As filed with the Securities and Exchange Commission on May 30, 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. 26 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 28
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 Aevnue
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)
[ ] on (date)pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[X] on July 31, 1997 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 15, 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)
BRADFORD SHARES
Bradford U.S. Government Fund
Bradford Municipal Money Market Fund
1. Cover Page Cover Page
2. Synopsis Table of Fees and
Expenses
3. Condensed Financial Information Not Applicable
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 Not Applicable
<PAGE>
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600 FIFTH AVENUE
BRADFORD SHARES NEW YORK, NY 10020
(212) 830-5280
PROSPECTUS
July 31, 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 Bradford classes (the
"The Bradford Shares") of two of the Company's Portfolios, the U.S. Government
Fund and the Municipal Money Market Fund, (collectively, the "Funds"). The
Bradford 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 Bradford
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
each of the two Funds:
Bradford U.S. Government Fund ("Bradford 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.
Bradford Municipal Money Market Fund ("Bradford Municipal Fund"): a
portfolio of obligations issued by states, territories and possessions of
the United States and their political subdivisions, public authorities and
other entities authorized to issue debt, the interest on which is exempt
from federal income taxes.
Shares of the Funds are neither insured nor guaranteed by the U.S. Government.
There is no assurance that each Fund will be able to maintain a stable net asset
value of $1.00 per share or that each Fund's investment objective will be
achieved. See "Investment Programs."
Shares in the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not Federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
Shares of the Funds are offered through a brokerage account with J.C. Bradford &
Co. LLC.
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
July 31, 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>
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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>
Bradford Bradford
Government Municipal
Fund Fund
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchase
(as a percentage of offering price)......................... None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)......................... None None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, as applicable)..................... None None
Redemption Fees (as a percentage of amount redeemed, if
applicable)................................................ None None
Exchange Fee.................................................. None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees............................................... .76% .76%
12b-1 Fees (after fee waiver)................................. .22% .23%
Other Expenses................................................ .02% .01%
Total Fund Operating Expenses (after fee waiver).............. 1.00% 1.00%
Example
You would pay the following expenses on a $1,000 investment assuming a 5%
annual return:
1 year ....................................................... $10 $10
3 years....................................................... $32 $32
5 years....................................................... $55 $55
10 years...................................................... $122 $122
</TABLE>
The above table of fees and expenses is provided to assist you in understanding
the various costs and expenses that you will bear directly and indirectly. (For
more complete descriptions of the various costs and expenses, including fees
waived by the Company's Manager, see "Management.") The expenses and example
appearing in the preceding table reflect current management fees and operating
expenses for each Portfolio of the Company. The example shown in the table
should not be considered a representation of past or future expenses, and actual
expenses may be greater or less than those shown.
Absent fee waivers by the Distributor, Total Fund Operating Expenses would be
.1.03% of the Government Fund's average net assets and 1.02% of the Municipal
Fund's average net assets. Such fee waivers may be rescinded at any time without
notice to investors.
As a result of 12b-1 fees, a long-term shareholder in a Fund may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
Rules of the National Association of Securities Dealers, Inc.
Incorporated herein by reference is the Company's prospectus dated August 1,
1996 contained in Post-Effective Amendment No. 24 to the Company's Registration
Statement on Form N-1A (File Nos. 2-94935 and 811-4179) filed with the
Securities and Exchange Commission on July 29, 1996 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.
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HOW TO PURCHASE SHARES
General Information on Purchases
Orders for purchase of shares are accepted only on a "business day of the
Company" which means any day on which both the New York Stock Exchange and
Investors Fiduciary Trust Company (the "Custodian"), the Company's custodian,
are open for business. It is expected that the New York Stock Exchange and/or
the Custodian will be closed on Saturdays and Sundays, New Year's Day, Martin
Luther King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and
Christmas.
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 J. C. Bradford & Co. LLC
Purchase Procedures
General. Shares of each portfolio are offered without a sales charge on a
continuous basis exclusively to customers of J.C. Bradford & Co. LLC
("Bradford"), 330 Commerce Street, Nashville, Tennessee 37201 and other
broker-dealers which may in the future enter into agreements with Bradford.. All
investments must be made through your Bradford account executive or such other
broker-dealers.
The minimum initial investment in a Fund is $250 ($100 for retirement accounts),
with no minimum for a subsequent investment. These minimums, however, are not
applicable to purchases made under a cash management program offered by Bradford
or another broker-dealer. See "Purchases Pursuant to BCM Program" below.
Bradford in its sole discretion may accept or reject any order for purchases of
shares.
In the interests of economy and convenience, share certificates will not be
issued. All purchases and redemptions of shares and dividend reinvestments will
be confirmed to the
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shareholder in the individual account statement which will generally be sent to
all shareholders monthly by Bradford or other participating broker-dealers.
Shares of each Fund are offered at the net asset value per share next determined
following receipt of an order by the Fund. The net asset value per share for
each Fund is normally expected to be $1.00.
Purchases Pursuant to Bradford's Regular Security Account.
Purchases of shares of a Fund may be made through a regular cash securities
account maintained with Bradford. Such an account may be opened and maintained
at no charge to investors. Bradford accountholders may elect optional
checkwriting privileges. See "Redemption Procedures - Redemption by Check." Any
available cash in an account with at least the minimum required investment in a
Fund is automatically invested at least once a week in additional shares of the
Fund designated by the accountholder and made available in connection with the
account. Available cash is transmitted to a Fund for investment after the close
of business on the date on which it becomes subject to automatic investment and
is invested in the Fund at 12:00 noon on the following business day. Available
cash subject to weekly automatic investment is typically invested at 12:00 noon
on the last business day of each week. Shares so purchased will receive the next
dividend declared after such shares are issued, which will be immediately prior
to the 4:00 p.m. pricing on that business day.
Shares of each Fund are redeemed automatically at net asset value as necessary
to satisfy debit balances resulting from settlement of securities transactions,
to satisfy checks written in connection with the checkwriting privilege or
otherwise arising under the account. See "Redemption Procedures - Redemption by
Check". Bradford reserves the right to waive or modify criteria for
participation in an account or to terminate participation in an account for any
reason.
Purchases Pursuant to BCM Program.
Shares of a Fund may be purchased in connection with the BCM program pursuant to
which available cash will be automatically invested periodically in shares of
the Fund. The BCM program is an integrated financial services account under
which participants maintain a conventional margin acount known as a Securities
Account that may be used to purchase and sell securities and options on margin
or on a fully-paid basis. Participants must pay all customary transaction fees
incurred in the use of a margin account, including normal brokerage fees for
securities and options transactions and interest on margin loans, if any.
Available cash in the Securities Account is automatically invested daily in
shares of the Fund designated by the participant and made available in
connection with the account, or in the Bradford credit-interest program.
Available cash is transmitted to a Fund for investment after the close of
business on the date on which it becomes subject to automatic investment and is
invested in the Fund at 12:00 noon on the following business day. Shares so
purchased will receive the next dividend declared after such shares are issued,
which will be immediately prior to the 4:00 p.m. pricing on that business day.
Shares of each Fund are redeemed automatically at net asset value as necessary
to satisfy debit balances resulting from settlement of securities transactions
or otherwise arising under the BCM program as a result, for example, of
transactions made using the program's optional Visa Gold Card or to satisfy
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<PAGE>
checks written in connection with the program's checkwriting privilege on an
account maintained at Bankers Trust Co. ("Bankers"). Bradford will charge
participants in the BCM program an annual administrative fee to cover fees and
administrative and processing costs incurred in connection with the services
provided by Bankers, as well as the cost of establishing, maintaining and
servicing the BCM program. See the BCM Program Agreement, available from your
Bradford account executive, for the specific terms and conditions of the Visa
Gold card and checkwriting features.
Bradford reserves the right to waive or modify criteria for participation in the
BCM program or to terminate participation in the BCM program for any reason. For
more information on the BCM program, contact your Bradford account executive.
Bradford is the only firm which currently proposes to offer purchases of the
Funds' shares pursuant to such a program. Other brokerage firms may offer
similar arrangements in the future. The manner and frequency with which such
automatic purchases will be effected will depend upon the terms of the
particular program. (See above for a summary of the manner and frequency with
which automatic purchases will be effected under the BCM program) Purchases made
under such a program will be effected through your brokerage account at the
participating brokerage firm. Investments made pursuant to such a program are
not subject to a Fund's minimum investment requirements; however, a
participating brokerage firm may impose its own minimum initial and subsequent
investment requirements. Under such a program, shares of a Fund are
automatically redeemed as necessary to satisfy a participant's debit balance in
the account with the participating firm. Additional requirements or charges not
described in this Prospectus may be imposed by participating brokerage firms,
but are not imposed by the Fund. Investors are referred to descriptions of
brokerage firms' programs for specific information regarding services offered
and applicable charges.
Retirement Plans.
Bradford maintains prototype plans for Individual Retirement Accounts ("IRAs")
and Simplified Employee Pension Accounts and a prototype defined contribution
plan with adoption agreements for a profit-sharing plan feature, a money
purchase pension plan feature, and a cash or deferred arrangement (401(k) plan).
Bradford will act as custodian for such accounts. Fund shares may be purchased
in conjunction with any such account. For further information as to applications
and annual fees, contact your Bradford account executive.
REDEMPTION PROCEDURES
AUTOMATIC REDEMPTION
Bradford will redeem each day a sufficient number of shares of a Fund to cover
debit balances created by transactions through the BCM program or in regular
accounts. For debit balances resulting from the settlement of securities
transactions, Fund shares will be redeemed at 12:00 noon on the date of
settlement, and for all other transactions that result in a debit balance or
charge (except those described below), Fund shares will be redeemed at 12:00
noon on the following business day. Bradford also reserves the right to redeem
shares of a Fund held in an Account which Bradford has terminated as described
above under "Purchase Procedures - Purchases Pursuant to the BCM Program".
Redemption by Request
Shares of a Fund, in any amount, may be redeemed at any time at their current
net asset
5
<PAGE>
value next determined after a request is received by the Fund. To redeem shares
of a Fund, an investor must make a redeption request orally or in writing
through his or her Bradford acount executive or other broker-dealer. Immediately
following the receipt of such a request, the account executive or broker-dealer
will transmit such request to Bradford, which will forward requests for
redemption to the Fund by 12:00 noon on each business day.
Redemption by Check
As discussed above under "Purchases Pursuant to BCM Program", checkwriting
privileges are included in the BCM program, and may be available through a
brokerage account or similar program at a participating brokerage firm. Upon
request, the Fund will provide any investor who does not have checkwriting
privileges in connection with his or her brokerage account with forms of drafts
("checks") payable through Bankers. These checks may be made payable to the
order of anyone, and are subject to a minimum amount of $500. There is no
per-check charge. An investor wishing to use this checkwriting redemption
procedure should complete specimen signature cards available from his or her
Bradford account executive. For a fee imposed by Bankers, an investor will be
able to stop payment on a check redemption. The Company or Bankers may terminate
this redemption service at any time upon 30 days' prior notice and neither shall
incur any liability for honoring checks, for effecting redemptions to pay
checks, nor for returning checks which have not been accepted.
When a check is presented to Bankers for clearance, the Fund will redeem a
sufficient number of full and fractional shares owned by the shareholder to
cover the amount of the check. This procedure enables the shareholder to
continue to receive dividends on those shares equalling the amount being
redeemed by check until such time as the check is presented to Bankers. Checks
may not be presented for cash payment at the offices of Bankers because, under
rules under the Investment Company Act of 1940 (the "1940 Act"), redemptions may
be effected only at the redemption price next determined after the redemption
request is presented to a Fund's transfer and dividend disbursing agent. This
limitation does not affect checks used for the payment of bills or cashed at
other banks.
Additional Redemption Information
Ordinarily, a Fund will make payment for all shares redeemed within one busines
day, but in no event (except as described below) will payment be made more than
seven days after receipt by the Fund of a redemption request. However, payment
may be postponed or the right of redemption (by any of the above-described
methods) suspended for more than seven days under unusual circumstances, such as
when trading is not taking place on the New York Stock Exchange. Payment of
redemption proceeds may also be delayed for a period of up to fifteen days after
purchase pending clearance of any check delivered in payment for those shares.
Each Fund imposes no charge when shares are redeemed. Each Fund reserves the
right to redeem any account involuntary upon 30 days' prior written notice if
such account falls below the minimum initial investment. Accordingly, a
shareholder making a minimum investment may not redeem any portion of his or her
investment without becoming subject to possible involuntary liquidation.
Exchanges
Shares of a Fund may be exchanged at net asset value for shares the other Fund
without charge by instructions to J.C. Bradford & Co.
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<PAGE>
LLC or by mail. The value of the shares being exchanged must meet the minimum
initial investment requirements of the Fund.
INVESTMENT PROGRAMS
Investment Objectives
The Bradford Government Fund seeks to provide as high a level of current income
as is consistent with the preservation of capital and liquidity. The Bradford
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 Rating Services, a division of The McGraw-Hill Companies 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.
Bradford Government Fund
The Bradford 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.
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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 Bradford
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.
Bradford Municipal Fund
The Bradford 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 Bradford Municipal Fund will invest in the following securities. The
Bradford 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 Bradford 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 Bradford Municipal Fund may invest. The Bradford
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 Bradford 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 Bradford
Municipal Fund that its assets will be invested so that at least 80% of its
income will be exempt from federal income taxes.
The Bradford Municipal Fund may from time to time hold cash reserves.
Both 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
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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 the two
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 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
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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 Bradford
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.
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The Bradford 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 Bradford 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 Bradford Municipal Fund's option, at a
specified price. Stand-by Commitments are also sometimes known as "puts." The
Bradford 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 Bradford 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 '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 Bradford Municipal Fund will not: (1) purchase any securities
which would cause more than 25% of the value of the Bradford 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 Bradford Municipal Fund may purchase Stand-by
Commitments.
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<PAGE>
The foregoing restrictions are matters of fundamental policy and may not be
changed without the affirmative vote of a majority of the outstanding shares of
each Fund affected by such change.
Maturities
Consistent with the objective of stability of principal, each Fund attempts to
maintain a constant net asset value per share of $1.00 and, to this end, values
its assets by the amortized cost method and rounds its per share net asset value
to the nearest whole cent in compliance with applicable rules and regulations.
Accordingly, the Funds invest in Money Market Obligations and Municipal
Securities having remaining maturities of thirteen months or less and maintain a
weighted average maturity for each Fund of 90 days or less. However, there can
be no assurance that a Fund's net asset value per share of $1.00 will be
maintained.
DIVIDENDS AND TAXES
Qualification as Regulated
Investment Company
Dividends
It is the policy of the Company, with respect to each Fund, to declare dividends
from the net investment income earned by each Fund daily; such dividends are
distributed to each Fund's shareholders in the form of additional Fund shares on
the subsequent business day. Dividends from net realized capital gain, offset by
capital loss carryovers, if any, are generally declared and paid when realized.
However, to the extent that a net realized capital gain is deemed necessary to
offset future capital losses, such gain will not be distributed at that time. A
shareholder may, by letter to the Company, elect to have dividends paid by
check. Any such election or revocation thereof must be made in writing to Reich
& Tang Funds, 600 Fifth Avenue, New York, New York 10020. Shareholders whose
dividends are being reinvested will receive a summary of their accounts at least
quarterly indicating the reinvestment of dividends.
Taxes
Each Fund is treated as a separate taxable entity for federal income tax
purposes. Each Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). It is each Fund's policy to distribute to shareholders all of its net
investment income and any capital gains (net of capital losses) in accordance
with the timing requirements imposed by the Code, so that each Fund will satisfy
the distribution requirement of Subchapter M and not be subject to federal
income taxes or the 4% excise tax. So long as the Funds qualify for this tax
treatment, the Funds will not be subject to federal income tax on amounts
distributed to shareholders.
If the Funds fail to satisfy any of the Code requirements for qualification as a
regulated investment company, they will be taxed at regular corporate tax rates
on all of their taxable income (including capital gains) without any deduction
for distributions to shareholders, and distributions will be taxable to
shareholders as ordinary dividends (even if derived from the Funds' net
long-term capital gains) to the extent of the Funds' current and accumulated
earnings and profits.
Shareholders of the Bradford 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.
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<PAGE>
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 Bradford 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 Bradford 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 Bradford 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 Bradford Municipal Fund declared
during that year. These percentages may differ from the actual percentages for
any particular day.
Shareholders of the Bradford Government Fund and the will be subject to federal
income taxes and any applicable state income taxes on amounts distributed as
dividends unless such shareholders are otherwise exempt. It is not expected that
any portion of taxable dividends paid by the Funds will qualify for the federal
dividends-received deduction for corporations.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether the shareholder elects to receive them in cash or
reinvest them in additional shares. In general, shareholders take distributions
into account in the year in which they are made. However, shareholders are
required to treat certain distributions made during January as having been paid
and received on December 31 of the preceding year. A statement setting forth the
federal income tax status of all distributions made (or deemed made) during the
year, will be sent to shareholders promptly after the end of each year.
To avoid being subject to a 31% federal backup withholding on taxable dividends
and redemption payments, shareholders must furnish the Company with their
taxpayer identification number and certify, under penalties of perjury, that it
is correct and that they are not subject to backup withholding for any reason.
The foregoing discussion of federal income tax consequences is based on tax laws
and regulations in effect on the date of this Prospectus, and is subject to
change by legislation or administrative action. As the foregoing discussion is
for general information only, shareholders should also review the more detailed
discussion of federal income tax considerations relevant to the Funds that is
contained in the Funds' Statement of Additional Information. Shareholders are
advised to consult with their tax advisors concerning the application of state,
local and foreign taxes on investments in the Company which may differ from the
federal income tax consequences described above.
13
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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 the Manager fees which
represented 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.
The Manager was at April 30, 1997 investment manager, advisor or supervisor with
respect to assets aggregating in excess of $9 billion. The Manager currently
acts as investment manager
14
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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 $142.2 billion at
March 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 $1.2 trillion at March 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 43 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
15
<PAGE>
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 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 March 5, 1997, each of the Funds may make
distribution related payments in an amount not to exceed on an annualized basis
.25% of the value of the Fund's assets. Securities dealers and other financial
institutions may receive distribution payments directly or indirectly from the
Funds for services that may include payments for opening shareholder accounts,
processing investor purchase and redemption orders, responding to inquiries from
shareholders concerning the status of their accounts and operations of their
Fund and communications with the Company on behalf of Fund shareholders.
Additionally, the Distributor may pay for advertisements, promotional materials,
sales literature and printing and mailing of prospectuses to other than Fund
shareholders and other services to support distribution pursuant to the Plans.
The Distributor may also make payments to securities dealers and financial
institutions, such as banks, out of the investment management fee the Manager
receives from the Funds, out of its past profits or from any other source
available to the Distributor.
The Plans will only make payments for expenses actually incurred by the
Distributor. The Plans will not carry over expenses from year to year and if a
Plan is terminated in accordance with its terms, the obligations of a Fund to
make payments to the Distributor pursuant to the Plan will cease and the Fund
will not be required to make any payments past the date the Plan terminates.
16
<PAGE>
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Funds, broker-dealer selection and negotiation of commission rates. Since
purchases and sales of portfolio securities by the Funds are usually principal
transactions, the Funds incur little or no net brokerage commissions. Portfolio
securities are normally purchased directly from the issuer or from a market
maker for the securities. The purchase price paid to dealers serving as market
makers may include a spread between the bid and asked prices. The Funds may also
purchase securities from underwriters at prices which include a concession paid
by the issuer to the underwriter.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed to be in
the best interest of shareholders of the Funds rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price.
YIELD INFORMATION
Each Fund will provide yield quotations based on its daily dividends. Yield is
computed in accordance with a standardized formula described in the Statement of
Additional Information and can be expected to fluctuate substantially over time.
Comparative performance information may be used from time to time in advertising
or marketing the Funds' shares, including data from industry publications.
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 three
classes - the U.S. Government Fund Class, the Live Oak U.S. Government Fund
Class and the Bradford U.S. Government Fund Class. The Municipal Money Market
Fund Portfolio's shares are classified into three classes - the Municipal Money
Market Fund Class, the Live Oak Municipal Money Market Fund Class and the
Bradford Municipal Money Market Fund Class. Classes of shares of he Company's
Portfolios offered through other prospectuses have different maximum
distribution plan payments and may have different other expenses which may
affect performance. Investors may call their securities dealer or the Company at
(212) 830-5280 to obtain more information concerning the other classes.
Shares of the Company have equal rights with respect to voting, except that the
holders of shares of a particular Portfolio or Fund will have the exclusive
right to vote on matters affecting only the rights of the holders of such
Portfolio or Fund. For example, holders of a particular Portfolio will have the
exclusive right to vote on any investment advisory agreement or investment
restriction that relates only to such Portfolio. The holders of each Fund have
distinctive rights with respect to dividends and redemptions which are more
fully described in
17
<PAGE>
this Prospectus and the Statement of Additional Information. In the event of
dissolution or liquidation, holders of each Fund will receive pro rata, subject
to the rights of creditors, (a) the proceeds of the sale of the assets held in
the respective portfolio to which the shares of the Fund relate, less (b) the
liabilities of the Company attributable to the respective portfolio or allocated
between the portfolios based on the respective liquidation value of each
portfolio. There will not normally be annual shareholders' meetings.
Shareholders may remove directors from office by a majority of votes entitled to
be cast at a meeting of shareholders. Shareholders holding 10% or more of the
Company's outstanding stock may call a special meeting of shareholders.
There are no preemptive or conversion rights (other than the exchange privileges
set forth in this Prospectus) applicable to any of the Company's shares. The
Company's shares when issued, will be fully paid, non-assessable and
transferrable. The Board of Directors may increase the number of authorized
shares or create additional series or classes of the Company shares without
shareholder approval.
Legal Matters
The law firm of Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York,
New York 10022, serves as counsel to the Company and has passed upon the
legality of the shares offered pursuant to this Prospectus.
Custodian and Transfer Agent
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, acts as custodian for each Portfolio's securities and cash. The Company
acts as its own transfer agent for the Company's shares.
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
How to Purchase Shares............................. 3
General Information on Purchases................ 3
Purchases Through
J.C. Bradford & Co. LLC...................... 3
Purchases Pursuant to Bradford's Regular
Security Account............................ 4
Purchases Pursuant to BCM Program............... 4
Retirement Plans................................ 5
Redemption Procedures.............................. 5
Automatic Redemption............................ 5
Redemption by Request........................... 5
Redemption by Check............................. 6
Additional Redemption Information............... 6
Exchanges....................................... 6
Investment Programs................................ 7
Investment Objectives........................... 7
Investment Policies............................. 7
Bradford Government Fund........................ 7
Bradford Municipal Fund..........................8
Both Funds.......................................8
Investment Restrictions.........................11
Maturities......................................12
Dividends and Taxes................................12
Dividends.......................................12
Taxes ..........................................12
Management.........................................14
Board of Directors..............................14
Management and Investment Advisor...............14
Fee Waivers.....................................16
Distributor.....................................16
Portfolio Transactions.............................17
Yield Information..................................17
General Information................................17
Organization of the Company and
Description of Shares.........................17
Legal Matters...................................18
Custodian and Transfer Agent....................18
Shareholder Inquiries...........................18
19
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BRADFORD 600 Fifth Avenue, New York, NY 10020
SHARES (212) 830-5280
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
July 31, 1997
Relating to the Bradford Shares Prospectus
dated July 31, 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>
- -----------------------------------------------------------------------------------------------------------------------------------
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 Portfolio Distributions........................13
Manager and Investment Advisor.......................5 Sale or Redemption of Portfolio Shares.........15
Expenses.............................................7 Foreign Shareholders.............................15
Distributor and Plans of Distribution................8 Effect of Future Legislation and
Custodian........................................10 Local Tax Considerations....................15
Transfer Agent...................................10 Yield Information.................................15
Sub-Accounting...................................10 Investment Programs and Restrictions..............16
Principal Holders of Securities..................10 Investment Programs............................16
Reports..........................................10 When-Issued Securities.........................18
Share Purchases and Redemptions.....................10 Stand-by Commitments...........................19
Purchases and Redemptions........................10 Municipal Participations.......................20
Net Asset Value Determination....................11 Investment Restrictions........................20
Dividends and Tax Matters...........................11 Portfolio Transactions............................21
Dividends........................................11 Investment Ratings................................22
Tax Matters......................................12
- -----------------------------------------------------------------------------------------------------------------------------------
</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 July 31, 1997, relating to two of
the Company's three money market portfolios , which may be obtained without
charge from Reich & Tang Distributors L.P. (the "Distributor"). Investors may
also contact securities dealers authorized by the Distributor to distribute the
Company's shares in order to obtain a Prospectus. Some of the information
required to be in this Statement of Additional Information is also included in
the current Prospectus of the Company; and, in order to avoid repetition,
reference will be made to sections of the Prospectus. Additionally, the
Prospectus and this Statement of Additional Information omit certain information
contained in the registration statement filed with the SEC. Copies of the
registration statement, including items omitted from the Prospectus and this
Statement of Additional Information, may be obtained from the SEC by paying the
charges prescribed under its rules and regulations.
Incorporated herein by reference is the Company's statement of additional
information dated August 1, 1996 contained in Post-Effective Amendment No. 24 to
the Company's Registration Statement on Form N-1A (File Nos. 2-94935 and
811-4179) filed with the SEC on July 28, 1995. It is available upon request and
without charge by writing or calling the Company at 600 Fifth Avenue, New York,
New York 10020 (212) 830-5280.
GENERAL INFORMATION ABOUT THE COMPANY
The Company and Its Shares
The Company is a no-load, open-end diversified investment company. The Company
was initially organized as a Massachusetts business trust pursuant to an
Agreement and Declaration of Trust dated October 31, 1984, but had no operations
prior to May 9, 1985. On July 31, 1989, the Company was reorganized from a
Massachusetts business trust into a Maryland corporation, pursuant to an
Agreement and Plan of Reorganization approved by the shareholders on July 31,
1989. The shares of the Company are divided into three portfolios constituting
separate portfolios of investments, with various investment objectives and
policies (the "Portfolios") and, in turn, two of the Company's Portfolios are
divided into classes (each such class is referred to herein as a "Fund" and
collectively as the "Funds"):
Bradford U.S. Government Fund
Bradford 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);
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.
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The assets received by the Company for the issue or sale of shares of each
Portfolio and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of creditors, are allocated to that Portfolio, and
constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio are segregated and are charged with the expenses with respect to
that Portfolio and with a share of the general expenses of the Company as
described below under "Expenses." While the expenses of the Company are
allocated to the separate books of account of each Portfolio, certain expenses
may be legally chargeable against the assets of all three Portfolios. Also,
certain expenses may be allocated to a particular class of a Portfolio. See
"Expenses."
The Articles of Incorporation provide that to the fullest extent that
limitations on the liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of the Company shall
have any liability to the Company or to its shareholders for damages.
The Articles of Incorporation further provide that the Company shall indemnify
and advance expenses to its currently acting and its former directors to the
fullest extent that indemnification of directors is permitted by the Maryland
General Corporation Law; that the Company shall indemnify and advance expenses
to its officers to the same extent as its directors and to such further extent
as is consistent with law and that the Board of Directors may through By-law,
resolution or agreement make further provisions for indemnification of
directors, officers, employees and agents to the fullest extent permitted by the
Maryland General Corporation Law. However, nothing in the Articles of
Incorporation protects any director or officer of the Company against any
liability to the Company or to its shareholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
As described in each Prospectus, the Company will not normally hold annual
shareholders' meetings. Under Maryland law and the Company's By-laws, an annual
meeting is not required to be held in any year in which the election of
directors is not required to be acted upon under the 1940 Act. At such time as
less than a majority of the directors have been elected by the shareholders, the
directors then in office will call a shareholders' meeting for the election of
directors.
Except as otherwise disclosed in each Prospectus and in this Statement of
Additional Information, the directors shall continue to hold office and may
appoint their successors.
Directors and Officers
The directors and executive officers of the Company and their principal
occupations during the last five years are set forth below. Unless otherwise
noted, the address of each director and officer is 600 Fifth Avenue, New York,
New York 10020.
Steven W. Duff, 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 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
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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
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 of the
Reich & Tang Mutual Funds Division of the Manager since September 1993. Ms. Finn
was formerly Vice President and Assistant Secretary of Reich & Tang, Inc. which
she was associated with from September 1970 to September 1993. Ms. Finn is also
Secretary of AEW Commercial Mortgage Securities Fund, 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.
Compensation Table
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Name of Person, Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation from
Position from Registrant for Benefits Accrued as Benefits upon Fund and Fund Complex
Fiscal Year Part of Fund Expenses Retirement Paid to Directors*
Owen Daly II, $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 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.
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MANAGER AND 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 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 April 30, 1997 investment manager, advisor or supervisor with
respect to assets aggregating in excess of $9 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 $142.2 billion at
March 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 $1.2 trillion at March 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 43 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
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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 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:
Fiscal Year Management Fees
1995 Payable Waived Paid
---- ------- ------ ----
Cortland General $7,188,114 $124,695 $7,063,419
U.S. Government 1,704,092 17,8740 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 $10,885,1582
U.S. Government 1,851,957 50,000 1,801,957
Municipal 1,698,486 0 1,698,486
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, 1996 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
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willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
The Company's (Portfolios') right to use the name "Cortland" in its name in any
form or combination may terminate upon termination of the Manager as the
Company's (Portfolios') investment manager.
The Manager also serves as the Portfolios' investment advisor. The Manager was
at April 30, 1997 investment manager, advisor or supervisor with respect to
assets aggregating approximately $9 billion. In addition to the Portfolios, the
Manager acts as investment manager or administrator of fifteen other investment
companies and also advises pension trusts, profit sharing trusts and endowments.
Pursuant to the terms of the Management/Investment Advisory Agreements, the
Manager: (a) provides the Company with certain executive, administrative and
clerical services as are deemed advisable by the Board of Directors; (b)
arranges, but does not pay for, the periodic updating of prospectuses and
statements of additional information and supplements thereto, proxy materials,
tax returns, reports to each Portfolio's shareholders and reports to and filings
with the SEC and state Blue Sky authorities; (c) provides the Board of Directors
on a regular basis with financial reports and analyses of the Portfolios'
operations and the operation of comparable investment companies; (d) obtains and
evaluates pertinent information about significant developments and economic,
statistical and financial data, domestic, foreign or otherwise, whether
affecting the economy generally or any of the Portfolios and whether concerning
the 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
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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.
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 July 18, 1997, the Distributor entered into a Primary Dealer Agreement with
J.C. Bradford & Co. LLC ("J.C.Bradford") 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 J.C. Bradford) 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. J.C. Bradford 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 J.C. Bradford 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 Funds during the term of any Shareholder Service
Agreement. 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 J.C. Bradford and/or
Shareholder Service Agents out of the investment management fees received by the
Manager from each of the Funds, out of its past profits or from any other source
available to the Distributor.
The fees payable to Shareholder Service Agents under Shareholder Service
Agreements are negotiated by the Distributor. The Distributor will report
quarterly to the Board of Directors on the rate to be paid under each such
agreement and the amounts paid or payable under such agreements. The rate of
payment will be based upon the Distributor's analysis of: (1) the contribution
that the Shareholder Service Agent makes to each of the Portfolios by increasing
assets under management and reducing expense ratios; (2) the nature, quality and
scope of services being provided by the Shareholder Service Agent; (3) the cost
to the Company if shareholder services were provided directly by the Company or
other authorized persons; (4) the costs incurred by the Shareholder Service
Agent in connection with providing services to shareholders; and (5) the need to
respond to competitive offers of others, which could result in assets being
withdrawn from a Portfolio and an increase in the expense ratio for any of the
Portfolios.
The Distribution Agreements for each of the Funds were last approved by the
Board of Directors on June 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
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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, J.C. Bradford
and the Shareholder Service Agents, (2) the value of all benefits received by
the Manager, (3) the overhead expenses incurred by the Manager attributable to
services provided to the Company's shareholders, and (4) expenses of the Company
being assumed by the Manager.
In connection with the approval of the Plans, the Board of Directors also
determined that the Portfolios would be expected to receive at least the
following benefits:
1) The Distributor and Shareholder Service Agents will furnish rapid access by
a shareholder to his Portfolio account for the purpose of effecting
executions of purchase and redemption orders.
2) The Distributor and Shareholder Service Agents will provide prompt,
efficient and reliable responses to inquiries of a shareholder concerning
his account status.
3) The Company's ability to sustain a relatively predictable flow of cash for
investment purposes and to meet redemptions facilitates more successful,
efficient portfolio management and the achievement of each of the
Portfolios' fundamental policies and objectives of providing stability of
principal, liquidity, and, consistent with the foregoing, the highest
possible current income, is enhanced by a stable network of distribution.
4) A successful distribution effort will assist the Manager in maintaining and
increasing the organizational strength needed to serve the Company.
5) The establishment of an orderly system for processing sales and redemptions
is also important to the Company's goal of maintaining the constant net
asset value of each Portfolio's shares, which most shareholders depend
upon. By identifying potential investors whose needs are served by the
objectives of the Portfolio, a well-developed, dependable network of
Shareholder Service Agents may help to curb sharp fluctuations in rates of
redemptions and sales, thereby reducing the chance that an unanticipated
increase in net redemptions could adversely affect the ability of the
Portfolios to stabilize their net asset values per share.
6) The Company expects to share in the benefits of growth in the Portfolios'
net assets by achieving certain economies of scale based on a reduction in
the management fees, although the Manager will receive a larger fee if net
assets grow.
The Plans will only make payments for expenses actually incurred by the
Distributor. The Plans will not carry over expenses from year to year and if a
Plan is terminated in accordance with its terms, the obligations of a Portfolio
to make payments to the Distributor pursuant to the Plan will cease and the
Portfolio will not be required to make any payments past the date the Plan
terminates.
The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit federally chartered or supervised banks from engaging in the business
of underwriting, selling or distributing securities. Accordingly, the
Distributor will engage banks as shareholder service agents only to perform
administrative and shareholder servicing functions. While the matter is not free
from doubt, the management of the Company believes that such laws should not
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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
Reich & Tang Services L.P., an affiliate of the Manager, acts as transfer agent
with respect to the Funds. All costs associated with performing such services
are borne by the Manager.
Sub-Accounting
The Manager, at its expense, will provide sub-accounting services to all
shareholders and maintain information with respect to underlying owners.
Principal Holders of Securities
On April 30, 1997 there were 2,005,073,814 shares of the Portfolios outstanding.
As of April 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
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," "Redemption of Shares," and "Exchange Privilege."
The possibility that shareholders who maintain accounts of less than $250 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.
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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.
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.
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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 the form of additional full and fractional
shares of each Portfolio at net asset value. A shareholder may elect to have the
aggregate dividends declared and paid monthly to him by check.
Tax Matters
The following is only a summary of certain additional tax considerations
generally affecting the Portfolios and their shareholders that are not described
in the Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of each Portfolio or its shareholders, and the discussions here
and in the Prospectus are not intended as substitutes for careful tax planning.
Qualification as a Regulated Investment Company
Each Portfolio has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, each Portfolio is not subject to federal income
tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) and at least 90% of
its tax-exempt income (net of expenses allocable thereto) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by a Portfolio made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated investment
company must: (1) derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (the "Income Requirement"); and (2) derive less than 30% of its gross
income (exclusive of certain gains on designated hedging transactions that are
offset by realized or unrealized losses on offsetting positions) from the sale
or other disposition of stock, securities or foreign currencies (or options,
futures or forward contracts thereon) held for less than three months (the
"Short-Short Gain Test"). For purposes of these calculations, gross income of
the Municipal Money Market Portfolio includes tax-exempt income. However,
foreign currency gains, including those derived from options, futures and
forwards, will not in any event be characterized as Short-Short Gain if they are
directly related to the regulated investment company's investments in stock or
securities (or options or futures thereon). Because of the Short-Short Gain
Test, a Portfolio may have to limit the sale of appreciated securities that it
has held for less than three months. However, the Short-Short Gain Test will not
prevent a Portfolio from disposing of investments at a loss, since the
recognition of a loss before the expiration of the three-month holding period is
disregarded for this purpose. Interest (including original issue discount)
received by a Portfolio at maturity or upon the disposition of a security held
for less than three months will not be treated as gross income derived from the
sale or other disposition of such security within the meaning of the Short-Short
Gain Test. However, income that is attributable to realized market appreciation
will be treated as gross income from the sale or other disposition of securities
for this purpose.
In general, gain or loss recognized by a Portfolio on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including municipal obligations) purchased by
a Portfolio at a market discount (generally, at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of the
market discount which accrued during the period of time the Portfolio held the
debt obligation.
Treasury Regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) for any taxable year,
to elect (unless it has made a taxable year election for excise tax purposes as
discussed below) to treat all or any part
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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
which the Portfolio has not invested more than 5% of the value of the
Portfolio's total assets in securities of such issuer and as to which the
Portfolio does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two or
more issuers which the Portfolio controls and which are engaged in the same or
similar trades or businesses. For purposes of asset diversification testing,
obligations issued or guaranteed by agencies or instrumentalities of the U.S.
Government such as the Federal Agricultural Mortgage Corporation, the Farm
Credit System Financial Assistance Corporation, a Federal Home Loan Bank, the
Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association, the Government National Mortgage Corporation, and the Student Loan
Marketing Association are treated as U.S. Government securities.
If for any taxable year a Portfolio does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Portfolio's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to at least the sum of
98% of ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or, at
the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
(Tax-exempt interest on municipal obligations is not subject to the excise tax.)
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1) reduce
its capital gain net income (but not below its net capital gain) by the amount
of any net ordinary loss for the calendar year; and (2) exclude foreign currency
gains and losses incurred after October 31 of any year (or after the end of its
taxable year if it has made a taxable year election) in determining the amount
of ordinary taxable income for the current calendar year (and, instead, include
such gains and losses in determining ordinary taxable income for the succeeding
calendar year).
Each Portfolio intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that a Portfolio may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.
Portfolio Distributions
Each Portfolio anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they will not qualify for the 70% dividends-received deduction
for corporate shareholders.
Each Portfolio may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Portfolio currently intends to distribute any
such amounts. If net capital gain is distributed and designated as a capital
gain dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Portfolio prior to the date on which the
shareholder acquired his shares.
Conversely, if a Portfolio elects to retain its net capital gain, the Portfolio
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If a Portfolio elects to retain its
net capital gain, it is expected that the Portfolio also will elect to have
shareholders of record on the last day of its taxable year treated as if each
received a distribution of his pro rata share of such gain, with the result that
each shareholder will be required to report his pro rata share of such gain on
his tax return as long-term capital gain, will receive a refundable tax credit
for his pro rata share of tax paid by the Portfolio on the gain, and will
increase the tax basis for his shares by an amount equal to the deemed
distribution less the tax credit.
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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 a federal
income tax return will be required to report the receipt of exempt-interest
dividends on their returns. Moreover, while exempt-interest dividends are
excluded from gross income for federal income tax purposes, they may be subject
to alternative minimum tax ("AMT") in certain circumstances and may have other
collateral tax consequences as discussed below. Distributions by the Municipal
Money Market Portfolio of any investment company taxable income or of any net
capital gain will be taxable to shareholders as discussed above.
AMT is imposed in addition to, but only to the extent it exceeds, the regular
tax and is computed at a maximum marginal rate of 28% for noncorporate taxpayers
and 20% for corporate taxpayers on the excess of the taxpayer's alternative
minimum taxable income ("AMTI") over an exemption amount. In addition, under the
Superfund Amendments and Reauthorization Act of 1986, a tax is imposed for
taxable years beginning after 1986 and before 1996 at the rate of 0.12% on the
excess of a corporate taxpayer's AMTI (determined without regard to the
deduction for this tax and the AMT net operating loss deduction) over $2
million. Exempt-interest dividends derived from certain "private activity"
municipal obligations issued after August 7, 1986 will generally constitute an
item of tax preference includable in AMTI for both corporate and noncorporate
taxpayers. In addition, exempt-interest dividends derived from all municipal
obligations, regardless of the date of issue, must be included in adjusted
current earnings, which are used in computing an additional corporate preference
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMT net
operating loss deduction)) includable in AMTI.
Exempt-interest dividends must be taken into account in computing the portion,
if any, of social security or railroad retirement benefits that must be included
in an individual shareholder's gross income and subject to federal income tax.
Further, a shareholder of the Municipal Money Market Portfolio is denied a
deduction for interest on indebtedness incurred or continued to purchase or
carry shares of the Municipal Money Market Portfolio. Moreover, a shareholder
who is (or is related to) a "substantial user" of a facility financed by
industrial development bonds held by the Municipal Money Market Portfolio will
likely be subject to tax on dividends paid by the Municipal Money Market
Portfolio which are derived from interest on such bonds. Receipt of
exempt-interest dividends may result in other collateral federal income tax
consequences to certain taxpayers, including financial institutions, property
and casualty insurance companies and foreign corporations engaged in a trade or
business in the United States. Prospective investors should consult their own
tax advisers as to such consequences.
Investment income that may be received by the Cortland General Money Market
Portfolio from sources within foreign countries may be subject to foreign taxes
withheld at the source. The United States has entered into tax treaties with
many foreign countries which entitle the Cortland General Money Market Portfolio
to a reduced rate of, or exemption from, taxes on such income. It is impossible
to determine the effective rate of foreign tax in advance since the amount of
the Cortland General Money Market Portfolio's assets to be invested in various
countries is not known.
Distributions by a Portfolio that do not constitute ordinary income dividends,
exempt-interest dividends or capital gain dividends will be treated as a return
of capital to the extent of (and in reduction of) the shareholder's tax basis in
his shares; any excess will be treated as gain from the sale of his shares, as
discussed below.
Distributions by a Portfolio will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Portfolio (or of another fund). Shareholders receiving
a distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of the Portfolio reflects undistributed
net investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Portfolio, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by a Portfolio into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Portfolio) on December
31 of such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
Each Portfolio will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has
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provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Portfolio that it is not subject to backup withholding or that it
is a corporation or other "exempt recipient."
Sale or Redemption of Portfolio Shares
Each Portfolio seeks to maintain a stable net asset value of $1.00 per share;
however, there can be no assurance that the Portfolios will do this. In such a
case, a shareholder will recognize gain or loss on the sale or redemption of
shares of a Portfolio in an amount equal to the difference between the proceeds
of the sale or redemption and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of a Portfolio within 30 days before or after
the sale or redemption. In general, any gain or loss arising from (or treated as
arising from) the sale or redemption of shares of a Portfolio will be considered
capital gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. However, any capital loss arising from the
sale or redemption of shares held for six months or less will be disallowed to
the extent of the amount of exempt-interest dividends received on such shares
and (to the extent not disallowed) will be treated as a long-term capital loss
to the extent of the amount of capital gain dividends received on such shares.
For this purpose, the special holding period rules of Code Section 246(c)(3) and
(4) generally will apply in determining the holding period of shares. Long-term
capital gains of noncorporate taxpayers are currently taxed at a maximum rate
11.6% lower than the maximum rate applicable to ordinary income. Capital losses
in any year are deductible only to the extent of capital gains plus, in the case
of a noncorporate taxpayer, $3,000 of ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from a Portfolio is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Portfolio is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends paid to
a foreign shareholder will be subject to U.S. withholding tax at the rate of 30%
(or lower treaty rate) upon the gross amount of the dividend. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of a Portfolio, capital gain dividends and
exempt-interest dividends and amounts retained by the Portfolio that are
designated as undistributed capital gains.
If the income from a Portfolio is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Portfolio will be subject to U.S. federal income tax at the rates applicable to
U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Portfolio may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Portfolio with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Portfolio, including
the applicability of foreign taxes.
Effect of Future Legislation and Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends, exempt-interest
dividends and capital gain dividends from regulated investment companies often
differ from the rules for U.S. federal income taxation described above.
Shareholders are urged to consult their tax advisers as to the consequences of
these and other state and local tax rules affecting investment in a Portfolio.
YIELD INFORMATION
The yield for each Portfolio can be obtained by calling your securities dealer
or the Distributor at (212) 830-5280 if calling from New Jersey, Alaska or
Hawaii, or by calling toll free at (800) 433-1918 if calling from elsewhere in
the continental U.S. Quotations of yield on the Portfolios may also appear from
time to time in the financial press and in advertisements.
The current yields quoted will be the net average annualized yield for an
identified period, usually seven consecutive calendar days. Yield for a
Portfolio will be computed by assuming that an account was established with a
single share of such Portfolio (the "Single Share Account") on the first day of
the period. To arrive at the quoted yield, the net change in the value of that
Single Share Account for the period (which would include dividends accrued with
respect to
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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 Municipal
Securities, as defined in the Prospectus under the aforementioned captions may
cease to be rated, or its rating may be reduced below the minimum required for
purchase by the Portfolios. Neither event requires the elimination of such
obligation from a Portfolio's portfolio, but the Manager will consider such an
event to be relevant in its determination of whether the Portfolio should
continue to hold such obligation in its portfolio. To the extent that the
ratings accorded by a nationally recognized statistical rating organization
("NRSRO") for Money Market Obligations or Municipal Securities may change as a
result of changes in these rating systems, the Company will attempt to use
comparable ratings as standards for its investments in Money Market Obligations
and Municipal Securities in accordance with the investment policies contained
herein.
The Municipal Money Market Fund may, from time to time, on a temporary or
defensive basis, invest in U.S. Government Obligations, Money Market Obligations
and repurchase agreements. The Municipal Money Market Fund may invest in these
temporary investments, for example, due to market conditions or pending
investment of proceeds from sales of shares or proceeds from the sale of
portfolio securities or in anticipation of redemptions. Although interest earned
from such temporary investments will be taxable as ordinary income, the
Municipal Money Market Fund intends to minimize taxable income through
investment, when possible, in short-term tax-exempt securities, which may
include shares of investment companies whose dividends are tax-exempt. (See
"Investment Programs and Restrictions - Investment Restrictions" for limitations
on the Municipal Money Market Fund's investment in repurchase agreements and
shares of other investment companies.) It is a fundamental policy of the
Municipal Money Market Fund that the Municipal Money Market Fund's assets will
be invested so that at least 80% of the Municipal Money Market Fund's income
will be exempt from federal income taxes. However, there is no limitation on the
percentage of such income which may constitute an item of tax preference and
which may therefore give use to an alternative minimum tax liability for
individual shareholders. The Municipal Money Market Fund may hold cash reserves
pending the investment of such reserves in Municipal Securities or short-term
tax-exempt securities.
The investment objectives and policies of the Company are "fundamental" only
where noted. Fundamental policies may only be changed by a vote of the majority
of the outstanding shares of the affected Portfolios. (See "General Information
About the Company - The Company and its Shares.") There can be no assurance that
the Portfolios' objectives will be achieved.
The following is a more detailed description of the portfolio instruments
eligible for purchase by the Company's two Portfolios which augments the
summary of each Portfolio's investment program which appears in the Prospectus
under
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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 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 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 the two
Portfolios:
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1) Repurchase Agreements under which the purchaser (for example, one of the
Portfolios) acquires ownership of an obligation (e.g., a debt instrument or
time deposit) and the seller agrees, at the time of the sale, to repurchase
the obligation at a mutually agreed upon time and price, thereby
determining the yield during the purchaser's holding period. This
arrangement results in a fixed rate of return insulated from market
fluctuations during such period. Although the underlying collateral for
repurchase agreements may have maturities exceeding one year, a Portfolio
will not enter into a repurchase agreement if as a result of such
transaction more than 10% of a Portfolio's total assets would be invested
in illiquid securities, including repurchase agreements expiring in more
than seven days. A Portfolio may, however, enter into a "continuing
contract" or "open" repurchase agreement under which the seller is under a
continuing obligation to repurchase the underlying obligation from the
Portfolio on demand and the effective interest rate is negotiated on a
daily basis. In general, the Portfolios will enter into repurchase
agreements only with domestic banks with total assets of at least $1.5
billion or with primary dealers in U.S. Government securities, but total
assets will not be the sole determinative factor, and the Portfolios may
enter into repurchase agreements with other institutions which the Board of
Directors believes present minimal credit risks. Nevertheless, if the
seller of a repurchase agreement fails to repurchase the debt instrument in
accordance with the terms of the agreement, the Portfolio which entered
into the repurchase agreement may incur a loss to the extent that the
proceeds it realizes on the sale of the underlying obligation are less than
the repurchase price. Repurchase agreements are considered to be loans by
the Company under the 1940 Act.
2) Reverse Repurchase Agreements involving the sale of money market
instruments held by a Portfolio, with an agreement that the Portfolio will
repurchase the instruments at an agreed upon price and date. A Portfolio
will employ reverse repurchase agreements when necessary to meet
unanticipated net redemptions so as to avoid liquidating other money market
instruments during unfavorable market conditions, or in some cases as a
technique to enhance income, and only in amounts up to 10% of the value of
a Portfolio's total assets at the time it enters into a reverse repurchase
agreement. At the time it enters into a reverse repurchase agreement, the
Portfolio will place in a segregated custodial account high-quality debt
securities having a dollar value equal to the repurchase price. A Portfolio
will utilize reverse repurchase agreements when the interest income to be
earned from portfolio investments which would otherwise have to be
liquidated to meet redemptions is greater than the interest expense
incurred as a result of the reverse repurchase transactions.
3) Delayed Delivery Agreements involving commitments by a Portfolio to dealers
or issuers to acquire securities or instruments at a specified future date
beyond the customary same-day settlement for money market instruments.
These commitments may fix the payment price and interest rate to be
received on the investment. Delayed delivery agreements will not be used as
a speculative or leverage technique. Rather, from time to time, the Manager
can anticipate that cash for investment purposes will result from scheduled
maturities of existing portfolio instruments or from net sales of shares of
the Portfolio. To assure that a Portfolio will be as fully invested as
possible in instruments meeting that Portfolio's investment objective, a
Portfolio may enter into delayed delivery agreements, but only to the
extent of anticipated funds available for investment during a period of not
more than five business days. Until the settlement date, that Portfolio
will set aside in a segregated account high-quality debt securities of a
dollar value sufficient at all times to make payment for the delayed
delivery securities. Not more than 25% of a Portfolio's total assets will
be committed to delayed delivery agreements and when-issued securities, as
described below. The delayed delivery securities, which will not begin to
accrue interest until the settlement date, will be recorded as an asset of
the Portfolio and will be subject to the risks of market fluctuation. The
purchase price of the delayed delivery 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 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
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Agreement. The special custody account will likewise be marked-to-market, and
the amount in the special custody account will be increased if necessary to
maintain adequate coverage of the when-issued commitments.
Securities purchased on a when-issued basis and the securities held in a
Portfolio's portfolio are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and changes in the
level of interest rates (which will generally result in all of those securities
changing in value in the same way, i.e., all those securities experiencing
appreciation when interest rates rise). Therefore, if, in order to achieve
higher interest income, a Portfolio is to remain substantially fully invested at
the same time that it has purchased securities on a when-issued basis, there
will be a possibility that the market value of such Portfolio's assets will
fluctuate to a greater degree. Furthermore, when the time comes for such
Portfolio to meet its obligations under when-issued commitments, the Portfolio
will do so by using then-available cash flow, by sale of the securities held in
the separate account, by sale of other securities or, although it would not
normally expect to do so, by directing the sale of the when-issued securities
themselves (which may have a market value greater or less than the Portfolio's
payment obligation).
A sale of securities to meet such obligations carries with it a greater
potential for the realization of net short-term capital gains, which are not
exempt from federal income taxes. The value of when-issued securities on the
settlement date may be more or less than the purchase price.
Stand-by Commitments
The Municipal Money Market Fund may attempt to improve its portfolio liquidity
by assuring same-day settlements on portfolio sales (and thus facilitate the
same-day payment of redemption proceeds) through the acquisition of "Stand-by
Commitments." A Stand-by Commitment is a right of the Municipal Money Market
Fund, when it purchases Municipal Securities for its portfolio from a broker,
dealer or other financial institution, to sell the same principal amount of such
securities back to the seller, at the Municipal Money Market Fund's option, at a
specified price. The Municipal Money Market Fund will acquire Stand-by
Commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes, and the acquisition or
exercisability of a Stand-by Commitment will not affect the valuation of its
underlying portfolio securities, which will continue to be valued in accordance
with the method described under "Share Purchases and Redemptions - Net Asset
Value Determination." The weighted average maturity of the Municipal Money
Market Fund's portfolio will not be affected by the acquisition of a Stand-by
Commitment.
The Stand-by Commitments acquired by the Municipal Money Market Fund will
generally have the following features: (1) they will be in writing and will be
physically held by the Municipal Money Market Fund's custodian; (2) they may be
exercised by the Municipal Money Market Fund at any time prior to the underlying
security's maturity; (3) they will be entered into only with dealers, banks and
broker-dealers who in the Manager's opinion present a minimal risk of default;
(4) the Municipal Money Market Fund's right to exercise them will be
unconditional and unqualified; (5) although the Stand-by Commitments will not be
transferable, Municipal Securities purchased subject to such commitments could
be sold to a third party at any time, even though the commitment was
outstanding; and (6) their exercise price will be (i) the Municipal Money Market
Fund's acquisition cost of the Municipal Securities which are subject to the
commitment (excluding any accrued interest which the Municipal Money Market Fund
paid on their acquisition), less any amortized market premium or plus amortized
market or original issue discount during the period the securities were owned by
the Municipal Money Market Fund, plus (ii) all interest accrued on the
securities since the last interest payment date. Since the Municipal Money
Market Fund values its portfolio securities on the amortized cost basis, the
amount payable under a Stand-by Commitment will be substantially the same as the
value of the underlying security.
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.
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Municipal Participations
The Municipal Money Market Fund may invest in participation agreements with
respect to Municipal Securities under which the Municipal Money Market Fund
acquires an undivided interest in the Municipal Security and pays a bank which
sells the participation a servicing fee. The participation agreement will have a
variable rate of interest and may be terminated by the Municipal Money Market
Fund on seven days' notice, in which event such Fund receives from the issuer of
the participation the par value of the participation plus accrued interest as of
the date of termination. Before entering into purchases of participation the
Company will obtain an opinion of counsel (generally, counsel to the issuer of
the participation) or a letter ruling from the Internal Revenue Service to the
effect that interest earned with respect to municipal participation qualifies as
exempt-interest income under the Code. The Company has been advised that it is
the present policy of the Internal Revenue Service not to issue private letter
rulings relating to municipal participation. In the absence of an opinion of
counsel or a letter ruling from the Internal Revenue Service, the Municipal
Money Market Fund will refrain from investing in participation agreements.
Investment Restrictions
The most significant investment restrictions applicable to the Company's
investment programs are set forth in the Prospectus under the caption "Three
Investment Programs Investment Restrictions". Additionally, as a matter of
fundamental policy which may not be changed without a majority vote of
shareholders (as that term is defined in the Prospectus under the caption
"General Information - Organization of the Trust and Description of Shares"),
none of the Portfolios will:
1) purchase any 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.
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.
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PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Company, broker-dealer selection and negotiation of commission rates. Since
purchases and sales of portfolio securities by the Company are usually principal
transactions, the Portfolios incur little or no brokerage commissions. Portfolio
securities are normally purchased directly from the issuer or from a market
maker for the securities. The purchase price paid to dealers serving as market
makers may include a spread between the bid and asked prices. The Company may
also purchase securities from underwriters at prices which include a commission
paid by the issuer to the underwriter.
The Company does not seek to profit from short-term trading, and will generally
(but not always) hold portfolio securities to maturity. However, the Manager may
seek to enhance the yield of the Portfolios by taking advantage of yield
disparities or other factors that occur in the money market. For example, market
conditions frequently result in similar securities trading at different prices.
The Manager may dispose of any portfolio security prior to its maturity if such
disposition and reinvestment of proceeds are expected to enhance yield
consistent with the Manager's judgment as to desirable portfolio maturity
structure or if such disposition is believed to be advisable due to other
circumstances or conditions. Each Portfolio is required to maintain an average
weighted portfolio maturity of 90 days or less and purchase only instruments
having remaining maturities of 13 months or less. Both may result in relatively
high portfolio turnover, but since brokerage commissions are not normally paid
on U.S. Government Obligations, Agencies, Money Market Obligations and Municipal
Securities, the high rate of portfolio turnover is not expected to have a
material effect on the Portfolios' net income or expenses.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed to be in
the best interest of shareholders of the Company rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price.
The Manager and its affiliates manage several other investment accounts, some of
which may have objectives similar to the Portfolios'. It is possible that at
times, identical securities will be acceptable for one or more of such
investment accounts. However, the position of each account in the securities of
the same issue may vary and the length of time that each account may choose to
hold its investment in the securities of the same issue may likewise vary. The
timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities consistent with the
investment policies of the Portfolios and one or more of these accounts is
considered at or about the same time, transactions in such securities will be
allocated in good faith among the Portfolios and such accounts in a manner
deemed equitable by the Manager. The Manager may combine such transactions, in
accordance with applicable laws and regulations, in order to obtain the best net
price and most favorable execution. The allocation and combination of
simultaneous securities purchases on behalf of the three Portfolios will be made
in the same way that such purchases are allocated among or combined with those
of other Reich & Tang accounts. Simultaneous transactions could adversely affect
the ability of a Portfolio to obtain or dispose of the full amount of a security
which it seeks to purchase or sell.
Provisions of the 1940 Act and rules and regulations thereunder have also been
construed to prohibit the Portfolios' purchasing securities or instruments from
or selling securities or instruments to, any holder of 5% or more of the voting
securities of any investment company managed by the Manager. The Portfolios have
obtained an order of exemption from the SEC which would permit the Portfolios to
engage in transactions with such a 5% holder, if the 5% holder is one of the 50
largest U.S. banks measured by deposits. Purchases from these 5% holders will be
subject to quarterly 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.
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INVESTMENT RATINGS
The following is a description of the two highest commercial paper, bond,
municipal bond and other short- and long-term categories assigned by Standard &
Poor's 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 generally referred to as "gilt edge."
Bonds Rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger. Moody's applies numerical modifiers 1, 2
and 3 in the Aa rating category. The modifier 1 indicates a ranking for the
security in the higher end of this rating category, the modifier 2 indicates a
mid-range ranking, and the modifier 3 indicates a ranking in the lower end of
the rating category.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions and
are liable to but slight market fluctuation other than through changes in the
money rate. The prime feature of an AAA bond is a showing of earnings several
times or many times interest requirements, with such stability of applicable
earnings that safety is beyond reasonable question whatever changes occur in
conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety
virtually beyond question and are readily salable, whose merits are not unlike
those of the AAA class, but whose margin of safety is less strikingly broad. The
issue may be the obligation of a small company, strongly secured but influenced
as to rating by the lesser financial power of the enterprise and more local type
market.
Bonds rated Duff-1 are judged by Duff to be of the highest credit quality with
negligible risk factors; only slightly more than U.S. Treasury debt. Bonds rated
Duff-2, 3 and 4 are judged by Duff to be of high credit quality with strong
protection factors. Risk is modest but may vary slightly from time to time
because of economic conditions.
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Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA by IBCA. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in business,
economic or financial conditions may increase investment risk albeit not very
significantly.
Municipal Bond Ratings
S&P's Municipal Bond Ratings cover obligations of states and political
subdivisions. Ratings are assigned to general obligation and revenue bonds.
General obligation bonds are usually secured by all resources available to the
municipality and the factors outlined in the rating definitions below are
weighed in determining the rating. Because revenue bonds in general are payable
from specifically pledged revenues, the essential element in the security for a
revenue bond is the quantity of the pledged revenues available to pay debt
service.
Although an appraisal of most of the same factors that bear on the quality of
general obligation bond credit is usually appropriate in the rating analysis of
a revenue bond, other facts are also important, including particularly the
competitive position of the municipal enterprise under review and the basic
security covenants. Although a rating reflects S&P's judgment as to the issuer's
capacity for the timely payment of debt service, in certain circumstances it may
also reflect a mechanism or procedure for an assured and prompt cure of a
default, should one occur, i.e., an insurance program, federal or state
guaranty, or the automatic withholding and use of state aid to pay the default
debt service.
AAA
These are obligations of the highest quality. They have the strongest capacity
for timely payment of debt service.
General Obligation Bonds - In a period of economic stress, the issuers will
suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.
Revenue Bonds - Debt service coverage has been, and is expected to remain,
substantial. Stability of the pledged revenues is also exceptionally strong, due
to the competitive position of the municipal enterprise or to the nature of the
revenues. Basic security provisions (including rate covenants, earning tests for
issuance of additional bonds, and debt service reserve requirements) are
rigorous. There is evidence of superior management.
AA
The investment characteristics of general obligation and revenue bonds in this
group are only slightly less marked than those of the AAA category. Bonds rated
"AA" have the second strongest capacity for payment of debt service.
S&P's bond letter ratings may be modified by the addition of a plus (+) or a
minus (-) sign which designates a bond's relative quality within the major
rating categories, except in the AAA category.
S&P Tax-Exempt Demand Bonds Ratings
S&P assigns "dual" ratings to all long-term debt issues that have as part of
their provisions a demand feature.
The first rating addresses the likelihood of repayment of principal and interest
as due, and the second rating addresses only the demand feature. The long-term
debt rating symbols are used for bonds to denote the long-term maturity, and the
commercial paper rating symbols are used to denote the put option (e.g.,
"AAA/A-1+").
Moody's Municipal Bond Ratings
Aaa
Bonds which are judged to be of the highest quality are rated "Aaa." They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be anticipated are most unlikely to impair
the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as "high
grade" bonds. They are rated lower than the Aaa bonds because margins of
protection may not be as large as the Aaa securities or the fluctuation of
protective elements may be of greater amplitude, or other elements may be
present which make the long-term risks appear somewhat larger than in Aaa
securities.
Moody's State and Municipal Short-Term Ratings
Moody's assigns state and municipal notes, as well as other short-term
obligations, a Moody's Investment Grade ("MIG") rating. Factors affecting the
liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in evaluating bond
risk may be less important over the short run.
23
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MIG 1
Notes bearing this designation are of the best quality. The notes enjoy strong
"protection" by established cash flows, superior liquidity support or a
demonstrated broad-based access to the market for refinancing.
MIG 2
Notes bearing this designation are of high quality. Margins of protection are
ample although not as large as in the preceding group.
Moody's Tax-Exempt Demand Ratings
Moody's assigns issues which have demand features (i.e., variable rate demand
obligations) a VMIG symbol. This symbol reflects such characteristics as payment
upon periodic demand rather than fixed maturity, and payment relying on external
liquidity. The VMIG rating is modified by the numbers 1, 2 or 3. VMIG1
represents the best quality in the VMIG category and VMIG2 represents high
quality.
International and U.S. Bank Ratings
An IBCA bank rating represents IBCA's current assessment of the strength of the
bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent IBCA's assessment of a
bank's economic merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support from state
authorities or its owners.
24
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PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(A) Not Applicable
(B) Exhibits
(1) Articles of Incorporation of Registrant [filed as an Exhibit to
Post-Effective Amendment No. 7 on June 29, 1989 and is hereby
incorporated by reference].
(2) By Laws of Registrant [filed as an Exhibit to Post-Effective
Amendment No. 7 on June 29, 1989 and is hereby incorporated by
reference].
(3) None.
(4) None.
(5) Management/Investment Advisory Agreements between the Registrant
and Reich & Tang Asset Management L.P. [filed as an Exhibit to
Post-Effective Amendment No. 16 on August 1, 1994 and is hereby
incorporated by reference].
(6) Form of Distribution Agreements between the Registrant and Reich
& Tang Distributors L.P. [filed as an Exhibit to Post-Effective
Amendment No. 16 on August 1, 1994 and is hereby incorporated by
reference].
(7) None.
(8) Custodian Agreement between Registrant and Investors Fiduciary
Trust Company [filed as an Exhibit to Post-Effective Amendment
No. 7 on June 29, 1989 and is hereby incorporated by reference].
(9) Transfer Agency Agreement between Registrant and The Shareholder
Services Group, Inc.
(10) Opinion and Consent of Messrs. Spengler Carlson Gubar Brodsky &
Frischling [filed as an Exhibit to Post-Effective Amendment No. 7
on June 29, 1989 and is hereby incorporated by reference].
(11) (a) Consent of Ernst & Young LLP filed herewith.
(b) Consent of Messrs. Kramer, Levin, Naftalis & Frankel filed
herewith.
(c) Opinion of Counsel to the effect that shares of the U.S.
Government Fund are permissible investment for federal
credit unions [filed as an Exhibit to Post-Effective
Amendment No. 6 on July 29, 1988 and is hereby incorporated
by reference].
(d) Opinion of Counsel to the effect that the Tax-Free Money
Market Fund will be considered the owner of Municipal
Securities subject to Stand-by Commitments for federal
income tax purposes [filed as an Exhibit to Pre-Effective
Amendment No. 2 on May 31, 1985 and is hereby incorporated
by reference].
(12) None.
C-1
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(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].
(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
herewith.
(g) Form of Primary Dealer Agreement (Bradford Shares) filed
herewith.
(16) None.
(17) None.
(18) Form of Rule 18f-3 Multi-Class Plan, as amended for Bradford
Shares filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant
No such persons.
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Item 26. Number of Holders of Securities
Number of Record Holders
Title/Class As of April 30, 1997
Bradford U.S. Government Fund None
Bradford Municipal Money Market Fund None
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. 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 51% 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 York 10020, 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 equity securities. In addition, RTAMLP
is the sole general partner of Alpha Associates L.P., August Associates L.P.,
Reich & Tang Minutus L.P., Reich & Tang Minututs 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
C-3
<PAGE>
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.
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, Michigan Daily Tax Free Income Funds, Inc., New Jersey
Daily Municipal Income Fund, Inc., New York Daily Tax Free Income Fund, Inc.,
North Carolina Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal
Income Fund and Tax Exempt Proceeds Fund, Inc., a Vice President and Secretary
of Reich & Tang Equity Fund, Inc., and Short Term Income Fund, Inc. Richard De
Sanctis has been Treasurer of RTAM since July 1994, Assistant Treasurer of NEIC
since September 1993 and Treasurer of the Mutual Funds Group of NEICLP from
September 1993 until July 1994, Treasurer of the Reich & Tang Mutual Funds since
July 1994. Mr. De Sanctis joined Reich & Tang, Inc. in December 1990 and served
as Controller of Reich & Tang, Inc., from January 1991 to September 1993. Mr. De
Sanctis was Vice President 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.,
Pennsylvania Daily Municipal Income Fund, Reich & Tang Equity Fund, Inc., Short
Term Income Fund, Inc. and Tax Exempt Proceeds Fund, Inc. and is Vice President
and Treasurer of Cortland Trust, Inc.
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Item 29. Principal Underwriters
(a) Reich & Tang Distributors L.P., the Registrant's Distributor, is
also distributor for California Daily Tax Free Income Fund, Inc., Connecticut
Daily Tax Free Income Fund, Inc., Daily Tax Free Income Fund, Inc., Delafield
Fund, Inc., Florida Daily Municipal Income Fund, Institutional Daily Income
Fund, Michigan Daily Tax Free Income Fund, Inc., New Jersey Daily Municipal
Income Fund, Inc., New York Daily Tax Free Income Fund, Inc., North Carolina
Daily Municipal Income Fund, Inc., Pennsylvania Daily Municipal Income Fund,
Reich & Tang Equity Fund, Inc., Short Term Income Fund, Inc. and Tax Exempt
Proceeds Fund, Inc.
(b) The following are the directors and officers of Reich & Tang Asset
Management, Inc., the general partner of Reich & Tang Distributors L.P. Reich &
Tang Distributors L.P. does not have any officers. The principal business
address of Messrs. Voss, Ryland, and Wadsworth is 399 Boylston Street, Boston,
Massachusetts 02116. For all other persons, the principal business address is
600 Fifth Avenue, New York, New York 10020.
Positions and Offices Positions and
with General Partner Offices With
Name of the Distributor Registrant
Peter S. Voss President and Director None
G. Neal Ryland Director None
Edward N. Wadsworth Clerk None
Richard E. Smith III Director None
Steven W. Duff Director President
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.
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(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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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York, on the
30th day of May, 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 May 30, 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.
EXHIBIT 11 (a)
ERNST & YOUNG LLP
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Information" and "Reports" and to the use of our report dated April
25, 1996 included in Post-Effective Amendment No. 24 on Form N-1A which is
incorporated by reference in this Registration Statement (Form N-1A No. 2-94935)
of Cortland Trust, Inc.
/s/ Ernst & Young LLP
Ernst & Young LLP
New York, New York
May 30, 1997
EXHIBIT 11 (b)
Kramer, Levin, Naftalis, & Frankel
919 Third Avenue
New York, N.Y. 10022-3852
(212) 715-9100
May 28, 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
FORM OF PLAN OF DISTRIBUTION (J.C. BRADFORD SHARES)
PLAN FOR PAYMENT OF CERTAIN EXPENSES
FOR DISTRIBUTION AND/OR
SHAREHOLDER SERVICING ASSISTANCE
(J.C. BRADFORD SHARES)
Plan (the "Plan") of the J.C. Bradford U.S. Government Fund and the
J.C. Bradford Municipal Money Market Fund (the "J.C. Bradford Shares") of
Cortland Trust, Inc., a Maryland corporation (the "Fund"), an open-end
diversified management investment company registered under the Investment
Company Act of 1940, as amended (the "Act"), adopted pursuant to Section 12(b)
of the Act and Rule 12b-1 promulgated thereunder ("Rule 12b-1").
1. Certain Payments Authorized.
(a) The Fund on behalf of its J.C. Bradford Shares is
authorized to make payments to J.C. Bradford ("JCB"), other securities dealers
and institutions for shareholder servicing assistance and distribution services
for the J.C. Bradford Shares pursuant to a Primary Dealer Agreement in
substantially the form of Exhibit A hereto. JCB, other securities dealers and
institutions are collectively referred to as "Service Agents".
(b) The schedule of fees to Service Agents and the basis upon
which such fees will be paid shall be determined from time to time by Reich &
Tang Distributors L.P. ("R&T"), subject to the limitations below. The aggregate
amount of all fees payable by the Fund on behalf of each class of J.C. Bradford
Shares to Servicing Agents in any fiscal year of the Fund shall not exceed .__%
of the aggregate average daily net assets of the class of J.C. Bradford Shares
on an annual basis for such fiscal year. The Fund shall also pay to R&T a
monthly fee at an annual rate of .__% of the aggregate average daily net assets
of each class of J.C. Bradford Shares. R&T may pay all or a portion of the fee
it receives from the J.C. Bradford Shares to Service Agents or to apply such
amounts to the purposes set forth in paragraph 1(c) hereof.
(c) R&T may also make payments to Service Agents out of the
fee paid to R&T pursuant to paragraph (b) hereof, out of R&T's past profits or
from any other source available to R&T. R&T may also pay for the printing and
distributing of prospectuses and statements of additional information (including
those prospectuses and statements of additional information distributed to
shareholders of the J.C. Bradford Shares and any promotional or sales literature
used by R&T or furnished by R&T to investors or Service Agents, the expenses of
advertising and all legal expenses in connection with the foregoing. R&T may
also pay Service Agents for opening and servicing any convenience accounts and
for processing account application forms for any debit or credit cards, check
redemption authorizations, travel insurance applications and other services
provided to any convenience account participants.
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2. Reports. Quarterly, in each year that this Plan remains in effect, R&T
shall prepare and furnish to the Board of Directors of the Fund a written
report, complying with the requirements of Rule 12b-1, setting forth the amounts
expended under the Plan and purposes for which such expenditures were made.
3. Approval of Plan. This Plan shall become effective upon approval of the
Plan, and the related agreements by a majority of the outstanding voting
securities of each class of J.C. Bradford Shares, as defined in Section 2(a)(42)
of the Act.
4. Term. This Plan shall remain in effect for one year from its effective
date and may be continued thereafter if this Plan and all related agreements are
approved at least annually by a majority vote of the Fund's Board of Directors,
including a majority of the Qualified Directors (the directors of the Fund who
are not interested persons of the Fund, as defined in Section 2(a)(19) of the
Act, and who have no direct or indirect financial interest in the operation of
the Plan or in any agreements related to the Plan), cast in person at a meeting
called for the purpose of voting on such Plan and agreements. This Plan may not
be amended in order to increase materially the amount to be spent hereunder
without shareholder approval in accordance with Section 3 hereof. All material
amendments to this Plan must be approved by a vote of the Board of Directors of
the Fund, and of the Qualified Directors, cast in person at a meeting called for
the purpose of voting thereon.
5. Termination. This Plan may be terminated at any time by a majority vote
of the Qualified Directors or by vote of a majority of the outstanding voting
securities of a class of the J.C. Bradford Shares, as defined in Section
2(a)(42) of the Act.
6. Nomination of Independent Directors. While this Plan shall be in effect,
the selection and nomination of the directors of the Fund who are not
"interested persons" of the Fund, as defined in Section 2(a)(19) of the Act,
shall be committed to the discretion of the Qualified Directors then in office.
7. Miscellaneous.
(a) All agreements with any Service Agent relating to the
implementation of this Plan shall be in writing and any agreement related to
this Plan shall be subject to termination, without penalty, pursuant to the
provisions of Section 5 hereof.
(b) The adoption of this Plan does not constitute any
acknowledgement by either the Fund or R&T that the payments to be made pursuant
to the Plan constitute payments for distribution assistance or that the adoption
of a plan pursuant to Rule 12b-1 is required in order for such payments to be
made.
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EXHIBIT A
REICH & TANG DISTRIBUTORS L.P.
600 Fifth Avenue
New York, New York 10020
(212) 830-5200
PRIMARY DEALER AGREEMENT
J.C. Bradford
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Gentlemen:
Reich & Tang Distributors L.P. ("R&T") serves as distributor of the
U.S. Government Fund and Municipal Money Market Fund (the "Funds"), series of
Cortland Trust, Inc., a Maryland corporation (the "Trust"). The Trust is a
diversified open-end investment company registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act"). Each Fund offers a class
of shares of the Fund, $.001 par value, to the public in accordance with the
terms and conditions contained in a separate Prospectus and Statement of
Additional Information (the "SAI") of the Trust. The separate Prospectus and SAI
pertain to the J.C. Bradford classes of the Funds ("J.C. Bradford Shares")
offered to the public through J.C. Bradford ("JCB") and through securities
dealers who have a dealer agreement with JCB (the "Dealers"). Reich & Tang Asset
Management L.P. (the "Manager") serves as manager for the Funds. The terms
"Prospectus" and "SAI" as used herein refer to the separate prospectus or
statement of additional information on file with the Securities and Exchange
Commission which is part of the most recent registration statement effective
from time to time under the Securities Act of 1933, as amended (the "Securities
Act").
In connection with the offering of J.C. Bradford Shares to the public,
JCB may place or facilitate the placement of orders for purchase and redemption
of J.C. Bradford Shares for and on behalf of customers of JCB or the Dealers on
the following terms and conditions:
1. JCB and the Dealers are hereby authorized to (i) place orders
through R&T for purchases of J.C. Bradford Shares and (ii) tender J.C. Bradford
Shares through R&T for redemption, in each case subject to the terms and
conditions set forth in the Prospectus and SAI.
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<PAGE>
2. No person is authorized to make any representations concerning the
Funds or the J.C. Bradford Shares except those contained in the Prospectus and
SAI and in such printed information as R&T may subsequently prepare. No person
is authorized to distribute any sales material relating to the Funds without the
prior written approval of R&T.
3. JCB agrees to undertake from time to time certain shareholder
servicing activities for customers of JCB and certain customers of
broker-dealers who have dealer agreements with JCB (the "Customers") who have
purchased J.C. Bradford Shares and who use JCB's facilities to communicate with
the Funds or to effect redemptions or additional purchases of the J.C. Bradford
Shares. In consideration of the services and facilities provided by JCB
hereunder, the Funds and R&T will pay to JCB the fee set forth in the attached
Schedule based upon the average daily net asset value of the J.C. Bradford
Shares held from time to time by or on behalf of the Customers (the "Customers'
Fund Shares"). The fee for such services will be computed daily and payable
monthly. For purposes of determining the fees payable under this computation,
the average daily net asset value of the Customers' Fund Shares will be computed
in the manner specified in the Fund's registration statement (as the same is in
effect from time to time) in connection with the computation of the net asset
value of J.C. Bradford Shares for purposes of purchases and redemptions. R&T or
the Trust may, in its discretion and without notice, suspend or withdraw the
sale of J.C. Bradford Shares, including the sale of such J.C. Bradford Shares to
JCB for the account of any customer or customers. R&T represents to JCB that
this Agreement and the payment of such service fee by R&T and the Funds has been
authorized and approved by the Trust.
4. JCB agrees that it will cause the Dealers to comply and JCB itself
will comply with the provisions contained in the Securities Act governing the
distribution of Prospectuses to persons to whom JCB or the Dealers offer J.C.
Bradford Shares, and, if requested, will deliver SAI's. JCB further agrees that
it or the Dealers will deliver, upon request, copies of any amended Prospectus
(and SAI) to Customers whose J.C. Bradford Shares JCB or any Dealer is holding
as record owner and to deliver to such Customers copies of the annual and
interim financial reports and proxy solicitation materials of the Funds. R&T
agrees to furnish to JCB and the Dealers as many copies of the Prospectus and
SAI, annual and interim financial reports and proxy solicitation materials as
you may reasonably request.
5. JCB represents that it and the Dealers are members in good standing
of the National Association of Securities Dealers, Inc. JCB agrees that neither
JCB nor any Dealer will offer J.C. Bradford Shares to persons in any
jurisdiction in which JCB or any such Dealer may not lawfully make such offer
due to the fact that JCB or any such Dealer has not registered under, or is not
exempt from, the applicable registration or licensing requirements of such
jurisdiction.
6. The Funds have registered an indefinite number of J.C. Bradford
Shares under the Securities Act. Upon application, R&T will inform JCB as to the
states or other jurisdictions in which R&T believes the J.C. Bradford Shares
have been qualified for sale under, or are exempt from the requirements of, the
respective securities laws of such states, but R&T shall assume no
responsibility or obligation as to JCB's right to sell J.C. Bradford Shares in
any jurisdiction.
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7. The Trust shall have full authority to take such action as it deems
advisable in respect of all matters pertaining to the offering of the J.C.
Bradford Shares, including the right in its discretion, without notice, to
suspend sales or withdraw the offering of J.C. Bradford Shares entirely.
8. JCB understands and agrees that JCB and each Dealer, and not R&T,
the Manager or the Funds, shall be responsible for obtaining and maintaining
taxpayer certifications under applicable law, including the satisfaction of any
penalties imposed for failure to obtain and maintain such information under and
in accordance with applicable law with respect to accounts established by JCB or
any Dealer. JCB also agrees that it will (i) maintain all records required by
law relating to transactions in J.C. Bradford Shares and, upon request by the
Funds, promptly make such of these records available to the Funds as the Trust
may reasonably request in connection with its operations; and (ii) promptly
notify R&T if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. R&T and the Trust shall be under no liability to JCB or the Dealers
except for lack of good faith and for obligations expressly assumed by them
hereunder. In carrying out JCB's obligations, JCB agrees to act in good faith
and without negligence. Nothing contained in this agreement is intended to
operate as a waiver by R&T, the Manager and the Trust or JCB of compliance with
any provision of the Investment Company Act of 1940, as amended (the "1940
Act"), the Securities Act, the Securities Exchange Act of 1934, as amended, or
the rules and regulations promulgated by the Securities and Exchange Commission
thereunder.
10. This Agreement may be terminated for cause on violation of any of
the provisions of this Agreement by either party, without penalty upon ten (10)
days' written notice to the other party and shall automatically terminate in the
event of its assignment, as defined in the 1940 Act. This Agreement may also be
terminated at any time for any reason or no reason without penalty by the vote
of a majority of the members of the Board of Directors of the Trust who are not
"interested persons" (as such phrase is defined in the 1940 Act) and have no
direct or indirect financial interest in the operation of the plan of
distribution with respect to a class of the J.C. Bradford Shares and any related
agreement, or by the vote of a majority of the outstanding voting securities of
a class of the J.C. Bradford Shares.
11. All communication to us should be sent to:
Reich & Tang Distributors L.P.
600 Fifth Avenue
New York, New York 10020
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Any notice to you shall be duly given if mailed or telegraphed to you
at the following address:
J.C. Bradford
================
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----------------
If the foregoing is in accordance with JCB's understanding, please sign
and return to R&T a copy of this Agreement.
REICH & TANG DISTRIBUTORS L.P.
By: Reich & Tang Asset Management, Inc.,
General Partner
By____________________________________________
Confirmed and accepted as of ___________________:
J.C. BRADFORD
By: ______________________________
(Authorized Signature)
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SCHEDULE
PRIMARY DEALER AGREEMENT
J.C. BRADFORD SHARES
For providing the services described in the Primary Dealer Agreement,
R&T and the Funds will pay to you monthly fees at the annual rate, in the
aggregate, of __% of the average daily net asset value of the J.C. Bradford
Shares classes of the Funds.
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<PAGE>
FORM OF RULE 18f-3 MULTI-CLASS PLAN
CORTLAND TRUST, INC.
RULE 18f-3 MULTI-CLASS PLAN
(as amended)
I. Introduction.
Pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended
(the "1940 Act"), the following sets forth the method for allocating fees and
expenses among each class of shares of the underlying investment funds of
Cortland Trust, Inc. (the "Trust") that issues multiple classes of shares (the
"Multi-Class Funds"). In addition, this Rule 18f-3 Multi-Class Plan (the "Plan")
sets forth the distribution arrangements, exchange privileges and other
shareholder services of each class of shares in the Multi-Class Funds.
The Trust is an open-end series investment company registered under the
1940 Act and the shares of which are registered on Form N-1A under the
Securities Act of 1933 (Registration No. 2-94935). Upon the effective date of
this Plan, the Trust hereby elects to offer multiple classes of shares in the
Multi-Class Funds pursuant to the provisions of Rule 18f-3 and this Plan.
The Trust currently consists of the following three separate Funds: the
Cortland General Money Market Fund, the U.S. Government Fund and the Municipal
Money Market Fund.
The Cortland General Money Market Fund, the U.S. Government Fund and the
Municipal Money Market Fund are each authorized to issue three classes of shares
representing interests in the same underlying portfolio of assets of the
respective Fund.
II. Allocation of Expenses.
Pursuant to Rule 18f-3 under the 1940 Act, the Trust shall allocate to each
class of shares in a Multi-Class Fund any fees and expenses incurred by the
Trust in connection with the distribution of such class of shares under a
distribution plan adopted for such class of shares pursuant to Rule 12b-1. In
addition, pursuant to Rule 18f-3, the Trust may allocate the following fees and
expenses to a particular class of shares in a single Multi-Class Fund:
(i) fees of the Directors who are not "interested
persons" of the Trust and the travel and related
expenses of the Directors incident to their attending
shareholders', directors' and committee meetings
pertaining to such class of shares; and
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(ii) extraordinary expenses, including but not
limited to legal claims and liabilities and
litigation costs and any indemnification related
thereto pertaining to such class of shares.
The initial determination of the class expenses that will be allocated by
the Trust to a particular class of shares and any subsequent changes thereto
will be reviewed by the Board of Directors and approved by a vote of the
Directors of the Trust, including a majority of the Directors who are not
"interested persons" of the Trust. The Directors will monitor conflicts of
interest among the classes and agree to take any action necessary to eliminate
conflicts.
Income, realized and unrealized capital gains and losses, and any expenses
of a Multi-Class Fund not allocated to a particular class of such Fund pursuant
to this Plan shall be allocated to each class of the Fund on the basis of the
net asset value of that class in relation to the net asset value of the Fund.
The Manager and the Distributor may waive or reimburse the expenses of a
particular class or classes, provided, however, that such waiver shall not
result in cross subsidization between the classes.
III. Class Arrangements.
The following summarizes the Rule 12b-1 distribution fees, exchange
privileges and other shareholder services applicable to each class of shares of
the Multi-Class Funds. Additional details regarding such fees and services are
set forth in each Fund's current Prospectus and Statement of Additional
Information.
A. Cortland General Money Market Fund Class, U.S. Government Fund
Class and Municipal Money Market Fund Class ("Cortland Class
Shares")
1. Rule 12b-1 Distribution Fees: 0.25% per annum of the
average daily net assets.
2. Exchange Privileges: Subject to restrictions and
conditions set forth in Cortland's Prospectus, may
be exchanged for Cortland Class Shares of any other Fund.
3. Other Shareholder Services: As provided in the
Prospectus. Services do not differ from those
applicable to Live Oak Class Shares.
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B. Live Oak General Money Market Fund Class, Live Oak U.S.
Government Fund Class and Live Oak Municipal Money Market Fund
Class ("Live Oak Class Shares").
1. Rule 12b-1 Distribution Fees: 0.20% per annum of the
average daily net assets.
2. Exchange Privileges: Subject to restrictions and
conditions set forth in the Live Oak Money Market Shares
Prospectus, may be exchanged for Live Oak Class Shares of
any other Fund.
3. Other Shareholder Services: As provided in the
Prospectus. Services do not differ from those applicable
to Cortland Class Shares.
C. Pilgrim America Shares
1. Rule 12b-1 Distribution Fees: 0.25% per annum of the
average daily net assets;
2. Exchange Privileges: Subject to restrictions and
conditions set forth in the Pilgrim America Shares
Prospectus, may be exchanged for shares of funds in the
Pilgrim America Group.
3. Other Shareholder Services: As provided in the Pilgrim
America Shares Prospectus, services differ from those
applicable to Cortland Class Shares and Live Oak Class
Shares.
D. J.C. Bradford U.S. Government Fund Class and J.C. Bradford
Municipal Money Market Fund Class ("J.C. Bradford Class Shares").
1. Rule 12b-1 Distribution Fees: ____% per annum of the
average daily net assets.
2. Exchange Privileges: Subject to restrictions and
conditions set forth in the J.C. Bradford Money Market
Shares Prospectus, may be exchanged for J.C. Bradford Class
Shares of any other Fund.
3. Other Shareholder Services: As provided in the Prospectus.
Services do not differ from those applicable to Cortland
Class Shares.
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IV. Board Review.
The Board of Directors of the Trust shall review this Plan as frequently as
it deems necessary. Prior to any material amendment(s) to this Plan, the Board
of Directors, including a majority of the Directors that are not "interested
persons" of the Trust, shall find that the Plan, as proposed to be amended
(including any proposed amendments to the method of allocating class and/or fund
expenses), is in the best interest of each class of shares of a Multi-Class Fund
individually and the Fund as a whole. In considering whether to approve any
proposed amendment(s) to the Plan, the Directors shall request and evaluate such
information as they consider reasonably necessary to evaluate the proposed
amendment(s) to the Plan. Such information shall address the issue of whether
any waivers or reimbursements of fees could be considered a cross-subsidization
of one class by another, and other potential conflicts of interest between
classes.
In making its initial determination to approve this Plan, the Directors
have focused on, among other things, the relationship between or among the
classes and has examined potential conflicts of interest among classes
(including those potentially involving a cross-subsidization between classes)
regarding the allocation of fees, services, waivers and reimbursements of
expenses, and voting rights. The Board has evaluated the level of services
provided to each class and the cost of those services to ensure that the
services are appropriate and the allocation of expenses is reasonable. In
approving any subsequent amendments to this Plan, the Board shall focus on and
evaluate such factors as well as any others deemed necessary by the Board.
Amendment adopted effective_________________ , 1997
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