the underlying obligation from the
Portfolio on demand and the effective interest rate is negotiated on a
daily basis. In general, the Portfolios will enter into repurchase
agreements only with domestic banks with total assets of at least $1.5
billion or with primary dealers in U.S. Government securities, but total
assets will not be the sole determinative factor, and the Portfolios may
enter into repurchase agreements with other institutions which the Board of
Directors believes present minimal credit risks. Nevertheless, if the
seller of a repurchase agreement fails to repurchase the debt instrument in
accordance with the terms of the agreement, the Portfolio which entered
into the repurchase agreement may incur a loss to the extent that the
proceeds it realizes on the sale of the underlying obligation are less than
the repurchase price. Repurchase agreements are considered to be loans by
the Company under the 1940 Act.
2) Reverse Repurchase Agreements involving the sale of money market
instruments held by a Portfolio, with an agreement that the Portfolio will
repurchase the instruments at an agreed upon price and date. A Portfolio
will employ reverse repurchase agreements when necessary to meet
unanticipated net redemptions so as to avoid liquidating other money market
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instruments during unfavorable market conditions, or in some cases as a
technique to enhance income, and only in amounts up to 10% of the value of
a Portfolio's total assets at the time it enters into a reverse repurchase
agreement. At the time it enters into a reverse repurchase agreement, the
Portfolio will place in a segregated custodial account high-quality debt
securities having a dollar value equal to the repurchase price. A Portfolio
will utilize reverse repurchase agreements when the interest income to be
earned from portfolio investments which would otherwise have to be
liquidated to meet redemptions is greater than the interest expense
incurred as a result of the reverse repurchase transactions.
3) Delayed Delivery Agreements involving commitments by a Portfolio to dealers
or issuers to acquire securities or instruments at a specified future date
beyond the customary same-day settlement for money market instruments.
These commitments may fix the payment price and interest rate to be
received on the investment. Delayed delivery agreements will not be used as
a speculative or leverage technique. Rather, from time to time, the Manager
can anticipate that cash for investment purposes will result from scheduled
maturities of existing portfolio instruments or from net sales of shares of
the Portfolio. To assure that a Portfolio will be as fully invested as
possible in instruments meeting that Portfolio's investment objective, a
Portfolio may enter into delayed delivery agreements, but only to the
extent of anticipated funds available for investment during a period of not
more than five business days. Until the settlement date, that Portfolio
will set aside in a segregated account high-quality debt securities of a
dollar value sufficient at all times to make payment for the delayed
delivery securities. Not more than 25% of a Portfolio's total assets will
be committed to delayed delivery agreements and when-issued securities, as
described below. The delayed delivery securities, which will not begin to
accrue interest until the settlement date, will be recorded as an asset of
the Portfolio and will be subject to the risks of market fluctuation. The
purchase price of the delayed delivery securities is a liability of the
Portfolio until settlement. Absent extraordinary circumstances, the
Portfolio will not sell or otherwise transfer the delayed delivery
securities prior to settlement. If cash is not available to the Portfolio
at the time of settlement, the Portfolio may be required to dispose of
portfolio securities that it would otherwise hold to maturity in order to
meet its obligation to accept delivery under a delayed delivery agreement.
The Board of Directors has determined that entering into delayed delivery
agreements does not present a materially increased risk of loss to
shareholders, but the Board of Directors may restrict the use of delayed
delivery agreements if the risk of loss is determined to be material or if
it affects the constant net asset value of any of the Portfolios.
WHEN-ISSUED SECURITIES
Many new issues of Money Market Obligations and Municipal Securities are offered
on a "when-issued" basis, that is, the date for delivery of and payment for the
securities is not fixed at the date of purchase, but is set after the securities
are issued (normally within forty-five days after the date of the transaction).
The payment obligation and the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A
Portfolio will only make commitments to purchase such Money Market Obligations
and Municipal Securities with the intention of actually acquiring such
securities, but such Portfolio may sell these securities before the settlement
date if it is deemed advisable. No additional when-issued commitments will be
made if as a result more than 25% of such Portfolio's net assets would become
committed to purchases of when-issued securities and delayed delivery
agreements.
If one of the Portfolios purchases a when-issued security, it will direct its
custodian bank to collateralize the when-issued commitment by establishing a
segregated account in the same fashion as required for a Delayed Delivery
Agreement. The special custody account will likewise be marked-to-market, and
the amount in the special custody account will be increased if necessary to
maintain adequate coverage of the when-issued commitments.
Securities purchased on a when-issued basis and the securities held in a
Portfolio's portfolio are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and changes in the
level of interest rates (which will generally result in all of those securities
changing in value in the same way, i.e., all those securities experiencing
appreciation when interest rates rise). Therefore, if, in order to achieve
higher interest income, a Portfolio is to remain substantially fully invested at
the same time that it has purchased securities on a when-issued basis, there
will be a possibility that the market value of such Portfolio's assets will
fluctuate to a greater degree. Furthermore, when the time comes for such
Portfolio to meet its obligations under when-issued commitments, the Portfolio
will do so by using then-available cash flow, by sale of the securities held in
the separate account, by sale of other securities or, although it would not
normally expect to do so, by directing the sale of the when-issued securities
themselves (which may have a market value greater or less than the Portfolio's
payment obligation).
A sale of securities to meet such obligations carries with it a greater
potential for the realization of net short-term capital gains, which are not
exempt from federal income taxes. The value of when-issued securities on the
settlement date may be more or less than the purchase price.
Stand-by Commitments
The Municipal Money Market Fund may attempt to improve its portfolio liquidity
by assuring same-day settlements on portfolio sales (and thus facilitate the
same-day payment of redemption proceeds) through the acquisition of "Stand-by
Commitments." A Stand-by Commitment is a right of the Municipal Money Market
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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 Portfolio's
total amortized cost value of its assets will be invested in Stand-by
Commitments with the same institution.
The acquisition of a Stand-by Commitment would not affect the valuation or
assumed maturity of the underlying Municipal Securities which, as noted, would
continue to be valued in accordance with the amortized cost method. Stand-by
Commitments acquired by the Municipal Money Market Fund would be valued at zero
in determining net asset value. Where the Municipal Money Market Fund paid any
consideration directly or indirectly for a Stand-by Commitment, its cost would
be reflected as unrealized depreciation for the period during which the Stand-by
Commitment was held by such Fund.
Municipal Participations
The Municipal Money Market Fund may invest in participation agreements with
respect to Municipal Securities under which the Municipal Money Market Fund
acquires an undivided interest in the Municipal Security and pays a bank which
sells the participation a servicing fee. The participation agreement will have a
variable rate of interest and may be terminated by the Municipal Money Market
Fund on seven days' notice, in which event such Fund receives from the issuer of
the participation the par value of the participation plus accrued interest as of
the date of termination. Before entering into purchases of participation the
Company will obtain an opinion of counsel (generally, counsel to the issuer of
the participation) or a letter ruling from the Internal Revenue Service to the
effect that interest earned with respect to municipal participation qualifies as
exempt-interest income under the Code. The Company has been advised that it is
the present policy of the Internal Revenue Service not to issue private letter
rulings relating to municipal participation. In the absence of an opinion of
counsel or a letter ruling from the Internal Revenue Service, the Municipal
Money Market Fund will refrain from investing in participation agreements.
Investment Restrictions
The most significant investment restrictions applicable to the Company's
investment programs are set forth in the Prospectus under the caption "Three
Investment Programs - Investment Restrictions". Additionally, as a matter of
fundamental policy which may not be changed without a majority vote of
shareholders (as that term is defined in the Prospectus under the caption
"General Information - Organization of the Trust and Description of Shares"),
none of the Portfolios will:
20
<PAGE>
1) purchase any Money Market Obligation or Municipal Security, if, as a result
of such purchase, more than 5% of a Portfolio's total assets would be
invested in securities of issuers, which, with their predecessors, have
been in business for less than three years;
2) invest in shares of any other investment company, other than in connection
with a merger, consolidation, reorganization or acquisition of assets;
except that the Municipal Money Market Fund may invest up to 10% of its
assets in securities of other investment companies (which also charge
investment advisory fees) and then only for temporary purposes in
investment companies whose dividends are tax-exempt, provided that the
Municipal Money Market Fund will not invest more than 5% of its assets in
securities of any one investment company nor purchase more than 3% of the
outstanding voting stock of any investment company;
3) invest more than 10% of the value of a Portfolio's total assets in illiquid
securities, including variable amount master demand notes (if such notes
provide for prepayment penalties) and repurchase agreements with remaining
maturities in excess of seven days;
4) invest in companies for the purpose of exercising control;
5) underwrite any issue of securities, except to the extent that the purchase
of securities, either directly from the issuer or from an underwriter for
an issuer, and the later disposition of such securities in accordance with
the Portfolios' investment programs, may be deemed an underwriting;
6) purchase or sell real estate, but this shall not prevent investments in
securities secured by real estate or interests therein;
7) sell securities short or purchase any securities on margin, except for such
short-term credits as are necessary for the clearance of transactions;
8) purchase or retain securities of an issuer if, to the knowledge of the
Company, the directors and officers of the Company and the Manager, each of
whom owns more than 1/2 of 1% of such securities, together own more than 5%
of the securities of such issuer;
9) mortgage, pledge or hypothecate any assets except to secure permitted
borrowings and reverse repurchase agreements and then only in an amount up
to 15% of the value of any Portfolio's total assets at the time of
borrowing or entering into a reverse repurchase agreement; or
10) purchase or sell commodities or commodity futures contracts or interests in
oil, gas or other mineral exploration or development program (a Portfolio
may, however, purchase and sell securities of companies engaged in the
exploration, development, production, refining, transporting and marketing
of oil, gas or minerals).
In order to permit the sale of the Portfolios' shares in certain states, the
Company may make commitments more restrictive than the restrictions described
above. Should the Company determine that any such commitment is no longer in the
best interest of the Portfolios and their shareholders it will revoke the
commitment by terminating sales of its shares in the state(s) involved. Pursuant
to one such commitment, the Company has agreed that the Cortland General Money
Market Fund will not invest in: (i) warrants; (ii) real estate limited
partnerships; or (iii) oil, gas or mineral leases.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values or assets
will not constitute a violation of such restriction.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Company, broker-dealer selection and negotiation of commission rates. Since
purchases and sales of portfolio securities by the Company are usually principal
transactions, the Portfolios incur little or no brokerage commissions. Portfolio
securities are normally purchased directly from the issuer or from a market
maker for the securities. The purchase price paid to dealers serving as market
makers may include a spread between the bid and asked prices. The Company may
also purchase securities from underwriters at prices which include a commission
paid by the issuer to the underwriter.
The Company does not seek to profit from short-term trading, and will generally
(but not always) hold portfolio securities to maturity. However, the Manager may
seek to enhance the yield of the Portfolios by taking advantage of yield
disparities or other factors that occur in the money market. For example, market
conditions frequently result in similar securities trading at different prices.
The Manager may dispose of any portfolio security prior to its maturity if such
disposition and reinvestment of proceeds are expected to enhance yield
consistent with the Manager's judgment as to desirable portfolio maturity
structure or if such disposition is believed to be advisable due to other
circumstances or conditions. Each Portfolio is required to maintain an average
weighted portfolio maturity of 90 days or less and purchase only instruments
having remaining maturities of 13 months or less. Both may result in relatively
high portfolio turnover, but since brokerage commissions are not normally paid
on U.S. Government Obligations, Agencies, Money Market Obligations and Municipal
Securities, the high rate of portfolio turnover is not expected to have a
material effect on the Portfolios' net income or expenses.
21
<PAGE>
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed to be in
the best interest of shareholders of the Company rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price.
The Manager and its affiliates manage several other investment accounts, some of
which may have objectives similar to the Portfolios'. It is possible that at
times, identical securities will be acceptable for one or more of such
investment accounts. However, the position of each account in the securities of
the same issue may vary and the length of time that each account may choose to
hold its investment in the securities of the same issue may likewise vary. The
timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities consistent with the
investment policies of the Portfolios and one or more of these accounts is
considered at or about the same time, transactions in such securities will be
allocated in good faith among the Portfolios and such accounts in a manner
deemed equitable by the Manager. The Manager may combine such transactions, in
accordance with applicable laws and regulations, in order to obtain the best net
price and most favorable execution. The allocation and combination of
simultaneous securities purchases on behalf of the three Portfolios will be made
in the same way that such purchases are allocated among or combined with those
of other Reich & Tang accounts. Simultaneous transactions could adversely affect
the ability of a Portfolio to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
Provisions of the 1940 Act and rules and regulations thereunder have also been
construed to prohibit the Portfolios' purchasing securities or instruments from
or selling securities or instruments to, any holder of 5% or more of the voting
securities of any investment company managed by the Manager. The Portfolios have
obtained an order of exemption from the SEC which would permit the Portfolios to
engage in transactions with such a 5% holder, if the 5% holder is one of the 50
largest U.S. banks measured by deposits. Purchases from these 5% holders will be
subject to quarterly review by the Board of Directors including those directors
who are not "interested persons" of the Company. Additionally, such purchases
and sales will be subject to the following conditions: (1) the Company will
maintain and preserve a written copy of the internal control procedures for the
monitoring of such transactions, together with a written record of any such
transactions setting forth a description of the security purchased or sold, the
identity of the purchaser or seller, the terms of the purchase or sale
transaction and the information or materials upon which the determinations to
purchase or sell each security were made; (2) each security to be purchased or
sold by a Portfolio will be: (i) consistent with such Portfolio's investment
policies and objectives; (ii) consistent with the interests of shareholders of
such Portfolio; and (iii) comparable in terms of quality, yield, and maturity to
similar securities purchased or sold during a comparable period of time; (3) the
terms of each transaction will be reasonable and fair to shareholders of the
Portfolios and will not involve overreaching on the part of any person; and (4)
each commission, fee, spread or other remuneration received by a 5% holder will
be reasonable and fair compared to the commission, fee, spread or other
remuneration received by other brokers or dealers in connection with comparable
transactions involving similar securities purchased or sold during a comparable
period of time and will not exceed the limitations set forth in Section 17(e)(2)
of the 1940 Act.
22
<PAGE>
INVESTMENT RATINGS
The following is a description of the two highest commercial paper, bond,
municipal bond and other short- and long-term categories assigned by Standard &
Poor's Rating Services, a division of the McGraw-Hill Companies ("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 investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA by IBCA.
23
<PAGE>
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.
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.
24
<PAGE>
MIG 2
Notes bearing this designation are of high quality. Margins of protection are
ample although not as large as in the preceding group.
Moody's Tax-Exempt Demand Ratings
Moody's assigns issues which have demand features (i.e., variable rate demand
obligations) a VMIG symbol. This symbol reflects such characteristics as payment
upon periodic demand rather than fixed maturity, and payment relying on external
liquidity. The VMIG rating is modified by the numbers 1, 2 or 3. VMIG1
represents the best quality in the VMIG category and VMIG2 represents high
quality.
International and U.S. Bank Ratings
An IBCA bank rating represents IBCA's current assessment of the strength of the
bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent IBCA's assessment of a
bank's economic merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support from state
authorities or its owners.
25
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
================================================================================
Shareholders and Board of Directors
Cortland Trust, Inc.
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of Cortland Trust, Inc. (comprising,
respectively, the Cortland General Money Market Fund, the U.S. Government Fund
and the Municipal Money Market Fund) as of March 31, 1997, 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 and financial highlights. Our procedures included confirmation of
securities owned as of March 31, 1997, 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, 1997, 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
May 1, 1997
New York, New York
26
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Commercial Paper (27.00%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 10,000,000 Asset Securities Corporations 05/28/97 5.35% $ 9,916,558 P1 A1+
13,000,000 Asset Securities Corporations 05/28/97 5.42 12,890,291 P1 A1+
15,000,000 Banque International A Luxembourg 05/21/97 5.34 14,890,208 P1 A1+
20,000,000 Compagnie Bancaire 04/14/97 5.36 19,961,650 P1 A1
20,000,000 Compagnie Bancaire 04/24/97 5.43 19,931,511 P1 A1
7,000,000 Compagnie Bancaire 05/19/97 5.47 6,950,347 P1 A1
20,000,000 Compagnie Bancaire 08/18/97 5.45 19,590,722 P1 A1
10,000,000 Compagnie Bancaire 09/23/97 5.82 9,724,861 P1 A1
10,000,000 Cosmair, Inc.
Guaranteed By L'oreal 04/16/97 5.42 9,977,708 P1
50,000,000 Dresdner U.S. Finance 04/01/97 6.25 50,000,000 P1 A1+
20,000,000 GTE Corporation(a) 04/10/97 5.37 19,973,300
20,000,000 GTE Corporation(a) 04/10/97 5.36 19,973,300
10,000,000 Goldman Sachs & Co. 04/04/97 5.91 9,995,084
10,000,000 Kingdom of Sweden 06/27/97 5.57 9,870,708 P1 A1+
15,000,000 Merrill Lynch & Company, Incorporated 04/09/97 5.36 14,982,233 P1 A1+
25,000,000 Morgan Stanley, Inc. 05/15/97 5.38 24,837,750 P1 A1+
10,000,000 National Bank of Canada 05/15/97 5.37 9,935,222 P1 A1
10,000,000 Receivable Capital Corporation 04/11/97 5.37 9,985,167 P1 A1
10,000,000 Receivable Capital Corporation 04/15/97 5.39 9,979,156 P1 A1
20,000,000 Receivable Capital Corporation 05/12/97 5.64 19,872,444 P1 A1
10,000,000 Receivable Capital Corporation 04/28/97 5.43 9,959,500 P1 A1
15,000,000 Sigma Finance Corporation 05/01/97 5.46 14,932,750 P1 A1+
20,000,000 Sigma Finance Corporation 05/06/97 5.42 19,895,972 P1 A1+
20,000,000 Sigma Finance Corporation 07/07/97 5.52 19,710,617 P1 A1+
20,000,000 Sigma Finance Corporation 07/25/97 5.57 19,653,722 P1 A1+
15,000,000 Unifunding 04/10/97 5.43 14,979,900 P1 A1
10,000,000 Unifunding 07/29/97 5.54 9,821,831 P1 A1
- --------------- -------------
435,000,000 Total Commercial Paper 432,192,512
- --------------- -------------
<CAPTION>
Domestic Certificates of Deposit (2.81%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 25,000,000 Union Bank of California 07/22/97 5.56% $ 25,000,000 P1 A1
20,000,000 Union Bank of California 04/09/97 5.50 20,000,000 P1 A1
- --------------- -------------
45,000,000 Total Domestic Certificates of Deposit 45,000,000
- --------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
27
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Eurodollar Certificate of Deposit (1.25%)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 20,000,000 Abbey National PLC 08/21/97 5.50% $ 19,994,239 P1 A1+
-------------- -------------
20,000,000 Total Eurodollar Certificate of Deposit 19,994,239
-------------- -------------
<CAPTION>
Japanese Eurodollar Certificates of Deposit (2.00%)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 25,000,000 Norinchukin Bank Ltd. 04/03/97 5.48% $ 25,000,014 P1 A1+
7,000,000 Sumitomo Bank 04/25/97 5.80 6,999,434 P1 A1
-------------- -------------
32,000,000 Total Japanese Eurodollar Certificates of Deposit 31,999,448
-------------- -------------
<CAPTION>
Japanese Yankee Certificates of Deposit (6.56%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 20,000,000 Bank of Tokyo - Mitsubishi 04/16/97 5.59% $ 20,000,129 P1 A1
20,000,000 Bank of Tokyo - Mitsubishi 05/13/97 5.51 20,000,230 P1 A1
20,000,000 Fuji Bank, Ltd.(a) 04/14/97 5.55 20,000,072 P1
25,000,000 Fuji Bank, Ltd.(a) 04/07/97 5.55 25,000,041 P1
20,000,000 Norinchukin Bank, Ltd. 04/28/97 5.75 20,000,149 P1 A1+
-------------- -------------
105,000,000 Total Japanese Yankee Certificates of Deposit 105,000,621
-------------- -------------
<CAPTION>
Letter of Credit Commercial Paper (18.90%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 10,000,000 Banco Bradesco (S.A.) Grand Cayman
LOC Barclays Bank PLC 06/06/97 5.42% $ 9,902,283 P1 A1+
10,000,000 Banco Bradesco (S.A.) Grand Cayman
LOC Barclays Bank PLC 04/28/97 5.50 9,959,875 P1 A1+
20,000,000 Banco Rio de La Plata
LOC Bayerische Vereinsbank, A.G. 10/30/97 5.62 19,364,000 P1 A1+
22,000,000 Banco Rio de La Plata
LOC Bayerische Vereinsbank, A.G. 10/29/97 5.59 21,307,568 P1 A1+
10,000,000 Bancomer S.A.
LOC Bank of Montreal 09/24/97 5.72 9,728,667 P1 A1+
20,000,000 Beal Cayman Limited
LOC Westdeutsche Landesbank Girozentrale 06/13/97 5.40 19,785,056 P1 A1+
20,000,000 Beal Cayman Limited
LOC Westdeutsche Landesbank Girozentrale 07/14/97 5.42 19,693,778 P1 A1+
10,000,000 Beal Cayman Limited
LOC Westdeutsche Landesbank Girozentrale 07/07/97 5.40 9,857,464 P1 A1+
10,000,000 Galicia, Buenos Aires Funding Corporation
LOC Dresdner Bank A.G. 09/16/97 5.46 9,753,133 P1 A1+
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
28
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings
-----------------
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>
$ 15,000,000 Garanti Funding Corporation II
LOC Bayerische Vereinsbank, A.G. 06/05/97 5.46% $ 14,854,833 P1 A1+
15,000,000 Garanti Funding Corporation II
LOC Bayerische Vereinsbank, A.G. 06/04/97 5.46 14,857,067 P1 A1+
5,000,000 Guangdong Enterprise Limited
LOC Credit Suisse 05/21/97 5.45 4,963,125 P1 A1+
15,000,000 Guangdong Enterprise Limited
LOC Credit Suisse 08/11/97 5.48 14,706,850 P1 A1+
10,000,000 Guangdong Enterprise Limited
LOC Credit Suisse 05/19/97 5.47 9,929,067 P1 A1+
15,000,000 Hyundai Motor Finance Company
LOC Bank of America 04/25/97 5.50 14,946,500 P1 A1+
10,000,000 Minmetals Capital & Securities, Incorporated
LOC Credit Suisse 05/01/97 5.50 9,955,417 P1 A1+
10,000,000 Minmetals Capital & Securities, Incorporated
LOC Credit Suisse 05/29/97 5.45 9,914,611 P1 A1+
10,000,000 Minmetals Capital & Securities, Incorporated
LOC Credit Suisse 08/12/97 5.43 9,804,194 P1 A1+
15,000,000 Petroleo Brasileiro S.A.
LOC Barclays Bank PLC 05/08/97 5.45 14,918,292 P1 A1+
10,000,000 Petroleo Brasileiro S.A.
LOC Barclays Bank PLC 05/12/97 5.44 9,939,639 P1 A1+
20,000,000 Petroleo Brasileiro S.A.
LOC Barclays Bank PLC 08/15/97 5.50 19,601,067 P1 A1+
15,000,000 Unibanco Brasileiros S.A.
LOC Westdeutsche Landesbank Girozentrale 06/11/97 5.47 14,842,469 P1 A1+
10,000,000 Unibanco Brasileiros S.A.
LOC Westdeutsche Landesbank Girozentrale 04/17/97 5.44 9,975,911 P1 A1+
-------------- -------------
307,000,000 Total Letter of Credit Commercial Paper 302,560,866
-------------- -------------
<CAPTION>
Master Notes (6.87%)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000,000 Donaldson, Lufkin & Jenrette, Inc.(e) 02/05/98 5.49% $ 50,000,000
25,000,000 Goldman Sachs & Co. (f) 08/01/97 6.85 25,000,000
35,000,000 Morgan (J.P.) Securities Inc.(b) 07/08/97 5.44 35,000,000
-------------- -------------
110,000,000 Total Master Notes 110,000,000
-------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
29
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Medium Term Notes (4.37%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000,000 First U.S.A. Credit Master Trust - Series 1995-96
Class A (Steers)(c) 12/10/97 5.44% $ 50,000,000 Aaa AAA
20,000,000 Royal Bank of Canada 01/07/98 5.75 19,998,525 P1 A1+
-------------- -------------
70,000,000 Total Medium Term Notes 69,998,525
-------------- -------------
<CAPTION>
Other Notes (13.28%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,300,000 2150 Investment Company Floating Rate Demand
Taxable Notes - Series 1997(d)
LOC Fifth Third Bank 02/01/17 5.75% $ 1,300,000
5,000,000 California Department of Water Resources
(Control Valley Project) Water System RB - Series R-V(d)
LOC Canadian Imperial Bank of Commerce 12/01/24 5.35 5,000,000
6,000,000 Cheney Brothers Inc.(d)
LOC First Union National Bank of North Carolina 12/01/16 5.70 6,000,000
24,400,000 Cleveland, OH Taxable RB
LOC Credit Suisse/Union Bank of Switzerland 04/07/97 5.39 24,400,000 Aaa AAA
2,075,000 Consolidated Equities, L.L.C.
Taxable VRDN - Series 1995(d)
LOC Old Kent Bank & Trust Co. 12/01/25 5.75 2,075,000
2,600,000 G&J Land Management Variable Tare
Taxable Demand Notes - Series 1996(d)
LOC Fifth Third Bank 12/01/17 5.75 2,600,000
20,900,000 General Electric Engine Receivables 1995-1 Trust
VR Guaranteed Notes(g)
LOC General Electric Capital Corporation 02/14/00 5.74 20,900,000 P1 A1+
9,900,000 General Electric Engine Receivables 1996-1 Trust
VR Guaranteed Notes(h)
LOC General Electric Capital Corporation 02/14/01 5.67 9,900,000
1,000,000 KBL Capital Fund, Inc Taxable VRDN - Series 1995 G(d)
LOC Old Kent Bank & Trust Co. 07/01/17 5.75 1,000,000 A
2,325,000 KBL Capital Fund, Inc. Taxable VRDN - Series 1995 A(d)
LOC Old Kent Bank & Trust Co. 07/01/05 5.75 2,325,000 A
4,400,000 Maryland Health & Higher Educational Facilities
Authority RB (North Arundale Hospital)(d)
LOC Mellon Bank, N.A. 07/01/27 5.75 4,400,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
30
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Other Notes (Continued)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,945,000 Michigan HEFA(d)
LOC Old Kent Bank & Trust Co. 10/01/16 5.75% $ 1,945,000
7,500,000 Mississippi Business Finance Corporation IDRB
(Howard Industries, Inc.) - Series 1995(d)
LOC National Bank of Detroit 06/01/10 5.85 7,500,000 P1
4,500,000 New Federal Cold Storage,
Incorporated Project - Series 199C(d)
LOC National City Bank, Northwest 08/01/11 5.75 4,500,000
10,000,000 New York City General Obligation Bonds - Series B-11
FGIC Insured 05/23/97 5.52 10,000,000
16,800,000 Oakland Alameda County Coliseum Authority Lease RB
(Oakland Coliseum Project) - Series B-2
LOC Canadian Imperial Bank of Commerce 04/03/97 5.34 16,800,000
4,000,000 Prince William County, VA Taxable Notes - Series A(d)
LOC Wachovia Bank & Trust Co., N.A. 03/01/17 5.68 4,000,000 VMIG-1
25,000,000 SSM Trust 1996-1(e) 05/29/97 5.74 25,000,000 P1 A1+
19,000,000 State of Missouri HEFA
(SSM Health Care System) 1995 - Series D(d)
MBIA Insured 06/01/24 5.65 19,000,000 Aaa AAA
11,000,000 State of Oregon Taxable Economic Development RB
(Georgia Pacific Corp.) - Series 1995 B
LOC Commerzbank A.G. 05/09/97 5.55 11,000,000 P1 A1+
7,800,000 Stone Creek, L.L.C.
Taxable Variable Rate Securities - Series 1995(d)
LOC Columbus Bank & Trust Company 08/01/20 5.85 7,800,000 P1
17,500,000 The Medical Clinic Board of The City Mobile, AL
(Spring Hill Medical Complex) Taxable RB(d)
LOC Amsouth Bank N.A. 09/01/11 5.70 17,500,000 P1
1,675,000 Walt Sweeney Ford
Floating Rate Demand Notes - Series 1996(d)
LOC Fifth Third Bank 01/01/12 5.75 1,675,000
6,000,000 Winston - Salem, NC COP 04/02/97 5.38 6,000,000 VMIG-1
-------------- -------------
212,620,000 Total Other Notes 212,620,000
-------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
31
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Repurchase Agreement, Overnight (3.19%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 51,000,000 Donaldson, Lufkin & Jenrette, Inc., dated 03/31/97
(Collateralized by:
$11,087,000 U.S. Treasury Notes,
5.000% to 5.500%, due 01/31/98 to 04/15/00
$9,041,000 U.S. Treasury Bonds, 10.625% to 13.875%,
due 05/15/03 to 08/15/15
$9,400,000 Fannie Mae Medium Term Debentures,
5.910% to 7.590%, due 02/25/00 to 10/04/06
$1,995,000 Fannie Mae Debentures, 5.875% to 6.950%,
due 02/02/06 to 11/13/06
$675,000 Federal Home Loan Medium Term Notes,
5.625% due 02/12/98
$645,000 Freddie Mac Discount Notes, 0.000%, due 04/10/97
$9,500,000 Federal Home Loan Consol Bond,
5.490% to 6.850%, due 10/03/97 to 01/02/98
$5,570,000 Federal Home Loan Discount Note, 0.000%, due 09/08/97
$1,000,000 Farm Credit Systemwide Bond, 5.600%,
due 11/03/97 proceeds $51,009,223) 04/01/97 6.51% $ 51,000,000
-------------- -------------
51,000,000 Total Repurchase Agreement, Overnight 51,000,000
-------------- -------------
<CAPTION>
Short Term Bank Notes (3.12%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 30,000,000 Bank of America 04/18/97 5.47% $ 30,000,000 P1 A1+
20,000,000 Bank of America, San Francisco Bank Notes 07/07/97 5.45 20,000,000 P1 A1+
-------------- -------------
50,000,000 Total Short Term Bank Notes 50,000,000
-------------- -------------
<CAPTION>
Time Deposit (4.06%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 65,000,000 PNC Capital Markets, Inc. 04/01/97 6.75% $ 65,000,000 P1 A1
-------------- -------------
65,000,000 Total Time Deposit 65,000,000
-------------- -------------
<CAPTION>
Yankee Certificates of Deposit (6.25%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 20,000,000 Canadian Imperial Bank of Commerce 04/15/97 5.33% $ 20,000,000 P1 A1+
20,000,000 Canadian Imperial Bank of Commerce 05/21/97 5.56 20,000,000 P1 A1+
15,000,000 National Westminster Bank 04/14/97 5.42 15,000,205 P1 A1+
20,000,000 Rabobank Nederland 04/18/97 5.49 20,000,092 P1 A1+
25,000,000 Societe Generale 07/14/97 5.45 25,000,000 P1 A1+
-------------- -------------
100,000,000 Total Yankee Certificates of Deposit 100,000,297
-------------- -------------
Total Investments (99.66%) (Cost $1,595,366,508+) 1,595,366,508
Cash and Other Assets, Net of Liabilities (0.34%) 5,443,085
-------------
Net Assets (100.00%) $1,600,809,593
==============
+ Aggregate cost for federal income tax purposes is identical.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
32
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
CORTLAND GENERAL MONEY MARKET FUND
STATEMENT OF NET ASSETS (CONTINUED)
MARCH 31, 1997
================================================================================
FOOTNOTES:
(a) These are split rated securities, given the highest ratings by at least two
nationally recognized rating agencies.
(b) The interest rate is adjusted monthly based upon the one month LIBOR flat,
daily put option.
(c) The interest rate is reset monthly based upon the one month LIBOR.
(d) These securities have a 7 day put feature exercisable by the Fund at par
value. Rate changes weekly.
(e) The interest rate is adjusted monthly based upon the one month LIBOR rate
plus 5 basis points.
(f) The interest rate is adjusted daily based upon the opening of Federal Funds
plus ten basis points, daily put option.
(g) The interest rate is adjusted weekly based upon the commercial paper
composite plus five basis points, weekly put option.
(h) The interest rate is adjusted weekly based upon one month LIBOR minus one
basis point, weekly put option.
<TABLE>
<CAPTION>
KEY:
<S> <C>
COP = Certificate of Participation RB = Revenue Bond
HEFA = Health and Education Facilities Authority VR = Variable Rate
IDRB = Industrial Development Revenue Bond VRDN = Variable Rate Demand Note
LOC = Letter of Credit
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
33
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
U.S. GOVERNMENT FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 2)
------ ---- ----- ------
U. S. Government Agencies (78.10%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 5,000,000 Federal Farm Credit Bank 05/01/97 5.24% $ 5,000,000
9,000,000 Federal Farm Credit Bank 03/03/98 5.35 9,000,000
3,500,000 Federal Home Loan Bank 07/07/97 5.39 3,450,348
5,000,000 Federal Home Loan Bank 07/10/97 5.37 4,927,292
5,000,000 Federal Home Loan Bank 07/25/97 5.41 4,915,826
5,000,000 Federal Home Loan Bank 08/18/97 5.33 4,899,611
5,000,000 Federal Home Loan Bank 09/16/97 5.66 4,871,550
5,000,000 Federal Home Loan Bank 09/30/97 5.43 4,867,545
5,000,000 Federal Home Loan Mortgage Corporation 04/16/97 5.31 4,989,083
5,000,000 Federal Home Loan Mortgage Corporation 05/02/97 5.32 4,977,396
5,000,000 Federal Home Loan Mortgage Corporation 05/12/97 5.30 4,970,247
5,000,000 Federal Home Loan Mortgage Corporation 05/28/97 5.30 4,958,556
10,000,000 Federal Home Loan Mortgage Corporation 06/13/97 5.40 9,891,919
5,000,000 Federal National Mortgage Association 04/04/97 5.68 4,999,972
5,000,000 Federal National Mortgage Association 04/15/97 5.32 4,989,792
5,000,000 Federal National Mortgage Association 04/28/97 5.38 4,980,350
5,000,000 Federal National Mortgage Association 05/02/97 5.33 4,977,353
7,090,000 Federal National Mortgage Association 05/13/97 5.25 7,047,070
10,000,000 Federal National Mortgage Association 05/16/97 5.38 9,934,125
10,000,000 Federal National Mortgage Association 05/23/97 5.23 9,925,394
5,000,000 Federal National Mortgage Association 07/17/97 5.48 4,921,831
5,000,000 Federal National Mortgage Association 07/21/97 5.41 4,918,754
10,000,000 Federal National Mortgage Association 08/25/97 5.31 9,790,125
3,326,000 Kirksville College of Osteopathic Medicare, Inc.
Educational Loan Revenue Notes - Series A
LOC Student Loan Marketing Association 06/25/97 5.63 3,282,415
5,000,000 Student Loan Marketing Association (a) 04/10/97 5.55 5,000,000
5,000,000 Student Loan Marketing Association (a) 05/08/97 5.56 5,000,000
5,000,000 Student Loan Marketing Association (a) 08/21/97 5.59 5,000,000
5,000,000 Student Loan Marketing Association (a) 09/18/97 5.54 5,000,000
5,000,000 Student Loan Marketing Association (a) 10/03/97 5.45 5,005,237
5,000,000 Tennessee Valley Authority 05/29/97 5.28 4,958,031
-------------- -------------
172,916,000 Total U. S. Government Agencies 171,449,822
-------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Note to Financial Statements.
34
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
U.S. GOVERNMENT FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Face Maturity Value
Amount Date Yield (Note 2)
------ ---- ----- ------
Repurchase Agreement, Overnight (21.41%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 47,000,000 Morgan (J.P.) Securities, Inc., dated 03/31/97
(Collateralized by:
$25,945,000 Resolution Funding Corporation
Strip Interest 0.000%, due 04/15/18,
$10,000,000 Resolution Funding Corporation Bond
8.625%, due 01/15/21,
$11,870,000 Fannie Mae Medium Term Debentures
0.000%, due 01/28/00,
$5,450,000 Fannie Mae Commercial Paper
7.900%, due 04/10/97,
$13,325,000 Federal Home Loan Discount Note
0.000%, due 04/01/97) proceeds $47,008,225 04/01/97 6.30% $ 47,000,000
-------------- -------------
47,000,000 Total Repurchase Agreement, Overnight 47,000,000
-------------- -------------
Total Investments (99.51%) (Cost $218,449,822+) 218,449,822
Cash and Other Assets, Net of Liabilities (0.49%) 1,071,194
-------------
Net Assets (100.00%) $ 219,521,016
=============
+ 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.
35
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Other Tax Exempt Investments (17.26%)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 4,028,000 Borough of Somerville, NJ (County of Somerset) BAN 02/19/98 3.67% $ 4,036,260
5,000,000 East Allen, Indiana School Corporation TAW 12/31/97 3.78 5,000,000
5,000,000 Jersey City, NJ BAN 02/05/98 3.74 5,002,421 SP-1
2,500,000 Kanawha County, WV Commercial Development
Revenue Refunding Bonds (May Dept. Stores Project) 06/01/97 3.72 2,507,970 A
5,000,000 School District of Greenville County,
SC GO Bonds - Series 1997 03/01/98 3.64 5,037,696
5,000,000 State of Texas TRAN 08/29/97 3.90 5,015,804 VMIG-1 SP-1+
5,000,000 Strafford County, NH TAN 12/30/97 3.75 5,018,228
5,000,000 Suffolk County, NY Brentwood UFSD TAN 06/30/97 4.04 5,004,658
-------------- -------------
36,528,000 Total Other Tax Exempt Investments 36,623,037
-------------- -------------
<CAPTION>
Other Variable Rate Demand Instruments (b) (47.63%)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,900,000 Allegheny County, PA HDA RB
(Allegheny General Hospital) - Series B
LOC Morgan Guaranty Trust Company 09/01/10 3.45% $ 1,900,000 VMIG-1 A1+
4,580,000 Arlington County, VA IDA (Air Force Association Project)
LOC Central Fidelity Bank 07/01/98 3.55 4,580,000
1,000,000 Carthage, MO IDA IDRB (Leggett & Platt, Inc.)
LOC Union Bank of Switzerland 09/01/30 3.60 1,000,000
2,300,000 Charlotte, NC Airport RB
MBIA Insured 07/01/16 3.35 2,300,000 VMIG-1 A1
3,400,000 Daviess County, KY Solid Waste Disposal Facilities RB
(Scott Paper Co. Project) - Series A 12/01/23 3.90 3,400,000 P1 A1+
1,000,000 Delaware County, PA IDA (Scott Paper Company)-Series A 12/01/18 3.45 1,000,000 P1 A1+
1,540,000 Elkhart County, IN EDRB (Burger Diary Corporation Project)
LOC Old Kent Bank & Trust Co. 12/01/11 3.45 1,540,000 A1
1,300,000 Florida HFA MHRB (Falls of Venice Project)
LOC PNC Bank 12/01/11 3.75 1,300,000 P1 A1
1,380,000 Fulton County, GA RDA (Darby Printing Company)
LOC Wachovia Bank & Trust Co., N.A. 04/01/11 3.90 1,380,000
9,400,000 Gulf Coast IDA Solid Waste Disposal RB
(Citgo Petroleum Corporation Project) - Series 1995
LOC NCNB 05/01/25 3.95 9,400,000 VMIG-1
2,480,000 Haleyville, AL IDA IDRB (Cusseta Wood Inc. Project)
LOC Columbus Bank & Trust Company 11/01/04 3.65 2,480,000 P1
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
36
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Other Variable Rate Demand Instruments (b) (Continued)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,325,000 Hamilton County, OH EDRB (Berman Printing Company)
LOC Fifth Third Bank 12/01/08 3.60% $ 3,325,000
1,900,000 Indiana State EDC
(Fischer Enterprise Limited Project) - Series 1989
LOC PNC Bank 12/01/04 3.75 1,900,000
2,000,000 Jackson County, MS PCRB
(Chevron USA Incorporated Project) 12/15/24 3.90 2,000,000 P1
502,000 Jefferson County, KY IDRB (Belknap Incorporation)
LOC Chase Manhattan Bank, N.A. 12/01/14 3.60 502,000 A1
2,600,000 King George County, VA (Birchwood Power Project) - Series A
Credit Suisse 04/01/26 3.90 2,600,000 A1+
1,000,000 Lewisville, IDA Incorporated IDRB
(Benedict Optical Incorporated Project)
LOC Comerica Bank 05/01/08 3.85 1,000,000
5,200,000 Lexington - Fayette Urban County Airport Corporation
LOC Credit Locale de France 04/01/24 3.95 5,200,000 P1 A1+
2,000,000 Massachusetts IDA IDRB (Performance Corregated Project)
LOC National City Bank 03/01/09 3.70 2,000,000
3,300,000 Massachusetts IFA (890 Commonwealth Realty Trust)
LOC The Bank of New York 12/01/11 3.65 3,300,000
400,000 Meridian, MI EDC (Hannah Research & Technology Center)
LOC Barclays Bank PLC 11/15/14 3.45 400,000 A1+
2,000,000 Michigan Higher Education Student Loan - Series XII F
AMBAC Insured 10/01/20 3.45 2,000,000 VMIG-1
1,400,000 Michigan State (Allied Signal) 04/01/99 3.60 1,400,000 A1
870,000 Michigan State Strategic Fund (260 Brown Street)
LOC Comerica Bank 10/01/15 3.40 870,000 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
4,000,000 Michigan Strategic Fund
(National Rubber Michigan Incorporated Project)
LOC National Bank of Canada 09/01/11 3.65 4,000,000 P1
2,000,000 Montgomery County, PA Redevelopment Authority MHRB
(Glenmore Associates Project)
Fannie Mae Collateralized 11/15/25 3.60 2,000,000 A1+
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
37
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Other Variable Rate Demand Instruments (b) (Continued)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,000,000 North Carolina Medical Care
Commission Retirement Community RB - Series B
LOC Lasalle National Bank 11/15/09 3.50% $ 1,000,000 A1+
1,500,000 North Carolina Medical Care Commission (Carol Woods)
LOC Bank of Scotland 04/01/21 4.00 1,500,000 VMIG-1 A1
2,220,000 Northport, AL Multi Family RB (River Run) - Series A
LOC Amsouth Bank N.A. 09/03/15 3.60 2,220,000
2,700,000 Parish of Calcasieu IDRB
(Citgo Petroleum Corporation) - Series 1995
LOC Banque Nationale de Paris 03/01/25 3.95 2,700,000 VMIG-1
1,900,000 Portland, OR IDRB (Oregon Transfer Company)
LOC U.S. National Bank of Oregon 11/01/01 4.03 1,900,000 A1
2,275,000 Portsmouth, VA Redevelopment & Housing Authority
(Chowan Partners)
LOC Central Fidelity Bank 11/01/05 3.55 2,275,000
2,000,000 Richmond, VA Redevelopment & Housing Authority
(Tobacco Row)
LOC Westdeutsche Landesbank Girozentrale 10/01/24 3.60 2,000,000 VMIG-1
2,000,000 Richmond, VA Redevelopment & Housing Authority
(Tobacco Row)
LOC Westdeutsche Landesbank Girozentrale 10/01/24 3.60 2,000,000 VMIG-1
7,000,000 Rosebud County, Forsyth, MT PCRB (Pacificorp)
LOC Deutsche Bank A.G. 12/01/16 3.95 7,000,000
1,350,000 Sewickley Valley Hospital Authority, PA RN
(D.T. Watson Rehabilitation Hospital)
LOC PNC Bank 10/01/97 4.25 1,350,000
500,000 Shelby County, TN Health Educational & Housing
(Rhodes College)
LOC National Westminster Bank PLC 08/01/10 3.45 500,000 A1+
4,000,000 Washington State HFC RB
(Meridian Court Apartments Project) - Series 1996
LOC Bank of America 12/01/28 3.50 4,000,000 Aa3
3,200,000 West Side Calhoun County,
Navigation District Sewer & Solid Waste Disposal
(BP Chemicals Inc.) 04/01/31 3.90 3,200,000 A1+
4,600,000 Yakima County Public Corporation RB
(Michelson Packaging Project)
LOC Bank of America 08/01/06 3.50 4,600,000
-------------- -------------
101,022,000 Total Other Variable Rate Demand Instruments 101,022,000
-------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
38
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Put Bonds (c) (9.54%)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,855,000 City of Dayton, KY Industrial Building RB
(RADAC Corporation) - Series 1994
LOC Fifth Third Bank 04/01/97 4.00% $ 1,855,000
2,500,000 Greater East, TX
Higher Education Student Loan Authority - Series 1993B
LOC Student Loan Marketing Association 06/01/97 3.85 2,500,000 VMIG-1 A1+
6,500,000 Hartford County, MD IDRB (A.O. Smith)
LOC Bank One Milwaukee, N.A. 03/03/98 3.75 6,500,000
3,340,000 Illinois Housing Development Authority
(Homeowners Mortgage) RB - Series - F2 12/18/97 3.70 3,340,000
3,000,000 Tennessee Housing Development Agency
(Home Ownership Program) 02/19/98 3.75 3,000,000 VMIG-1 A1+
3,040,000 Vermont State Educational & Health Building Finance Agency
(Middlebury College) 11/01/97 3.75 3,040,000 A1+
-------------- -------------
20,235,000 Total Put Bonds 20,235,000
-------------- -------------
<CAPTION>
Tax Exempt Commercial Paper (18.13%)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 4,300,000 City of Burlington, KS PCRB (Kansas City Power and Light)
LOC Deutsche Bank A.G. 05/21/97 3.45% $ 4,300,000 P1 A1+
1,000,000 Indiana Development Finance Authority
Solid Waste Disposal RB
(Pure Air on the Lake Partner)
LOC Fuji Bank, Ltd. 04/03/97 3.35 1,000,000 P1 A1
5,000,000 Mashantucket, CT
(Western) Pequot Tribe Tax Exempt CP - Series 1996
LOC Bank of America 04/10/97 3.50 5,000,000 P1 A1+
5,950,000 Michigan State Building Authority - Series 1
LOC Canadian Imperial Bank of Commerce 05/01/97 3.55 5,950,000 P1 A1+
7,500,000 Ohio Air Quality Development Authority, OH
PCRB - Series 1988 (Duquesne Light Co.)
LOC Toronto-Dominion Bank 06/18/97 3.50 7,500,000 A1+
4,000,000 Ohio Water Development Authority Solid Waste Disposal
RB - Series 1991A (Pure Air on the Lake)
LOC Toronto-Dominion Bank 04/03/97 3.35 4,000,000 A1+
1,100,000 Sarasota County, FL Public Hospital District HRB
(Sarasota Memorial Hospital) 06/25/97 3.55 1,100,000 VMIG-1
2,600,000 Sarasota County, FL Public Hospital District HRB
(Sarasota Memorial Hospital) 06/25/97 3.55 2,600,000 VMIG-1
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
39
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Ratings (a)
-----------------
Face Maturity Value Standard
Amount Date Yield (Note 2) Moody's & Poor's
------ ---- ----- ------ ------- ------
Tax Exempt Commercial Paper (Continued)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 7,000,000 Southern Minnesota Municipal Power Agency
(Power Supply System) CP - Series B
LOC Credit Suisse 04/03/97 3.20% $ 7,000,000 P1 A1
-------------- -------------
38,450,000 Total Tax Exempt Commercial Paper 38,450,000
-------------- -------------
<CAPTION>
Variable Rate Demand Instruments - Participations (b) (0.94%)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,000,000 New Jersey State EDA IDRB
(Hartz Mountain Industries Project)
LOC Chase Manhattan Bank, N.A. 01/01/02 5.53% $ 1,000,000 P1 A1
1,000,000 New Jersey State EDA IDRB
(Harrison Riverside Project))
LOC Chase Manhattan Bank, N.A. 01/01/02 5.53 1,000,000 P1 A1
-------------- -------------
2,000,000 Total Variable Rate Demand Instruments - Participations 2,000,000
-------------- -------------
<CAPTION>
Variable Rate Demand Instruments - Private Placements (b) (6.12%)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 5,185,000 El Paso Housing Finance Corporation MHRB
(Viva Apartment Project) - Series 1993
LOC General Electric Capital Corporation 09/01/23 3.65% $ 5,185,000 A1+
930,000 Jefferson County, MO IDA IDRB (Holley Partnership)
LOC Chase Manhattan Bank, N.A. 02/01/04 5.53 930,000 P1 A1
771,154 New Jersey State EDA IDRB (Henry Modelle & Company)
LOC Chase Manhattan Bank, N.A. 09/01/00 5.53 771,154 P1 A1
2,420,000 Phoenix, AZ IDA Multi-Family Housing RB
(Marines Mointe Apartments Project) - Series A
LOC General Electric Capital Corporation 10/01/23 3.65 2,420,000 A1+
1,400,000 Tyler House Certificate Trust
Certificates of Participation - Series 1995A
LOC PNC Bank 08/01/25 3.85 1,400,000 VMIG-1
2,281,000 York County, PA IDA IDRB
(Manor Care of Kingston Court Incorporated)
LOC Chase Manhattan Bank, N.A. 12/01/08 5.53 2,281,000 P1 A1
-------------- -------------
12,987,154 Total Variable Rate Demand Instruments - Private Placements 12,987,154
-------------- -------------
Total Investments (99.62%) (Cost $211,317,191+) 211,317,191
Cash and Other Assets, Net of Liabilities (0.38%) 799,175
-------------
Net Assets (100.00%) $ 212,116,366
=============
+ Aggregate cost for federal income tax purposes is identical.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
40
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
MUNICIPAL MONEY MARKET FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
================================================================================
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>
<CAPTION>
KEY:
<C> <S>
BAN = Bond Anticipation Note IDRB = Industrial Development Revenue Bond
CP = Commercial Paper 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
GO = General Obligation RB = Revenue Bond
HDA = Housing Development Authority RDA = Revenue Development Authority
HFA = Housing Finance Authority RN = Revenue Note
HFC = Housing Finance Commission TAN = Tax Anticipation Note
HRB = Hospital Revenue Bond TAW = Tax Anticipation Warrant
IDA = Industrial Development Authority TRAN = Tax and Revenue Anticipation Note
UFSD = Unified School District
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
41
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Cortland General U.S. Government Municipal Money
Money Market Fund Fund Market Fund
----------------- --------------- ---------------
ASSETS:
<S> <C> <C> <C>
Investments in securities*........... $ 1,595,366,508 $ 218,449,822 $ 211,317,191
Cash................................. 2,712,921 724,750 -0-
Interest receivable.................. 5,495,743 569,780 1,376,544
------------------ ----------------- ---------------
Total Assets..................... 1,603,575,172 219,744,352 212,693,735
<CAPTION>
LIABILITIES:
<S> <C> <C> <C>
Dividends payable.................... 205,284 27,831 16,247
Management fee payable............... 1,025,307 143,510 142,498
Payable for securities purchased..... 1,100,000 -0- -0-
Other accounts payable............... 434,988 51,995 418,624
------------------ ----------------- ----------------
Total Liabilities................ 2,765,579 223,336 577,369
------------------ ----------------- ----------------
NET ASSETS............................. $ 1,600,809,593 $ 219,521,016 $ 212,116,366
================== ================= ================
<CAPTION>
SHARES OUTSTANDING:
<S> <C> <C> <C>
Cortland Shares...................... 1,162,017,759 164,945,330 153,340,264
Live Oak Shares...................... 441,089,617 55,218,521 58,800,786
Net asset value, offering and redemption
price per share, all classes
(net assets/shares).................. $ 1.00 $ 1.00 $ 1.00
================== ================= ================
</TABLE>
* Including repurchase agreements amounting to $51,000,000 and $47,000,000
for the Cortland General Money Market Fund and U.S. Government Fund,
respectively.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
42
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 1997
================================================================================
<TABLE>
<CAPTION>
Cortland General U.S. Government Municipal Money
Money Market Fund Fund Market Fund
----------------- --------------- ---------------
INVESTMENT INCOME
<S> <C> <C> <C>
Interest Income......................... $ 77,338,407 $ 12,850,479 $ 8,116,106
-------------- -------------- --------------
Expenses:
Management fee--Note 3(a)............. 10,885,158 1,851,957 1,698,486
Distribution support and services
----Note 3(c):
Cortland shares................... 2,618,147 479,697 419,942
Live Oak shares................... 751,269 100,680 108,270
Other expenses........................ 71,167 36,328 11,106
-------------- -------------- --------------
Total Expenses.................... 14,325,741 2,468,662 2,237,804
Expenses waived by
Manager--Note 3(a) and (c)........... ( 57,065) ( 102,784) ( 19,127)
-------------- -------------- --------------
Net Expenses...................... 14,268,676 2,365,878 2,218,677
-------------- -------------- --------------
Net Investment Income................... $ 63,069,731 10,484,601 5,897,429
<CAPTION>
NET REALIZED GAIN
ON INVESTMENTS
<S> <C> <C> <C>
Net realized gain on investments........ 63,635 6,270 -0-
-------------- -------------- --------------
Increase in net assets from operations.. $ 63,133,366 $ 10,490,871 $ 5,897,429
============== ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
43
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
<TABLE>
<CAPTION>
Cortland General U.S. Government Municipal Money
Money Market Fund Fund Market Fund
------------------------------ ----------------------------- ------------------------------
For the Year Ended March 31, For the Year Ended March 31, For the Year Ended March 31,
1997 1996 1997 1996 1997 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income....... $ 63,069,731 $ 62,409,651 $ 10,484,601 $ 12,079,237 $ 5,897,429 $ 7,789,068
Net realized gain (loss) on
investments............. 63,635 182,364 6,270 ( 22,060) -0- 2,754
------------ ----------- ------------ ------------ ------------ ------------
Increase in net assets
from operations......... 63,133,366 62,592,015 10,490,871 12,057,177 5,897,429 7,791,822
Distributions
to shareholders from:
Net investment income:
Cortland shares........... ( 46,314,882) ( 56,739,267) ( 8,230,482) ( 11,281,834) ( 4,436,681)+ ( 7,250,573)+
Live Oak shares........... ( 16,876,826) ( 5,536,157) ( 2,235,131) ( 766,391) ( 1,475,242)+ ( 524,001)+
Capital share
transactions net (Note 4):
Cortland shares........... 559,763 165,048,002 ( 90,947,715) 36,908,866 ( 63,128,999) ( 7,599,135)
Live Oak shares........... 90,104,978 350,984,640 7,893,226 47,325,294 9,140,492 49,660,294
------------- ------------ ------------ ------------ ------------ ------------
Total increase (decrease)... 90,606,399 516,349,233 ( 83,029,231) 84,243,112 ( 54,003,001) 42,078,407
Net assets:
Beginning of year........... 1,510,203,194 993,853,961 302,550,247 218,307,135 266,119,367 224,040,960
------------- ------------ ------------ ------------ ------------- ------------
End of year................. $ 1,600,809,593 $1,510,203,194 $ 219,521,016 $ 302,550,247 $ 212,116,366 $ 266,119,367
============== ============= ============ ============ ============ ============
Undistributed net
investment income........ $ 28,197 $ 150,174 $ 50,000 $ 31,012 -0- $ 14,494
+ Designated as exempt-interest dividends for regular federal income tax purposes.
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
44
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
Note 1-General:
Cortland Trust, Inc. (the "Company") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a no-load, diversified, open-end
management company. The Company consists of three money market funds: the
Cortland General Money Market Fund ("Cortland General Fund"), the U.S.
Government Fund, and the Municipal Money Market Fund ("Municipal Fund"). Each
Fund has two classes of stock authorized, Cortland shares and Live Oak shares.
The Cortland shares are subject to a service fee of .25% of its average net
assets pursuant to the Distribution Plan. The Live Oak shares are subject to a
service fee of .20% of its average net assets. In all other respects, the
Cortland shares and Live Oak shares represent the same interest in the income
and assets of the Fund. Each class of shares have identical voting, dividend,
liquidation and other rights, except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan. Distribution of Live Oak shares commenced November 16, 1995.
The Company accounts separately for the assets, liabilities and operations of
each Fund. Each Fund's fiscal year ends on March 31.
It is the Company's policy to maintain a continuous net asset value per share of
$1.00 for each Fund; the Company has adopted certain investment, portfolio
valuation and dividend and distribution policies to enable it to do so.
The Cortland General Fund includes the Pilgrim Money Market Class of Shares (
the "Pilgrim Shares"). Pilgrim Shares are identical to the Cortland 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, 1997, there were 9,571,788 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 at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
- --------------------------------------------------------------------------------
45
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
Note 2-Significant Accounting Policies: (Continued)
(e) Federal income taxes: It is the policy of each Fund to continue to
qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders by complying with the applicable
sections of the Internal Revenue Code, and to make distributions of income
(including net realized capital gains) sufficient to relieve it from all
federal income taxes. Accordingly, no provision for federal income taxes is
required. At March 31, 1997, Cortland General Fund, U.S. Government Fund
and Municipal Fund had unused capital loss carryforwards of approximately
$2,325,981, $715,280 and $32,156, respectively, available for Federal
income tax purposes to be applied against future securities profit, if any.
If not applied against future securities profit, $721,115 and $1,604,866
will expire in the years 2003 and 2004, respectively, for Cortland General
Fund. $264,039 and $451,241 will expire in the years 2003 and 2004,
respectively, for U.S. Government Fund. $16,757, $3,530 and $11,869 will
expire in the years 2001, 2002 and 2003, respectively, for Municipal Fund.
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.
(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, 1997, the manager voluntarily waived investment
management fees of $42,433 and $7,567 for the Cortland shares and Live Oak
shares, respectively, of the Cortland U.S. Government Fund.
- --------------------------------------------------------------------------------
46
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
Note 3-Management Fee and Other Transactions With Affiliates: (Continued)
During the year ended March 31, 1997, the Distributor waived Distribution
support and services fees of $57,065, $52,784 and $19,127 for the Live Oak
shares of the Cortland General Fund, U.S. Government Fund and Municipal Fund,
respectively.
Note 4-Capital Share Transactions:
At March 31, 1997, 5 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 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,
1997 1996 1997 1996 1997 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cortland Shares
Shares sold.............. 3,372,653,022 5,692,461,972 482,519,139 1,147,151,347 636,672,511 1,118,581,921
Dividends reinvested..... 46,616,699 56,469,119 8,302,991 11,224,107 4,476,740 7,224,068
------------- ------------- ------------- ------------- ------------- -------------
3,419,269,721 5,748,931,091 490,822,130 1,158,375,454 641,149,251 1,125,805,989
Shares redeemed.......... (3,418,709,958) (5,583,883,089) ( 581,769,845) (1,121,466,588) ( 704,278,250) (1,133,405,124)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease).. 559,763 165,048,002 ( 90,947,715) 36,908,866 ( 63,128,999) ( 7,599,135)
============= ============= ============= ============= ============= =============
Live Oak Shares*
Shares sold.............. 1,692,487,353 803,496,773 198,329,103 107,188,689 195,656,417 108,031,220
Dividends reinvested..... 16,917,952 5,399,043 2,241,698 747,543 1,478,139 512,060
------------- ------------- ------------- ------------- ------------- -------------
1,709,405,305 808,895,816 200,570,801 107,936,232 197,134,556 108,543,280
Shares redeemed........... (1,619,300,327) ( 457,911,177) ( 192,677,575) ( 60,610,937) ( 187,994,064) ( 58,882,986)
------------- ------------- ------------- ------------- ------------- -------------
Net increase.............. 90,104,978 350,984,639 7,893,226 47,325,295 9,140,492 49,660,294
============= ============= ============== ============= ============= =============
* Live Oak shares commenced distribution on November 16, 1995.
The components of net assets at March 31, are as follows:
<CAPTION>
Cortland General Municipal Money
Money Market Fund U.S. Government Fund Market Fund
------------------------------ ----------------------------- ------------------------------
March 31, 1997 March 31, 1997 March 31, 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Paid-in capital............ $1,603,107,376 $ 220,163,851 $ 212,141,050
Accumulated net
realized losses......... ( 2,325,980) ( 692,835) ( 24,684)
Undistributed net
investment income....... 28,197 50,000 -0-
-------------- ------------- -------------
Total net assets........... $1,600,809,593 $ 219,521,016 $ 212,116,366
============== ============= =============
</TABLE>
- --------------------------------------------------------------------------------
47
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND TRUST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
================================================================================
Note 5-Financial Highlights:
Reference is made to page 3 of the Prospectus for the Selected Financial
Information
- --------------------------------------------------------------------------------
48
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(A) Financial Statements
Included in Prospectus (Part A):
Selected Financial Information
Included in Statement of Additional Information (Part B):
(1) Report of Ernst & Young LLP, independent auditors,
dated May 1, 1997;
(2) Statements of Investments at March 31, 1997
(3) Statements of Assets and Liabilities at March 31, 1997;
(4) Statements of Operations for year ended March 31, 1997;
(5) Statements of Changes in Net Assets for years ended March 31,
1996 and 1997; and
(6) Notes to Financial Statements
(B) Exhibits
(1)(a) Articles of Incorporation of Registrant [filed as an Exhibit to
Post-Effective Amendment No. 7 on June 29, 1989 and is hereby
incorporated by reference].
(b) Form of Articles Supplementary (Live Oak Shares) filed herein.
(c) Form of Articles Supplementary (Bradford Shares) filed herein.
(2) By Laws of Registrant [filed as an Exhibit to Post-Effective Amendment
No. 7 on June 29, 1989 and is hereby incorporated by reference].
(3) None.
(4) None.
(5) Management/Investment Advisory Agreements between the Registrant and
Reich & Tang Asset Management L.P. [filed as an Exhibit to
Post-Effective Amendment No. 16 on August 1, 1994 and is hereby
incorporated by reference].
(6) Form of Distribution Agreements between the Registrant and Reich &
Tang Distributors L.P. [filed as an Exhibit to Post-Effective
Amendment No. 16 on August 1, 1994 and is hereby incorporated by
reference].
(7) None.
(8) Custodian Agreement between Registrant and Investors Fiduciary Trust
Company [filed as an Exhibit to Post-Effective Amendment No. 7 on June
29, 1989 and is hereby incorporated by reference].
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<PAGE>
(9) Transfer Agency Agreement between Registrant and The Shareholder
Services Group, Inc. [filed as an Exhibit to Post-Effective Amendment
No. 7 on June 29, 1989 and is hereby incorporated by reference].
(10) Opinion and Consent of Spengler Carlson Gubar Brodsky & Frischling
[filed as an Exhibit to Post-Effective Amendment No. 7 on June 29,
1989 and is hereby incorporated by reference].
(11) (a) Consent of Ernst & Young LLP filed herewith.
(b) Consent of Kramer, Levin, Naftalis & Frankel filed herewith.
(c) Opinion of Counsel to the effect that shares of the U.S.
Government Fund are permissible investment for federal credit
unions [filed as an Exhibit to Post-Effective Amendment No. 6 on
July 29, 1988 and is hereby incorporated by reference].
(d) Opinion of Counsel to the effect that the Tax-Free Money Market
Fund will be considered the owner of Municipal Securities subject
to Stand-by Commitments for federal income tax purposes [filed as
an Exhibit to Pre-Effective Amendment No. 2 on May 31, 1985 and
is hereby incorporated by reference].
(12) None.
(13) Letter agreement concerning initial subscription of $100,000 of shares
[filed as an Exhibit to Pre-Effective Amendment No. 1 on April 22,
1985 and is hereby incorporated by reference].
(14) (a) Pilgrim Section 403(b)(7) Tax Sheltered Retirement Plan [filed as
an Exhibit to Registrant's Registration Statement on Form N-14 (File
No. 33-41322) on June 21, 1991 and is hereby incorporated by
reference].
(b) Pilgrim Individual Retirement Account [filed as an Exhibit to
Registrant's Registration Statement on Form N-14 (File No.
33-41322) on June 21, 1991 and is hereby incorporated by
reference].
(c) Form of the Pilgrim Group Retirement Plan including the Money
Purchase Pension Plan and Profit Sharing Plan [filed as an
Exhibit to Registrant's Registration Statement on Form N-14 (File
No. 33-41322) on June 21, 1991 and is hereby incorporated by
reference].
(15) (a) Form of Amended Plans of Distribution and Forms of Related Service
Agreements [filed as Exhibits to Registrant's Registration Statement
on Form N-14 (File No. 33-314322) on June 21, 1991 and is hereby
incorporated by reference].
(b) Form of Plan of Distribution (Live Oak Shares) [filed as an
Exhibit to Post-Effective Amendment No. 19 on October 16, 1995
and is hereby incorporated by reference].
(c) Form of Primary Dealer Agreement [filed as an Exhibit to
Post-Effective Amendment No. 18 on July 28, 1995 and is hereby
incorporated by reference].
(d) Form of Primary Dealer Agreement (Live Oak Shares) [filed as an
Exhibit to Post-Effective Amendment No. 19 on October 16, 1995
and is hereby incorporated by reference].
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<PAGE>
(e) Form of Rule 18f-3 Multi-Class Plan [filed as an Exhibit to
Post-Effective Amendment No. 19 on October 16, 1995 and is hereby
incorporated by reference].
(f) Form of Plan of Distribution (Bradford Shares) [filed as an
Exhibit to Post-Effective Amendment No. 24 on May 30, 1997 and is
hereby incorporated by reference].
(g) Form of Primary Dealer Agreement (Bradford Shares) [filed as an
Exhibit to Post-Effective Amendment No. 24 on May 30, 1997 and is
hereby incorporated by reference].
(17) Financial Data Schedule filed herein.
(18) Form of Rule 18f-3 Multi-Class Plan, as amended for Bradford Shares
[filed as an Exhibit to Post-Effective Amendment No. 24 on May 30,
1997 and is hereby incorporated by reference].
Item 25. Persons Controlled by or under Common Control with Registrant
No such persons.
Item 26. Number of Holders of Securities
Number of Record Holders
Title/Class As of June 30, 1997
Cortland General Money Market Fund 46,951
Pilgrim America Money Market Fund 712
Live Oak General Money Market Fund 44,124
U.S. Government Market Fund 2,501
Bradford U.S. Government Market Fund none
Live Oak U.S. Government Fund 4,166
Municipal Money Market Fund 2,444
Bradford Municipal Money Market Fund none
Live Oak Municipal Money Market Fund 1,326
Item 27. Indemnification
Registrant incorporates herein by reference the response to Item 27 in Post
Effective Amendment No. 12 to the Registration Statement filed with the
Commission on August 1, 1991.
Item 28. Business and Other Connections of Investment Advisor
The description of Reich & Tang Asset Management L.P. under the caption
"Management of the Fund" in the Prospectus and in the Statement of Additional
Information constituting parts A and B, respectively, of the Registration
Statement are incorporated herein by reference.
New England Investment Companies, L.P. is the limited partner and owner of 99.5%
interest in Reich & Tang Asset Management L.P. (the "Manager"). Reich & Tang
Asset Management, Inc. ( a wholly-owned subsidiary of NEICLP) is the sole
general partner and owner of the remaining .5% interest of the Manager. New
England Investment Companies, Inc. ("NEIC"), a Massachusetts corporation, serves
as sole general partner of NEICLP. Reich & Tang Asset Management L.P. succeeded
NEICLP as the Manager of the Fund.
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<PAGE>
On August 30, 1996, The New England Mutual Life Insurance Company ("The New
England") and Metropolitan Life Insurance Company ("MetLife") merged, with
MetLife being the continuing company. The Manager remains a wholly-owned
subsidiary of NEICLP, but Reich & Tang Asset Management, Inc., its sole general
partner, is now an indirect subsidiary of MetLife. Also, MetLife New England
Holdings, Inc., a wholly-owned subsidiary of MetLife, owns approximately 48.5%
of the outstanding limited partnership interest of NEICLP and may be deemed a
"controlling person" of the Manager. Reich & Tang, Inc. owns approximately 16%
of the outstanding partnership units of NEICLP.
Registrant's investment adviser, Reich & Tang Asset Management L.P. is a
registered investment adviser. Reich & Tang Asset Management L.P.'s investment
advisory clients include California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc., Daily Tax
Free Income 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.,
Pennsylvania Daily Municipal Income Fund, Short Term Income Fund, Inc., and Tax
Exempt Proceeds Fund, Inc., registered investment companies whose addresses are
600 Fifth Avenue, New York, New which invest principally in money market
instruments; Delafield Fund, Inc. and Reich & Tang Equity Fund, Inc., are
registered investment companies whose address is 600 Fifth Avenue, New York, New
York 10020, which invests principally in L.P., August Associates L.P., Reich &
Tang Minutus L.P., Reich & Tang Minutus II, L.P., Reich & Tang Equity
Partnerships L.P. and Tucek Partners L.P., private investment partnerships
organized as limited partnerships.
Peter S. Voss, President, Chief Executive Officer and a Director of NEIC since
October 1992, Chairman of the Board of NEIC since December 1992, Group Executive
Vice President, Bank of America, responsible for the global asset management
private banking businesses, from April 1992 to October 1992, Executive Vice
President of Security Pacific Bank, and Chief Executive Officer of Security
Pacific Hoare Govett Companies a wholly-owned subsidiary of Security Pacific
Corporation, from April 1988 to April 1992, Director of The New England since
March 1993, Chairman of the Board of Directors of NEIC's subsidiaries other than
Loomis, Sayles & Company, L.P. ("Loomis") and Back Bay Advisors, L.P.. ("Back
Bay"), where he serves as a Director, and Chairman of the Board of Trustees of
all of the mutual funds in the TNE Fund Group and the Zenith Funds. G. Neil
Ryland, Executive Vice President, Treasurer and Chief Financial Officer NEIC
since July 1993, Executive Vice President and Chief Financial Officer of The
Boston Company, a diversified financial services company, from March 1989 until
July 1993, from September 1985 to December 1988, Mr. Ryland was employed by
Kenner Parker Toys, Inc. as Senior Vice President and Chief Financial Officer.
Edward N. Wadsworth, Executive Vice President, General Counsel, Clerk and
Secretary of NEIC since December 1989, Senior Vice President and Associate
General Counsel of The New England from 1984 until December 1992, and Secretary
of Westpeak and Draycott and the Treasurer of NEIC. Lorraine C. Hysler has been
Secretary of RTAM since July 1994, Assistant Secretary of NEIC since September
1993, Vice President of the Mutual Funds Group of NEICLP from September 1993
until July 1994, and Vice President of Reich & Tang Mutual Funds since July
1994. Ms. Hysler joined Reich & Tang, Inc. in May 1977 and served as Secretary
from April 1987 until September 1993. Richard E. Smith, III has been a Director
of RTAM since July 1994, President and Chief Operating Officer of the Capital
Management Group of NEICLP from May 1994 until July 1994, President and Chief
Operating Officer of the Reich & Tang Capital Management Group since July 1994,
Executive Vice President and Director of Rhode Island Hospital Trust from March
1993 to May 1994, President, Chief Executive Officer and Director of USF&G
Review Management Corp. from January 1988 until September 1992. Steven W. Duff
has been a Director of RTAM since October 1994, President and Chief Executive
Officer of Reich & Tang Mutual Funds since August 1994, Senior Vice President of
NationsBank from June 1981 until August 1994, Mr.
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<PAGE>
Duff is President and a Director of California Daily Tax Free Income Fund, Inc.,
Connecticut Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc.,
Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal Income
Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina Daily
Municipal Income Fund, Inc. and Short Term Income Fund, Inc., President and
Trustee of Institutional Daily Municipal Income Fund, Pennsylvania Daily
Municipal Income Fund, President and Chief Executive Officer of Tax Exempt
Proceeds Fund, Inc., and Executive Vice President of Reich & Tang Equity Fund,
Inc. Bernadette N. Finn has been Vice President/Compliance of RTAM since July
1994, Vice President of Mutual Funds Division of NEICLP from September 1993
until July 1994, Vice President of Reich & Tang Mutual Funds since July 1994.
Ms. Finn joined Reich & Tang, Inc. in September 1970 and served as Vice
President from September 1982 until May 1987 and as Vice President and Assistant
Secretary from May 1987 until September 1993. Ms. Finn is also Secretary of AEW
Commercial Mortgage Securities, Inc., California Daily Tax Free Income Fund,
Inc., Connecticut Daily Tax Free Income Fund, Inc., Cortland Trust, Inc.,
Delafield Fund, Inc., Daily Tax Free Income Fund, Inc., Institutional Daily
Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North
Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income
Fund and Tax Exempt Proceeds Fund, Inc., a Vice President and Secretary of Reich
& Tang Equity Fund, Inc., and Short Term Income Fund, Inc. Richard De Sanctis
has been Treasurer of RTAM since July 1994, Assistant Treasurer of NEIC since
September 1993 and Treasurer of the Mutual Funds Group of NEICLP from September
1993 until July 1994, Treasurer of the Reich & Tang Mutual Funds since July
1994. Mr. De Sanctis joined Reich & Tang, Inc. in December 1990 and served as
Controller of Reich & Tang, Inc., from January 1991 to September 1993. Mr. De
Sanctis was Vice President and Treasurer of Cortland Financial Group, Inc. and
Vice President of Cortland Distributors, Inc. from 1989 to December 1990. Mr. De
Sanctis is also Treasurer of AEW Commercial Mortgage Securities, Inc.,
California Daily Tax Free Income Fund, Inc., Connecticut Daily Tax Free Income
Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield Fund, Inc.,
Institutional Daily Municipal Income Fund, Michigan Daily Tax Free Income Fund,
Inc., New Jersey Daily Municipal Income Fund, Inc., New York Daily Tax Free
Income Fund, Inc., North Carolina Daily Municipal Income Fund, Inc., Short Term
Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc. and is Vice President and
Treasurer of Cortland Trust, Inc. Richard I Weiner has been Vice President of
RTAM since July 1994, and has been Vice President of NEIC since September 1993.
Mr. Weiner has been Vice President of the Capital Management Group of RTAM since
July 1994, and was Vice President of the Capital Management Group of NEICLP from
September 1993 to July 1994. Mr. Weiner joined Reich & Tang Inc. in August 1970
and served as Vice President of such since September 1982.
Item 29. Principal Underwriters
(a) Reich & Tang Distributors L.P., the Registrant's Distributor, is
also distributor for California Daily Tax Free Income Fund, Inc., Connecticut
Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield
Fund, Inc., Florida Daily Municipal Income Fund, Institutional Daily Income
Fund, Michigan Daily
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<PAGE>
Tax Free Income Fund, Inc., New Jersey Daily Municipal Income Fund, Inc., New
York Daily Tax Free Income Fund, Inc., North Carolina Daily Municipal Income
Fund, Inc., Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund,
Inc., Short Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc.
(b) The following are the directors and officers of Reich & Tang Asset
Management, Inc., the general partner of Reich & Tang Distributors L.P. Reich &
Tang Distributors L.P. does not have any officers. The principal business
address of Messrs. Voss, Ryland, and Wadsworth is 399 Boylston Street, Boston,
Massachusetts 02116. For all other persons, the principal business address is
600 Fifth Avenue, New York, New York 10020.
Positions and Offices Positions and
with General Partner Offices With
Name of the Distributor Registrant
Peter S. Voss President and Director None
G. Neal Ryland Director None
Edward N. Wadsworth Clerk None
Richard E. Smith III Director None
Steven W. Duff Director President
and Director
Bernadette N. Finn Vice President - Compliance Secretary
Lorraine C. Hysler Secretary None
Richard De Sanctis Vice President and Treasurer Vice President
and Treasurer
Richard I. Weiner Vice President None
(c) Not applicable.
Item 30. Location of Accounts and Records
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained in the physical possession of the Registrant at Reich
& Tang Asset Management L.P., 600 Fifth Avenue, New York, New York 10020, the
Registrant's manager, at Investors Fiduciary Trust Company, 127 West 10th
Street, Kansas City, Missouri, 64105, the Registrant's custodian, and at Reich &
Tang Services L.P., 600 Fifth Avenue, New York, New York 10020, the Registrant's
transfer agent and dividend disbursing agent.
Item 31. Management Services
None.
Item 32. Undertakings
(1) The Registrant undertakes to comply with Section 16(c) of the
Investment Company Act of 1940 as though such provisions of
the Act were applicable to the Registrant, except that the
request referred to in the third full paragraph thereof may
only be made by shareholders who hold in the aggregate at
least 1 per centum of the outstanding shares of the
Registrant, regardless of the net asset value of the shares
held by such requesting shareholders.
(2) The Registrant undertakes to call a meeting of stockholders
for the purpose of voting upon the question of removal of one
or more of the Registrant's directors when requested in
writing to do so by the holders of at least 10% of the
Registrant's outstanding shares of common stock and, in
connection with such meeting, to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940 relating
to shareholder communications.
(3) The Registrant undertakes to file a Post-Effective Amendment,
using reasonably current financial statements which need not
be certified, within four to six months from the effective
date of Registrant's 1933 Act Registration Statement relating
to Bradford Shares, or the initial public offering thereof,
whichever is later.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has met all the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, and State of New York, on the __th day of July, 1997.
CORTLAND TRUST, INC.
By: /s/Steven W. Duff
Steven W. Duff
President & Director
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the following
persons in the capacities indicated below on July , 1997.
SIGNATURE TITLE
(1) Principal Executive Officer:
/s/Steven W. Duff
Steven W. Duff President & Director
(2) Principal Financial and
Accounting Officer:
/s/Richard De Sanctis
Richard De Sanctis Treasurer
(3) Majority of Directors:
* Owen Daly II (Director)
* Albert R. Dowden (Director)
David C. Melnicoff (Director)
* James L. Schultz (Director)
By: /s/Jules Buchwald
Jules Buchwald
Attorney-in-fact*
* An executed copy of the power of attorney was filed as an exhibit to
Post-Effective Amendment No. 10 to the Registration Statement on March 4, 1991.
CORTLAND TRUST, INC.
ARTICLES SUPPLEMENTARY
Cortland Trust, Inc., a Maryland corporation registered as an
open-end company under the Investment Company Act of 1940 having its principal
office in the State of Maryland in Baltimore City (hereinafter called the
"Corporation"), certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The total number of shares of capital stock which the Corporation
shall have authority to issue is increased from 3,000,000,000 shares of Common
Stock of the par value of $.001 each to 4,000,000,000 shares of Common Stock of
the par value of $.001 each, of which: (i)2,000,000,000 shares are classified as
"Cortland General Money Market Fund Shares", a series of the Corporation,
including 400,000,000 shares which are classified as Live Oak General Money
Market Fund Shares and 100,000,000 shares which are classified as Pilgrim
General Money Market Fund Shares, each a class of the Cortland General Money
Market Fund; (ii)600,000,000 shares are classified as "U.S. Government Fund
Shares", a series of the Corporation, including 100,000,000 shares which are
classified as Live Oak U.S. Government Fund Shares, a class of the U.S.
Government Fund; (iii)600,000,000 shares are classified as "Municipal Money
Market Fund Shares", a series of the Corporation, including 100,000,000 shares
which are classified as Live Oak Municipal Money Market Fund Shares, a class of
the Municipal Money Market Fund; and (iv)800,000,000 shares are unclassified.
The aggregate par value of capital stock of all classes is increased from
$3,000,000 to $4,000,000.
SECOND: Immediately prior to the foregoing increase, the total number of
shares of capital stock which the Corporation had authority to issue was
3,000,000,000 shares of Common Stock of the par value of $.001 each of which (i)
1,600,000,000 shares were classified as "General Money Market Fund," a series of
the Corporation, including 100,000,000 shares classified as Pilgrim General
Money Market Fund Shares, a class of the General Money Market Fund; (ii)
500,000,000 shares were classified as "U.S. Government Fund," a series of the
Corporation; (iii) 500,000,000 shares were classified as "Tax Free Money Market
Fund," as series of the Corporation; and 400,000,000 shares were unclassified.
The aggregate par value of the capital stock of all series and classes which the
Corporation had authority to issue immediately prior to the foregoing increase
was $3,000,000.
THIRD: The assets belonging to the Live Oak General Money Market Fund
Shares may be invested together with the assets belonging to each other class
now or hereafter authorized of the Cortland General Money Market Fund. The net
asset values per share of each class of the Cortland General Money Market Fund
may differ because of different expenses attributable to each class. The income
or loss from the common investment portfolio and the expenses or liabilities of
the series shall be allocated to each class in proportion to the number of
shares outstanding of each class, and expenses related solely to one class shall
be allocated to that class, in each case as determined by or pursuant to the
direction of the Board of Directors of the Corporation. The holders of shares of
each class of the Cortland General Money Market Fund shall vote as a single
class on all matters submitted to a vote of holders of the series, except that
no holder of any class shall be entitled to vote on a matter which does not
affect suchclass. Except as provided above, the Live Oak General Money Market
Fund Shares classified hereby shall have the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption as set forth in ARTICLE
SIXTH of the Corporation's Articles of Incorporation and otherwise in the
Corporation's Charter.
<PAGE>
FOURTH: The assets belonging to the Live Oak U.S. Government Fund Shares
may be invested together with the assets belonging to each other class now or
hereafter authorized of the U.S. Government Fund. The net asset values per share
of each class of the U.S. Government Fund may differ because of different
expenses attributable to each class. The income or loss from the common
investment portfolio and the expenses or liabilities of the series shall be
allocated to each class in proportion to the number of shares outstanding of
each class, and expenses related solely to one class shall be allocated to that
class, in each case as determined by or pursuant to the direction of the Board
of Directors of the Corporation. The holders of shares of each class of the U.S.
Government Fund shall vote as a single class on all matters submitted to a vote
of holders of the series, except that no holder of any class shall be entitled
to vote on a matter which does not affect such class. Except as provided above,
the Live Oak U.S. Government Fund Shares classified hereby shall have the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as set forth in ARTICLE SIXTH of the Corporation's Articles of
Incorporation and otherwise in the Corporation's Charter.
FIFTH: The assets belonging to the Live Oak Municipal Money Market Fund
Shares may be invested together with the assets belonging to each other class
now or hereafter authorized of the Municipal Money Market Fund. The net asset
values per share of each class of the Municipal Money Market Fund may differ
because of different expenses attributable to each class. The income or loss
from the common investment portfolio and the expenses or liabilities of the
series shall be allocated to each class in proportion to the number of shares
outstanding of each class, and expenses related solely to one class shall be
allocated to that class, in each case as determined by or pursuant to the
direction of the Board of Directors of the Corporation. The holders of shares of
each class of the Municipal Money Market Fund shall vote as a single class on
all matters submitted to a vote of holders of the series, except that no holder
of any class shall be entitled to vote on a matter which does not affect such
class. Except as provided above, the Live Oak Municipal Money Market Fund Shares
classified hereby shall have the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption as set forth in ARTICLE SIXTH of the
Corporation's Articles of Incorporation and otherwise in the Corporation's
Charter.
SIXTH: The increase in the total number of shares of capital stock which
the Corporation has authority to issue, as provided in these Articles
Supplementary, was approved by the Board of Directors without action by the
Corporation's shareholders as expressly permitted by Section 2-150(c) of the
Maryland General Corporation Law.
<PAGE>
SEVENTH: The stock of the Corporation has been classified by the Board of
Directors, as provided in these Articles Supplementary, under the authority
contained in the Corporation's Charter.
The President acknowledges these Articles Supplementary to be
the corporate act of the Corporation and states that to the best of his
knowledge, information and belief the matters and facts set forth in these
Articles are true in all material respects and that this statement is made under
the penalties of perjury.
IN WITNESS WHEREOF, Cortland Trust, Inc. has caused these
Articles Supplementary to be executed in its name and on its behalf by its
President and attested by its Secretary on November 9, 1995.
ATTEST CORTLAND TRUST, INC.
By:
Bernadette N. Finn Steven W. Duff
Secretary President
CORTLAND TRUST, INC.
ARTICLES SUPPLEMENTARY
Cortland Trust, Inc., a Maryland corporation registered as an
open-end company under the Investment Company Act of 1940 having its principal
office in the State of Maryland in Baltimore City (hereinafter called the
"Corporation"), certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The total number of shares of capital stock which the Corporation
shall have authority to issue is increased from 4,000,000 shares of Common Stock
of the par value of $.001 each to 5,000,000,000 shares of Common Stock of the
par value of $.001each, of which: (i) 2,000,000,000 shares are classified as
"Cortland General Money Market Fund Shares", a series of the Corporation,
including 400,000,000 shares which are classified as Live Oak General Money
Market Fund Shares and 100,000,000 shares which are classified as Pilgrim
General Money Market Fund Shares, each a class of the Cortland General Money
Market Fund; (ii) 1,000,000,000 shares are classified as "U.S. Government Fund
Shares", a series of the Corporation, including 100,000,000 shares which are
classified as Live Oak U.S. Government Fund Shares and 400,000,000 shares which
are classified as Bradford U.S. Government Fund Shares, each a class of the U.S.
Government Fund; (iii) 1,000,000,000 shares are classified as "Municipal Money
Market Fund Shares", a series of the Corporation, including 100,000,000 shares
which are classified as Live Oak Municipal Money Market Fund Shares and
400,000,000 shares which are classified as Bradford Municipal Money Market
Shares, each a class of the Municipal Money Market Fund; and (iv) 1,000,000,000
shares are unclassified. The aggregate par value of capital stock of all classes
is increased from $4,000,000 to $5,000,000.
SECOND: Immediately prior to the foregoing increase, the total number of
shares of capital stock which the Corporation had authority to issue was
4,000,000,000 shares of Common Stock of the par value of $.001 each of which (i)
2,000,000,000 shares were classified as "General Money Market Fund," a series of
the Corporation, including 400,000,000 shares which are classified as Live Oak
General Money Market Fund Shares and 100,000,000 shares classified as Pilgrim
General Money Market Fund Shares, each a class of the General Money Market Fund;
(ii) 600,000,000 shares were classified as "U.S. Government Fund," a series of
the Corporation, including 100,000,000 shares which are classified as Live Oak
U.S. Government Fund Shares, each a class of the U.S. Government Fund; (iii)
600,000,000 shares were classified as "Municipal Money Market Fund," a series of
the Corporation, including 100,000,000 shares which are classified as Live Oak
Municipal Money Market Shares, each a class of the Municipal Money Market Fund;
and 800,000,000 shares were unclassified. The aggregate par value of the capital
stock of all series and classes which the Corporation had authority to issue
immediately prior to the foregoing increase was $4,000,000.
THIRD: The assets belonging to the Bradford U.S. Government Fund Shares may
be invested together with the assets belonging to each other class now or
hereafter authorized of the U.S. Government Fund. The net asset values per share
of each class of the U.S. Government Fund may differ because of different
expenses attributable to each class. The income or loss from the common
investment portfolio and the expenses or liabilities of the series shall be
allocated to each class in proportion to the number of shares outstanding of
each class, and expenses related solely to one class shall be allocated to that
class, in each case as determined by or pursuant to the direction of the Board
of Directors of the Corporation. The holders of shares of each class of the U.S.
Government Fund shall vote as a single class on all matters submitted to a vote
of holders of the series, except that no holder of any class shall be entitled
to vote on a matter which does not affect such class. Except as provided above,
the Bradford U.S. Government Fund Shares classified hereby shall have the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as set forth in ARTICLE SIXTH of the Corporation's Articles of
Incorporation and otherwise in the Corporation's Charter.
<PAGE>
FOURTH: The assets belonging to the Bradford Municipal Money Market Fund
Shares may be invested together with the assets belonging to each other class
now or hereafter authorized of the Municipal Money Market Fund. The net asset
values per share of each class of the Municipal Money Market Fund may differ
because of different expenses attributable to each class. The income or loss
from the common investment portfolio and the expenses or liabilities of the
series shall be allocated to each class in proportion to the number of shares
outstanding of each class, and expenses related solely to one class shall be
allocated to that class, in each case as determined by or pursuant to the
direction of the Board of Directors of the Corporation. The holders of shares of
each class of the Municipal Money Market Fund shall vote as a single class on
all matters submitted to a vote of holders of the series, except that no holder
of any class shall be entitled to vote on a matter which does not affect such
class. Except as provided above, the Bradford Municipal Money Market Fund Shares
classified hereby shall have the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption as set forth in ARTICLE SIXTH of the
Corporation's Articles of Incorporation and otherwise in the Corporation's
Charter.
FIFTH: The increase in the total number of shares of capital stock which
the Corporation has authority to issue, as provided in these Articles
Supplementary, was approved by the Board of Directors without action by the
Corporation's shareholders as expressly permitted by Section 2-105(c) of the
Maryland General Corporation Law.
SIXTH: The stock of the Corporation has been classified by the Board of
Directors, as provided in these Articles Supplementary, under the authority
contained in the Corporation's Charter.
The President acknowledges these Articles Supplementary to be
the corporate act of the Corporation and states that to the best of his
knowledge, information and belief the matters and facts set forth in these
Articles are true in all material respects and that this statement is made under
the penalties of perjury.
<PAGE>
IN WITNESS WHEREOF, Cortland Trust, Inc. has caused these
Articles Supplementary to be executed in its name and on its behalf by its
President and attested by its Secretary on May 20, 1997.
ATTEST CORTLAND TRUST, INC.
By:
Bernadette N. Finn Steven W. Duff
Secretary President
EXHIBIT 11a
ERNST & YOUNG L.L.P.
Certified Public Accountants & Consultants
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "
Financial Highlights" and "Reports" and to the use of our report dated May
1, 1997, in this Registration Statement (Form N-1A No. 2-94935) of Cortland
Trust, Inc.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
July 18, 1997
Exhibit 11b
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, N.Y. 10022-3852
(212)715-9100
July 24, 1997
Cortland Trust, Inc.
600 Fifth Avenue
New York, New York 10022
Re: Cortland Trust, Inc. Registration No. 2-94935
Gentlemen:
We hereby consent to the reference to our firm as Counsel in Registration
Statement No. 2-94935.
Very truly yours,
/s/Kramer, Levin, Naftalis & Frankel
Kramer, Levin, Naftalis & Frankel
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