Rule 497(c)
File No. 2-94935
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CORTLAND TRUST, INC. 600 FIFTH AVENUE
NEW YORK, N.Y. 10020
(212) 830-5220
================================================================================
CORTLAND GENERAL MONEY MARKET FUND
U.S. GOVERNMENT FUND
MUNICIPAL MONEY MARKET FUND
PROSPECTUS
July 27, 1999
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3 CORTLAND GENERAL MONEY MARKET FUND 12 MUNICIPAL MONEY MARKET FUND
3 Risk/Return Summary: Investments, Risks and 12 Risk/Return Summary: Investments, Risks and
Performance Performance
5 Fee Table 14 Fee Table
6 Investment Objectives, Principal Investment 15 Investment Objectives, Principal Investment
Strategies and Related Risks Strategies and Related Risks
8 U.S. GOVERNMENT FUND 16 Principal Investment Strategies For All Funds
8 Risk/Return Summary: Investments, Risks and 19 Management, Organization and Capital Structure
Performance
10 Fee Table 19 Shareholder Information
11 Investment Objectives, Principal Investment 25 Dividends and Taxes
Strategies and Related Risks
28 Financial Highlights
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</TABLE>
<PAGE>
CORTLAND GENERAL MONEY MARKET FUND
("CORTLAND GENERAL FUND")
RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The CORTLAND GENERAL FUND seeks to provide its investors with as high a
level of current income as is consistent with preservation of capital and
liquidity.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The CORTLAND GENERAL FUND intends to achieve its investment objective by
investing at least 80% of its assets in marketable securities and instruments
issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities ("U.S. Government Obligations"), in bank instruments (domestic
and foreign), in trust instruments, in corporate commercial instruments and in
other corporate instruments maturing in thirteen months or less (collectively,
"Money Market Obligations").
The CORTLAND GENERAL FUND is a money market fund and seeks to maintain an
investment portfolio with a dollar-weighted average maturity of 90 days or less,
to value its investment portfolio at amortized cost and to maintain a net asset
value of $1.00 per share.
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
o Although the CORTLAND GENERAL FUND seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing
in the CORTLAND GENERAL FUND. The value of the CORTLAND GENERAL FUND's
shares and the securities held by the CORTLAND GENERAL FUND can each
decline in value due to changes in interest rates. For example, rising
interest rates cause the prices of the CORTLAND GENERAL FUND's securities
to decrease.
o An investment in the CORTLAND GENERAL FUND is not a bank deposit and is
not insured or guaranteed by the FDIC or any other governmental agency.
o Payment of interest and preservation of capital are dependent upon the
continuing ability of issuers and/or obligators of state, municipal,
public authority, and corporate debt obligations to meet their payment
obligations. If such issuers fail to make timely payments of interest and
principal, the CORTLAND GENERAL FUND's investments would decline in value.
o The CORTLAND GENERAL FUND may invest in obligations from foreign issuers,
it is subject to risks involving a lack of liquidity, imposition of
foreign taxes, and other adverse results due to political and economic
developments.
RISK/RETURN BAR CHART
- --------------------------------------------------------------------------------
The following bar chart and table may assist you in your decision to invest
in the CORTLAND GENERAL FUND. The bar chart shows how the Cortland General
Fund's annual returns have changed over the last ten calendar years. The table
shows the CORTLAND GENERAL FUND's average annual returns for the last one, five
and ten year periods, and since inception. While analyzing this information,
please note that the CORTLAND GENERAL FUND's past performance is not an
indicator of how it will perform in the future. The CORTLAND GENERAL FUND's
current 7-day yield may be obtained by calling toll-free at 1-800-221-3079.
3
<PAGE>
<TABLE>
<CAPTION>
CORTLAND GENERAL FUND (1), (2)
[GRAPHIC OMITTED]
<S> <C>
CALENDAR YEAR END % TOTAL RETURN
1998 4.71%
1997 4.71%
1996 4.53%
1995 5.05%
1994 3.31%
1993 2.55%
1992 3.16%
1991 5.49%
1990 7.62%
1989 8.69%
</TABLE>
(1) The Cortland General Fund's highest quarterly return was 2.20% for the
quarter ended June 30, 1989; the lowest quarterly return was 0.63% for the
quarter ended June 30, 1993.
(2) Securities dealers may charge a fee to investors for purchasing and
redeeming shares. Therefore, the net return to such investors may be less
than if they had invested in the Cortland General Fund directly.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS -CORTLAND GENERAL FUND
FOR THE PERIODS ENDED DECEMBER 31, 1998
<S> <C>
One Year 4.71%
Five Years 4.46%
Ten Years 4.97%
Since Inception [May 9, 1985] 5.43%
</TABLE>
4
<PAGE>
FEE TABLE
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the CORTLAND GENERAL FUND.
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<TABLE>
<CAPTION>
CORTLAND GENERAL FUND
<S> <C>
Management Fees 0.77%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.01%
-----
Total Annual Fund Operating Expenses 1.03%*
======
</TABLE>
* The Distributor has voluntarily waived a portion of the Distribution
support and services fee with respect to the CORTLAND GENERAL FUND. After
such waivers, the distribution support and services fee was 0.22%. The
actual Total Fund Operating Expenses were 1.00%. This fee waiver may be
terminated at any time at the option of the Fund.
<TABLE>
<CAPTION>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
Assume that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. Also assume that
your investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
$105 $328 $569 $1,259
</TABLE>
5
<PAGE>
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The CORTLAND GENERAL FUND seeks to provide its investors with as high a
level of current income as is consistent with preservation of capital and
liquidity. There can be no assurance that the CORTLAND GENERAL FUND will achieve
its investment objective.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The CORTLAND GENERAL FUND seeks to achieve its objective by investing at
least 80% of its assets in U.S. Government Obligations, in bank instruments
(domestic and foreign), in trust instruments, in corporate commercial
instruments and in other corporate instruments maturing in thirteen months or
less (collectively, "Money Market Obligations").
The CORTLAND GENERAL FUND may invest in bank instruments, which consist
mainly of certificates of deposit, bankers' acceptances and time deposits. The
CORTLAND GENERAL FUND may also invest in corporate instruments supported by bank
letters of credit. The CORTLAND GENERAL FUND generally limits investments in
bank instruments to (a) those which are fully insured as to principal by the
FDIC or (b) those issued by banks which at the date of their latest public
reporting have total assets in excess of $1.5 billion. However, the total assets
of a bank will not be the sole factor determining the Fund's investment
decisions, and the Fund may invest in bank instruments issued by institutions
which the Board of Directors believes present minimal credit risk.
The CORTLAND GENERAL FUND may invest up to 100% of its assets in obligations
issued by banks, and up to 10% of its assets in obligations issued by any one
bank, subject to the provisions of Rule 2a-7 of the Investment Company Act of
1940 (the "1940 Act"). If the bank is a domestic bank, it must be a member of
the FDIC. The CORTLAND GENERAL FUND may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks or foreign branches of
foreign banks ("Eurodollar" obligations) and domestic branches of foreign banks
("Yankee dollar" obligations). The CORTLAND GENERAL FUND will limit its
aggregate investments in foreign bank obligations, including Eurodollar
obligations and Yankee dollar obligations, to 25% of its total assets at the
time of purchase, provided that there is no limitation upon the Cortland General
Fund investments in (a) Eurodollar obligations, if the domestic parent of the
foreign branch issuing the obligation is unconditionally liable in the event
that the foreign branch fails to pay on the Eurodollar obligation for any
reason; and (b) Yankee dollar obligations, if the U.S. branch of the foreign
bank is subject to the same regulation as U.S. banks. Eurodollar, Yankee dollar
and other foreign bank obligations include time deposits, which are
non-negotiable deposits maintained in a bank for a specified period of time at a
stated interest rate. The CORTLAND GENERAL FUND will limit its purchases of time
deposits to those which mature in seven days or less, and will limit its
purchases of time deposits maturing in two to seven days to 10% of such Fund's
total assets at the time of purchase.
The CORTLAND GENERAL FUND may invest in short-term corporate obligations and
instruments, including but not limited to corporate commercial paper, notes,
bonds and debentures. Corporate commercial instruments generally consist of
short-term unsecured promissory notes issued by corporations. The Cortland
General Fund may also purchase variable amount master demand notes, which are
unsecured demand notes that permit investment of fluctuating amounts of money at
variable rates of interest pursuant to arrangements with issuers who meet the
foregoing quality criteria. The interest rate on a variable amount master demand
note is periodically redetermined according to a prescribed formula. Although
there is no secondary market in master demand notes, the payee may demand
payment of the principal and interest upon notice not exceeding five business or
seven calendar days. The CORTLAND GENERAL FUND may also purchase participation
interests in loans extended by banks to companies, provided that both such banks
and such companies meet the quality standards set forth above. (See the
Statement of Additional Information for information with respect to corporate
commercial instruments and bond ratings.) The CORTLAND GENERAL FUND may also
invest in fixed or variable rate debt units representing an
6
<PAGE>
undivided interest in a trust's distributions of principal and interest that a
trust receives from an underlying portfolio of bonds issued by a highly rated
corporate or U.S. Government agency issuer and/or payments from re-characterized
distributions made possible by the swap of certain payments due on the
underlying bonds. The CORTLAND GENERAL FUND's investment will be limited solely
to the debt units and in each case, must meet the credit quality standards under
Rule 2a-7 of the 1940 Act. Debt units will be purchased by the CORTLAND GENERAL
FUND as an institutional accredited investor pursuant to a private placement
memorandum. Sale of debt units will be effected pursuant to Rule 144A or other
exemptions from registration under the Securities Act of 1933, subject to the
eligibility of the purchaser and compliance with trust agreement requirements.
The Manager will monitor the liquidity of the debt units under the supervision
of Cortland's Board of Directors.
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The CORTLAND GENERAL FUND complies with industry-standard requirements on
the quality, maturity and diversification of its investments which are designed
to help maintain a $1.00 share price.
However, the CORTLAND GENERAL FUND is still subject to risks involving
changes in interest rates and the credit risk surrounding the issuers of Money
Market Obligations.
Rising interest rates cause the prices of debt securities to decrease, which
would lead to a loss in the value of the CORTLAND GENERAL FUND's investment.
Moreover, changes in interest rates may be caused by various economic factors or
political events.
In addition, the CORTLAND GENERAL FUND is exposed to the credit risk of the
institutions that issue Money Market Obligations. Changes in the credit quality
of the issuers could affect their ability to meet their payment obligations of
interest or principal. Any failure to make such payments could adversely affect
the value of the security and your investment in the CORTLAND GENERAL FUND.
Investors should also note that the CORTLAND GENERAL FUND will invest in
Eurodollar and Yankee dollar obligations. Eurodollar, Yankee dollar and other
foreign obligations involve special investment risks, including the possibility
that liquidity could be impaired because of future political and economic
developments, that the obligations may be less marketable than comparable
domestic obligations of domestic issuers, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
deposits may be seized or nationalized, that foreign governmental restrictions
such as exchange controls may be adopted which might adversely affect the
payment of principal of and interest on those obligations, that the selection of
foreign obligations may be more difficult because there may be less information
publicly available concerning foreign issuers, that there may be difficulties in
enforcing a judgment against a foreign issuer or that the accounting, auditing
and financial reporting standards, practices and requirements applicable to
foreign issuers may differ from those applicable to domestic issuers. In
addition, foreign banks are not subject to examination by United States
Government agencies or instrumentalities.
7
<PAGE>
U.S. GOVERNMENT FUND ("GOVERNMENT FUND")
RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The GOVERNMENT FUND seeks to provide its investors with as high a level of
current income exempt from federal income taxes as is consistent with the
preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The GOVERNMENT FUND intends to achieve its investment objective by investing
65% of its assets in short-term marketable securities and instruments issued or
guaranteed by the U.S. Government or by its agencies or instrumentalities (U.S.
Government Obligations").
The GOVERNMENT FUND is a money market GOVERNMENT FUND and seeks to maintain
an investment portfolio with a dollar-weighted average maturity of 90 days or
less, to value its investment portfolio at amortized cost and to maintain a net
asset value of $1.00 per share.
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
o Although the GOVERNMENT FUND seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing
in the GOVERNMENT FUND. The value of the GOVERNMENT FUND's shares and the
securities held by the GOVERNMENT FUND can each decline in value due to
changes in interest rates. For example, rising interest rates cause the
prices of the GOVERNMENT FUND's securities to decrease
o An investment in the GOVERNMENT FUND is not a bank deposit and is not
insured or guaranteed by the FDIC or any other governmental agency.
o Payment of interest and preservation of capital are dependent upon the
continuing ability of issuers and/or obligators of state, municipal and
public authority debt obligations to meet their payment obligations. If
such issuers fail to make timely payments of interest and principal, the
GOVERNMENT FUND's investments would decline in value.
RISK/RETURN BAR CHART
- --------------------------------------------------------------------------------
The following bar chart and table may assist you in your decision to invest
in the GOVERNMENT FUND. The bar chart shows how the GOVERNMENT FUND's annual
returns have changed over the last ten calendar years. The table shows the
GOVERNMENT FUND's average annual returns for the last one, five and ten year
periods, and since inception. While analyzing this information, please note that
the GOVERNMENT FUND's past performance is not an indicator of how the Government
Fund will perform in the future. The GOVERNMENT FUND's current 7-day yield may
be obtained by calling toll-free at 1-800-221-3079.
8
<PAGE>
<TABLE>
<CAPTION>
GOVERNMENT FUND (1), (2)
[GRAPHIC OMITTED]
<S> <C>
CALENDAR YEAR END % TOTAL RETURN
1998 4.52%
1997 4.54%
1996 4.39%
1995 4.90%
1994 3.27%
1993 2.56%
1992 3.18%
1991 5.46%
1990 7.31%
1989 8.35%
</TABLE>
(1) The GOVERNMENT FUND's highest quarterly return was 2.11% for the quarter
ended June 30, 1989; the lowest quarterly return was 0.62% for the quarter
ended June 30, 1993.
(2) Securities dealers may charge a fee to investors for purchasing and
redeeming shares. Therefore, the net return to such investors may be less
than if they had invested in the GOVERNMENT FUND directly.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS - GOVERNMENT FUND
FOR THE PERIODS ENDED DECEMBER 31, 1998
<S> <C>
One Year 4.52%
Five Years 4.32%
Ten Years 4.83%
Since Inception [May 9, 1985] 5.17%
</TABLE>
9
<PAGE>
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the GOVERNMENT FUND.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
GOVERNMENT FUND
<S> <C>
Management Fees 0.77%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.02%
-----
Total Annual Fund Operating Expenses 1.04%*
======
</TABLE>
* The Distributor has voluntarily waived a portion of the Distribution
support and services fee with respect to the GOVERNMENT FUND. After such
waivers, the distribution support and services fee was 0.21%. The actual
Total Fund Operating Expenses were 1.00%. This fee waiver may be terminated
at any time at the option of the Fund.
<TABLE>
<CAPTION>
EXAMPLE
This Example is intended to help you compare the cost of investing in the
GOVERNMENT FUND with the cost of investing in other money market funds.
Assume that you invest $10,000 in the GOVERNMENT FUND for the time periods
indicated and then redeem all of your shares at the end of those periods. Also
assume that your investment has a 5% return each year and that the GOVERNMENT
FUND's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
$106 $331 $574 $1,271
</TABLE>
10
<PAGE>
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The GOVERNMENT FUND's investment objective is to seek to provide its
investors with a high a level of current income exempt from federal income tax
as is consistent with preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The GOVERNMENT FUND endeavors to achieve its objective by investing at least
65% of its assets in short-term "U.S. Government Obligations." U.S. Government
Obligations consist of marketable securities and instruments issued or
guaranteed by the U.S. Government or by its agencies or instrumentalities.
Direct obligations are issued by the U.S. Treasury and include bills,
certificates of indebtedness, notes and bonds. Obligations of U.S. Government
agencies and instrumentalities ("Agencies") are issued by government-sponsored
agencies and enterprises acting under authority of Congress. Although
obligations of federal agencies and instrumentalities are not debts of the U.S.
Treasury, in some cases payment of interest and principal on such obligations is
guaranteed by the U.S. Government, e.g., obligations of the Federal Housing
Administration, the Export-Import Bank of the United States, the Small Business
Administration, the Government National Mortgage Association, the General
Services Administration and the Maritime Administration; in other cases payment
of interest and principal is not guaranteed, e.g., obligations of the Federal
Home Loan Bank System and the Federal Farm Credit Bank. The GOVERNMENT FUND will
invest in Agencies which are not guaranteed or backed by the full faith and
credit of the U.S. Government only when the Fund's Board of Directors is
satisfied that the credit risk with respect to a particular agency or
instrumentality is minimal.
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The GOVERNMENT FUND complies with industry-standard requirements on the
quality, maturity and diversification of its investments which are designed to
help maintain a $1.00 share price.
However, the GOVERNMENT FUND is still subject to risks involving changes in
interest rates and the credit risk surrounding the issuers of U.S. Government
Obligations.
Rising interest rates cause the prices of debt securities to decrease, which
would lead to a loss in the value of the GOVERNMENT FUND's investment. Moreover,
changes in interest rates may be caused by various economic factors or political
events.
In addition, the GOVERNMENT FUND is exposed to the credit risk of the
institutions that issue U.S. Government Obligations. Changes in the credit
quality of the issuers could affect their ability to meet their payment
obligations of interest or principal. Any failure to make such payments could
adversely affect the value of the security and your investment in the GOVERNMENT
FUND.
11
<PAGE>
MUNICIPAL MONEY MARKET FUND ("MUNICIPAL FUND")
RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The MUNICIPAL FUND seeks to provide its investors with as high a level of
current income exempt from federal income taxes as is consistent with the
preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The MUNICIPAL FUND intends to achieve its investment objective by investing
principally in short-term, high quality, debt obligations issued by states and
municipal governments and their authorities, agencies and political subdivisions
("Municipal Securities").
The MUNICIPAL FUND is a money market fund and seeks to maintain an
investment portfolio with a dollar-weighted average maturity of 90 days or less,
to value its investment portfolio at amortized cost and to maintain a net asset
value of $1.00 per share.
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
o Although the MUNICIPAL FUND seeks to preserve the value of your investment
at $1.00 per share, it is possible to lose money by investing in the
MUNICIPAL FUND. The value of the MUNICIPAL FUND's shares and the
securities held by the MUNICIPAL FUND can each decline in value due to
changes in interest rates. For example, rising interest rates will cause
the prices of the MUNICIPAL FUND's securities to decrease.
o An investment in the MUNICIPAL FUND is not a bank deposit and is not
insured or guaranteed by the FDIC or any other governmental agency.
o Payment of interest and preservation of capital are dependent upon the
continuing ability of issuers and/or obligators of state, municipal and
public authority debt obligations to meet their payment obligations. If
such issuers fail to make timely payments of interest and principal, the
MUNICIPAL FUND's investments would decline in value.
RISK/RETURN BAR CHART
- --------------------------------------------------------------------------------
The following bar chart and table may assist you in your decision to invest
in the MUNICIPAL FUND. The bar chart shows how the MUNICIPAL FUND's annual
returns have changed over the last ten calendar years. The table shows the
MUNICIPAL FUND's average annual returns for the last one, five and ten year
periods, and since inception. While analyzing this information, please note that
the MUNICIPAL FUND's past performance is not an indicator of how it will perform
in the future. The MUNICIPAL FUND's current 7-day yield may be obtained by
calling toll-free at 1-800-221-3079.
12
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL FUND (1), (2)
[GRAPHIC OMITTED]
<S> <C>
CALENDAR YEAR END % TOTAL RETURN
1998 2.64%
1997 2.82%
1996 2.70%
1995 3.18%
1994 2.24%
1993 1.85%
1992 2.48%
1991 4.18%
1990 5.37%
1989 5.90%
</TABLE>
(1) The MUNICIPAL FUND's highest quarterly return was 1.54% for the quarter
ended June 30, 1989; the lowest quarterly return was 0.43% for the quarter
ended March 31, 1994.
(2) Securities dealers may charge a fee to investors for purchasing and
redeeming shares. Therefore, the net return to such investors may be less
than if they had invested in the Municipal Fund directly.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS - MUNICIPAL FUND
FOR THE PERIODS ENDED DECEMBER 31, 1998
<S> <C>
One Year 2.64%
Five Years 2.72%
Ten Years 3.33%
Since Inception [June 10, 1985] 3.58%
</TABLE>
13
<PAGE>
FEE TABLE
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the MUNICIPAL FUND.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MUNICIPAL FUND
<S> <C>
Management Fees 0.77%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.02%
-----
Total Annual Fund Operating Expenses 1.04%*
======
</TABLE>
* The Distributor has voluntarily waived a portion of the Distribution
support and services fee with respect to the MUNICIPAL FUND. After such
waivers, the distribution support and services fee was 0.21%. The actual
Total Fund Operating Expenses were 1.00%. This fee waiver may be terminated
at any time at the option of the Fund.
<TABLE>
<CAPTION>
EXAMPLE
This Example is intended to help you compare the cost of investing in the
MUNICIPAL FUND with the cost of investing in other money market funds.
Assume that you invest $10,000 in the MUNICIPAL FUND for the time periods
indicated and then redeem all of your shares at the end of those periods. Also
assume that your investment has a 5% return each year and that the MUNICIPAL
FUND's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
$106 $331 $574 $1,271
</TABLE>
14
<PAGE>
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The MUNICIPAL FUND's investment objective is to seek to provide its
investors with as high a level of current income exempt from federal income tax
as is consistent with the preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The MUNICIPAL FUND will invest primarily (i.e., at least 80%) in short-term,
high quality, tax-exempt, Municipal Securities.
The MUNICIPAL FUND will invest in Municipal Securities which include debt
obligations issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities, the refunding of outstanding
obligations, the obtaining of funds for general operating expenses and lending
such funds to other public institutions and facilities. In addition, certain
types of private activity bonds or industrial development bonds are issued by or
on behalf of public authorities to obtain funds to provide for the construction,
equipment, repair or improvement of privately operated facilities. Such
obligations are considered to be Municipal Securities provided that the interest
paid thereon generally qualifies as exempt from federal income tax in the
opinion of bond counsel. However, interest on Municipal Securities may give rise
to federal alternative minimum tax liability and may have other federal income
tax consequences.
The MUNICIPAL FUND also may purchase any Municipal Security which depends on
the credit of the U.S. Government and may invest in Municipal Securities which
are not rated if, in the opinion of Cortland's investment advisor, and in
accordance with procedures established by the Board of Directors, such
securities possess creditworthiness comparable to those rated obligations in
which the MUNICIPAL FUND may invest. The MUNICIPAL FUND may, from time to time,
on a temporary or defensive basis, invest in short-term, high quality U.S.
Government Obligations, Money Market Obligations and repurchase agreements.
Income from any such temporary investments would be taxable to shareholders as
ordinary income. It is the present policy of the MUNICIPAL FUND to invest only
in securities the interest on which is tax-exempt. Moreover, the MUNICIPAL FUND
will endeavor to be invested at all times in Municipal Securities. It is a
fundamental policy of the MUNICIPAL FUND that its assets will be invested so
that at least 80% of its income will be exempt from federal income taxes. The
MUNICIPAL FUND may from time to time hold cash reserves.
The MUNICIPAL FUND's investment manager considers the following factors when
buying and selling securities for the portfolio: (i) availability of cash, (ii)
redemption requests, (iii) yield management, and (iv) credit management.
In order to maintain a share price of $1.00, the MUNICIPAL FUND must comply
with certain industry regulations. Other requirements pertain to the maturity
and credit quality of the securities in which the MUNICIPAL FUND may invest. The
MUNICIPAL FUND will only invest in securities which have or are deemed to have a
remaining maturity of 397 days or less. Also, the average maturity for all
securities contained in the MUNICIPAL FUND, on a dollar-weighted basis, will be
90 days or less.
The MUNICIPAL FUND will only invest in either securities which have been
rated (or whose issuers have been rated) in the highest short-term rating
category by nationally recognized statistical rating organizations, or are
unrated securities but which have been determined by the MUNICIPAL FUND's Board
of Directors to be of comparable quality.
Subsequent to its purchase by the MUNICIPAL FUND, the quality of an
investment may cease to be rated or its rating may be reduced below the minimum
required for purchase by the MUNICIPAL FUND. If this occurs, the Board of
Directors of the MUNICIPAL FUND shall reassess the security's credit risks and
shall take such action as it determines is in the best interest of the Municipal
Fund and its shareholders. Reassessment is not required, however, if the
security is disposed of or matures
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within five business days of the Manager becoming aware of the new rating and
provided further that the Board of Directors is subsequently notified of the
Manager's actions.
Although the MUNICIPAL FUND will attempt to invest 100% of its total assets
in Municipal Securities, the MUNICIPAL FUND reserves the right to invest up to
20% of its total assets in taxable securities whose interest income is subject
to regular federal, state and local income tax, as well as the Federal
alternative minimum tax. The kinds of taxable securities in which the Municipal
Fund may invest are limited to specific types of short-term, fixed income
securities.
As a temporary defensive measure the MUNICIPAL FUND may, from time to time,
invest in securities that are inconsistent with its principal investment
strategies in an attempt to respond to adverse market, economic, political or
other conditions as determined by the Manager. Such a temporary defensive
position may prevent the MUNICIPAL FUND from achieving its investment objective.
PRINCIPAL RISKS
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The MUNICIPAL FUND complies with industry-standard requirements on the
quality, maturity and diversification of its investments which are designed to
help maintain a $1.00 share price.
However, the MUNICIPAL FUND is still subject to risks involving changes in
interest rates and the credit risk surrounding the issuers of Municipal
Securities.
Rising interest rates cause the prices of debt securities to decrease, which
would lead to a loss in the value of the MUNICIPAL FUND's investment. Moreover,
changes in interest rates may be caused by various economic factors or political
events.
In addition, the MUNICIPAL FUND is exposed to the credit risk of the
institutions that issue Municipal Securities. Changes in the credit quality of
the issuers could affect their ability to meet their payment obligations of
interest or principal. Any failure to make such payments could adversely affect
the value of the security and your investment in the MUNICIPAL FUND.
PRINCIPAL INVESTMENT STRATEGIES FOR ALL FUNDS
The Cortland General Money Market Fund, U.S. GOVERNMENT FUND , and Municipal
Money Market Fund (each, a "Fund" collectively, the "Funds") will invest 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, Duff and Phelps, Inc.,
Fitch Investors Service, Inc., IBCA Limited and IBCA Inc.
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 are not fundamental
policies, and may be changed by the Board of Directors, with notice to
shareholders.
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The securities in which the Funds invest may not yield as high a level of
current income as longer term or lower grade securities, which generally have
less liquidity and greater fluctuation in value. The values of the securities in
which the Funds invest fluctuate based upon interest rates, the financial
stability of the issuers and market factors.
Cortland may enter into the following arrangements with respect to all three
Funds. Repurchase Agreements: under a repurchase agreement, the purchaser (for
example, one of the Funds) acquires ownership of an obligation and the seller
agrees, at the time of the sale, to repurchase the obligation at a mutually
agreed upon time and price, thereby determining the yield during the purchaser's
holding period. This arrangement results in a fixed rate of return insulated
from market fluctuations during such period. Although the underlying collateral
for repurchase agreements may have maturities exceeding one year, a Fund will
not enter into a repurchase agreement if as a result of such investment more
than 10% of such Fund's total assets would be invested in illiquid securities,
including repurchase agreements which expire in more than seven days. A Fund
may, however, enter into "continuing contract" or "open" repurchase agreements
under which the seller is under a continuing obligation to repurchase the
underlying obligation from that Fund on demand and the effective interest rate
is negotiated on a daily basis.
In general, a Fund will enter into repurchase agreements only with domestic
banks with total assets of at least $1.5 billion or with primary dealers in U.S.
Government securities. However, the total assets of a bank will not be the sole
factor determining the Fund's investment decisions, and the Fund may enter into
repurchase agreements with other institutions which the Board of Directors
believes present minimal credit risk. Nevertheless, if the seller of a
repurchase agreement fails to repurchase the obligation in accordance with the
terms of the agreement, the Fund which entered into the repurchase agreement may
incur a loss to the extent that the proceeds it realized on the sale of the
underlying obligation are less than the repurchase price. Repurchase agreements
may be considered loans to the seller of the underlying security. Income with
respect to repurchase agreements is not tax-exempt.
Securities purchased pursuant to a repurchase agreement are held by the
Fund's custodian and (i) are recorded in the name of the Fund with the Federal
Reserve Book-Entry System, or (ii) the Fund receives daily written confirmation
of each purchase of a security and a receipt from the custodian. The Funds
purchase securities subject to a repurchase agreement only when the purchase
price of the security acquired is equal to or less than its market price at the
time of purchase.
A Fund may also enter into reverse repurchase agreements which involve the
sale by a Fund of a portfolio security at an agreed upon price, date and
interest payment. A Fund will enter into reverse repurchase agreements for
temporary or defensive purposes to facilitate the orderly sale of portfolio
securities, to accommodate abnormally heavy redemption requests should they
occur, or in some cases as a technique to enhance income. A Fund will use
reverse repurchase agreements when the interest income to be earned from the
investment of the proceeds of the transaction is greater than the interest
expense of the reverse repurchase transaction. A Fund will enter into reverse
repurchase agreements only in amounts up to 10% of the value of its total assets
at the time of entering into such agreements. Reverse repurchase agreements
involve the risk that the market value of securities retained by a Fund in lieu
of liquidation may decline below the repurchase price of the securities sold by
the Fund which it is obligated to repurchase. This risk, if encountered, could
cause a reduction in the net asset value of a Fund's shares. Reverse repurchase
agreements are considered to be borrowings under the 1940 Act. As such, they are
subject to limitations on the level of Fund assets that may be invested in such
instruments.
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
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rate to be received on the investment. Delayed delivery agreements will not be
used as a speculative or leverage technique. Rather, from time to time, the
Funds' investment advisor can anticipate that cash for investment purposes will
result from scheduled maturities of existing portfolio instruments or from net
sales of shares of a Fund; therefore, to assure that a Fund will be as fully
invested as possible in instruments meeting that Fund's investment objective, a
Fund may enter into delayed delivery agreements, but only to the extent of
anticipated funds available for investment during a period of not more than five
business days.
Money Market Obligations and Municipal Securities are sometimes offered on a
"when-issued" basis, that is, the date for delivery of and payment for the
securities is not fixed at the date of purchase, but is set after the securities
are issued (normally within forty-five days after the date of the transaction).
The payment obligation and the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A Fund
will only make commitments to purchase such Money Market Instruments or
Municipal Securities with the intention of actually acquiring such securities,
but a Fund may sell these securities before the settlement date if it is deemed
advisable.
If a Fund enters into a delayed delivery agreement or purchases a
when-issued security, that Fund will direct Cortland's custodian bank to place
cash or other high grade securities (including Money Market Obligations and
Municipal Securities) in a segregated account of such Fund in an amount equal to
its delayed delivery agreements or when-issued commitments. If the market value
of such securities declines, additional cash or securities will be placed in the
account on a daily basis so that the market value of the account will equal the
amount of such Fund's delayed delivery agreements and when-issued commitments.
To the extent that funds are in a segregated account, they will not be available
for new investment or to meet redemptions. Investment in securities on a
when-issued basis and use of delayed delivery agreements may increase a Fund's
exposure to market fluctuation; may increase the possibility that the Municipal
Fund will incur a short-term gain subject to federal taxation; or may increase
the possibility that a Fund will incur a short-term loss, if the Fund must
engage in portfolio transactions in order to honor a when-issued commitment or
accept delivery of a security under a delayed delivery agreement. The Funds will
employ techniques designed to minimize these risks.
No additional delayed delivery agreements or when-issued commitments will be
made if more than 25% of a Fund's net assets would become so committed. The
Funds will enter into when-issued and delayed delivery transactions only when
the time period between trade date and settlement date is at least 30 days and
not more than 120 days.
The MUNICIPAL FUND may attempt to improve its portfolio liquidity by
assuring same-day settlements on portfolio sales (and thus facilitate the
same-day payment of redemption proceeds) through the acquisition of "Stand-by
Commitments." A Stand-by Commitment is a right of the MUNICIPAL FUND, when it
purchases Municipal Securities for its portfolio from a broker, dealer or other
financial institution, to sell the same principal amount of such securities back
to the seller, at the MUNICIPAL FUND's option, at a specified price. Stand-by
Commitments are also sometimes known as "puts." The MUNICIPAL FUND will acquire
Stand-by Commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes. The acquisition
or exercisability of a Stand-by Commitment by the MUNICIPAL FUND will not affect
the valuation or the average weighted maturity of its underlying portfolio
securities. See "Investment Programs and Restrictions - Stand-by Commitments" in
the Statement of Additional Information for additional information with respect
to Stand-by Commitments.
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
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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.
YEAR 2000
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As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Manager is in the process of working with the Fund's service
providers to prepare for the year 2000. Based on information currently
available, the Manager does not expect that the Fund will incur material costs
to be year 2000 compliant. Although the Manager does not anticipate that the
year 2000 issue will have a material impact on the Fund's ability to provide
service at current levels, there can be no assurance that steps taken in
preparation for the year 2000 will be sufficient to avoid an adverse impact on
the Fund. The year 2000 Problem may also adversely affect issuers of the
securities contained in the Fund, to varying degrees based upon various factors,
and thus may have a corresponding adverse effect on the Fund's performance. The
Manager is unable to predict what effect, if any, the year 2000 Problem will
have on such issuers.
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Funds' investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"). The Manager's principal business office is located at 600 Fifth
Avenue, New York, NY 10020. As of June 30, 1999, the Manager was the investment
manager, advisor or supervisor with respect to assets aggregating in excess of
$13.6 billion. The Manager has been an investment adviser since 1970 and
currently is manager of eighteen other registered investment companies and also
advises pension trusts, profit-sharing trusts and endowments.
Pursuant to the Investment Management Contract, the Manager manages the
Fund's portfolio of securities and makes decisions with respect to the purchase
and sale of investments, subject to the general control of the Board of
Directors of the Fund.
The Funds pay the Manager an annual fee, calculated daily and paid monthly,
of .80% of the first $500 million of Cortland's average daily net assets, plus
.775% of the next $500 million of Cortland's average daily net assets, plus
.750% of the next $500 million of Cortland's average daily net assets, plus
.725% of Cortland's average daily net assets in excess of $1.5 billion.
Cortland's comprehensive fee is higher than most other money market mutual funds
which do not offer services that Cortland offers. However, most other funds bear
expenses that are being borne for Cortland by the Manager. During the fiscal
year ended March 31, 1999, Cortland paid the Manager fees which represented .77%
of the CORTLAND GENERAL FUND's average daily net assets, .77% of the Government
Fund's average daily net assets and .77% of the MUNICIPAL FUND's average daily
net assets, respectively, on an annualized basis. During such year, expenses
borne by each of the Funds, including fees paid to the Manager, amounted to
1.00% of the CORTLAND GENERAL FUND's average daily net assets, 1.00% of the
GOVERNMENT FUND's average daily net assets and 1.00% of the MUNICIPAL FUND's
average daily net assets, respectively, on an annualized basis.
SHAREHOLDER INFORMATION
Each Fund sells and redeems its shares on a continuing basis at their net
asset value and does not impose a charge for either sales or redemptions. All
transactions in Fund shares are effected through the Funds' transfer agent, who
accepts orders for purchases and redemptions from securities dealers and from
investors directly.
GENERAL INFORMATION ON PURCHASES
Shares of each Fund may be purchased from Cortland or through securities
dealers which have entered into dealer agreements with Reich & Tang
Distributors, Inc. (the "Distributor"), 600 Fifth
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Avenue, New York, New York 10020, or by institutions which maintain accounts
with Cortland on behalf of their customers. Orders for purchase of shares are
accepted only on a "business day of Cortland" which means any day on which both
the New York Stock Exchange and Investors Fiduciary Trust Company (the
"Custodian"), Cortland's custodian, are open for business. It is expected that
the New York Stock Exchange and/or the Custodian will be closed on Saturdays and
Sundays, New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas. The minimum initial purchase made directly
through Cortland may be as low as $1,000 and subsequent purchases will be
accepted in any amount. Participating brokers may impose different initial
and/or subsequent minimum investment requirements. For further information,
contact the Distributor or your participating broker.
An order to purchase Fund shares is effective only when it is received in
proper form and payment in the form of Federal funds (member bank deposits with
the Federal Reserve Bank) is received by Cortland for investment. Cortland
reserves the right to reject any order for the purchase of shares. Fund shares
are purchased or exchanged at the net asset value next determined after
acceptance of the order. Net asset value is normally determined at 12 noon
Eastern time on each business day of Cortland. Because Cortland uses the
amortized cost method of valuing the securities held by each Fund and rounds
each Fund's per share net asset value to the nearest whole cent, it is
anticipated that the net asset value of the shares of each Fund will remain
constant at $1.00 per share. However, Cortland makes no assurance that it can
maintain a $1.00 net asset value per share. In order to earn dividends the same
day, purchase orders must be received before 12 noon Eastern time; otherwise,
the purchase of shares will occur the following business day. Payments
transmitted by check are normally converted into federal funds within one
business day and are accepted subject to collection at full face amount.
Cortland will not issue share certificates but will record investor holdings on
the books of Cortland in noncertificate form and regularly advise the
shareholder of his ownership position.
There is no sales charge to the investor on purchases placed directly with
Cortland. However, the costs of distributing Fund shares are borne in part by
Cortland and in part by the Manager.
Purchases may be made by following the procedures specified below. If these
purchase procedures are not followed, the processing of orders may be delayed.
PURCHASES THROUGH SECURITIES DEALERS
Investors may submit their initial and subsequent investments directly
through participating securities dealers. For an initial investment, investors
should submit payment and, if required, a completed Investor Application to
their participating securities dealer, who will transmit such payment to
Cortland on behalf of the investor and supply Cortland with required account
information. Some securities dealers may charge a fee for this service. For
customers of securities dealers who offer the service, investors may have their
"free-credit" cash balances automatically invested in Cortland shares on a daily
basis depending upon which Fund has been designated by the investor as the
primary Fund for his account. Automatic purchases and redemptions of Cortland
shares are treated on the same basis as direct purchases and redemptions from
Cortland. "Free-credit" cash balances begin to earn dividends on the first day
following the date that the share purchase or exchange order is effected and
through the date that a redemption order is effected. For further information
and for details concerning the automatic purchase and redemption of Cortland
shares, contact your participating securities dealer or the Distributor.
Cortland is not responsible for any delay caused by securities dealers in
forwarding an order to Cortland. Securities dealers have a responsibility to
transmit orders promptly.
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PURCHASES THROUGH CORTLAND
You may purchase shares of Cortland by wire and by mail. Cortland will only
accept direct orders from investors through the Distributor or through
securities dealers that have entered into dealer agreements with the Distributor
and are registered to sell securities in such state. The initial purchase must
be accompanied by a completed Investor Application available from the
Distributor.
INITIAL PURCHASE OF SHARES
MAIL
Investors may send a check made payable to "Cortland" along with a completed
subscription order form to:
Mutual Funds Group
P.O. Box 13232
Newark, NJ 07101-3232
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member bank of the Federal Reserve
System can normally be converted into Federal Funds within one business day
after receipt of the check. Checks drawn on a nonmember bank may take
substantially longer to convert into Federal Funds and to be invested in Fund
shares. An investor's subscription will not be accepted until the Fund receives
Federal Funds.
BANK WIRE
To purchase shares of the Fund using the wire system for transmittal of
money among banks, an investor should first obtain a new account number by
telephoning the Fund at either (212) 830-5280 (within New York State) or at
(800) 433-1918 (outside New York State) and then instruct a member commercial
bank to wire money immediately to:
Investors Fiduciary Trust Company
ABA# 101003621
Reich & Tang Services, Inc.
DDA# 890752-954-6
The investor should then promptly complete and mail the subscription order
form.
An investor planning to wire funds should instruct his bank to wire before
12 noon, New York City time, on the same day. There may be a charge by the
investor's bank for transmitting the money by bank wire, and there also may be a
charge for use of Federal Funds. The Fund does not charge investors in the Fund
for its receipt of wire transfers. Payment in the form of a "bank wire" received
prior to 12 noon, New York City time, on a Fund Business Day will be treated as
a Federal Funds payment received on that day.
PERSONAL DELIVERY
Deliver a check made payable to "Cortland" along with a completed
subscription order form to:
Reich & Tang Funds
600 Fifth Avenue - 9th Floor
New York, New York 10020
SUBSEQUENT PURCHASES OF SHARES
There is a $50 minimum for each subsequent purchase. All payments should
clearly indicate the shareholder's account number. Provided that the information
on the subscription order form on file with the Fund is still applicable, a
shareholder may reopen an account without filing a new subscription order form
at any time during the year the shareholder's account is closed or during the
following calendar year.
Subsequent purchases can be made either by bank wire or by personal
delivery, as indicated above or by mailing a check to the Fund's transfer agent
at:
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232
ELECTRONIC FUNDS TRANSFERS (EFT)AND DIRECT DEPOSIT PRIVILEGE
You may purchase shares of Cortland (minimum of $50) by having salary,
dividend payments, interest payments or any other payments designated by you, or
by having federal salary, social security, or certain veteran's, military or
other payments from the federal government,
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automatically deposited into your Cortland account. You may deposit as much of
such payments as you elect. To enroll in this program, you must file with
Cortland a completed EFT Application and/or a Direct Deposit Sign-Up Form for
each type of payment that you desire to include in the privilege. The
appropriate form may be obtained from your broker or Cortland. You may elect at
any time to terminate your participation by notifying in writing the appropriate
depositing entity and/or federal agency. Death or legal incapacity will
terminate your participation in the privilege. Further, Cortland may terminate
your participation upon 30 days' notice to you.
HOW TO REDEEM SHARES
You may redeem your shares, in whole or in part, on any day on which the
Fund's net asset value is calculated. Shares are redeemed at the net asset value
next determined after receipt of proper notice of redemption. If you redeem all
of your shares, you will receive payment of all dividends declared but unpaid
through the date of redemption. If you redeem only a portion of the shares in
your account, the dividends declared but unpaid on the shares redeemed will not
be distributed to you until the next regular dividend payment date. If your
redemption order is received prior to 12 noon Eastern time, the redemption will
be effective on that day and Cortland will endeavor to transmit payment that
same business day. If the notice of redemption is received after 12 noon and
prior to 4:15 p.m. Eastern time, the redemption will be at the 4:15 p.m. net
asset value and payment will be made on the next business day.
Some of the redemption procedures described below may require you to
complete and file an authorization form in advance. If purchases are made by
check, redemption of those shares by wire, by check redemption or by telephone
are restricted for fifteen calendar days following the purchase of shares. Under
certain circumstances Cortland may redeem accounts of less than $500 or impose a
monthly service charge of not more than $10 on such accounts.
REDEMPTIONS THROUGH SECURITIES DEALERS
Shareholders may redeem shares by instructing their securities dealer to
effect their redemption transactions. The securities dealer will transmit the
required redemption information to Cortland and the proceeds from that
redemption will be transmitted to the securities dealer for the account of the
shareholder. Securities dealers, including participants in the plan of
distribution described under the heading "Distributor," may impose redemption
minimums, service fees or other requirements. Securities dealers have a
responsibility to transmit redemption requests promptly.
REDEMPTIONS BY CHECK
Shareholders may use checks to effect redemptions. The standard checking
allows checks to be drawn in any amount of $500 or more. Checks drawn in amounts
of less than $500 may be returned to the payee or a $15 fee will be imposed for
such checks paid.
Shareholders may elect to establish a Spectrum Account. A Spectrum Account
provides draft checking services which is part of a range of cash management
services provided by the Manager and/or its affiliates. The account entitles
shareholders to write checks in any amount that will clear through an agent
bank. SHAREHOLDERS WHO ARE INTERESTED IN PARTICIPATING IN THE SPECTRUM ACCOUNT
PROGRAM SHOULD CONSIDER THE INFORMATION AVAILABLE FROM THE DISTRIBUTOR WITH
RESPECT TO THE SPECTRUM ACCOUNT, INCLUDING THE FEES RELATED THERETO.
The payee of a check may cash or deposit it in the same way as an ordinary
bank check. When a check is presented to the agent bank for payment, the agent
bank will cause Cortland to redeem a sufficient number of shares to cover the
amount of the check. Shareholders are entitled to dividends on the shares
redeemed up until the day on which the check is presented to the agent bank for
payment. Checks drawn on insufficient funds will be returned to the payee and a
fee (currently $16) will be imposed. Additionally, a fee (currently $20) will be
imposed for stop payment orders.
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PREAUTHORIZED REDEMPTIONS
Shareholders may make preauthorized redemptions by contacting Cortland by:
(a) calling (212) 830-5280 if calling from New Jersey, Alaska or Hawaii or
(b) calling toll free at (800) 433-1918 if calling from elsewhere in the
continental United States or
(c) sending a telegram or letter to Cortland Trust, Inc., 600 Fifth Avenue, New
York, New York 10020
and have the proceeds mailed or wired only to a previously designated
broker or bank account if (a) shares were paid for in federal funds or were
purchased by check and have been on Cortland's books at least fifteen calendar
days and (b) a telephone redemption authorization included in the Investor
Application is on file with Cortland before the redemption request is placed.
This authorization requires designation of a brokerage or bank account to which
the redemption payment is to be sent. The proceeds will not be mailed or wired
to other than the designated account. Redemptions of $10,000 or more will be
sent by bank wire if requested. Smaller amounts will normally be mailed to the
designated account.
Cortland will employ procedures to confirm that telephone redemption
instructions are genuine, and will require that shareholders electing such
option provide a form of personal identification. The failure by Cortland to
employ such procedures may cause Cortland to be liable for any losses incurred
by investors due to telephone redemptions based upon unauthorized or fraudulent
instructions.
REDEMPTIONS BY LETTER OF INSTRUCTION
Shareholders may redeem shares by a letter of instruction sent directly to
Reich & Tang Funds, 600 Fifth Avenue, New York, New York 10020 containing:
(a) your Cortland account number
(b) your redemption Fund choice
(c) your name and telephone number
(d) the dollar amount or number of shares to be redeemed or a statement that
all shares in the account are to be redeemed
(e) payment instructions (normally redemption proceeds will be mailed to the
shareholder's address as registered with Cortland)
(f) signature(s) of the registered shareholder(s)
(g) signature(s) guaranteed stamped under the signature and signed and
guaranteed by an eligible guarantor institution which includes a domestic
bank, a domestic savings and loan institution, a domestic credit union, a
member bank of the Federal Reserve System or a member firm of a national
securities exchange, pursuant to Cortland's standards and procedures.
The proceeds of redemption are sent to the shareholder's bank or the
shareholder's address as it appears in Cortland's records. In order to change
such designation, the shareholder must submit a written notification to Cortland
with the signature guarantee(s) described above.
EXCHANGES
Shares of each Fund may be exchanged at net asset value for shares of any of
the other Funds without charge by instructions to a shareholder's securities
dealer or by mail. The value of the shares being exchanged must meet the minimum
initial investment requirements of the Fund or the participating securities
dealer. Mail exchange orders should be addressed and sent as shown under the
heading "Redemptions by Letter of Instruction" and must contain:
o your Cortland account number
o your name and telephone number
o the amount of shares to be exchanged (or, if all shares are to be
exchanged, a statement to this effect)
o the Fund shares to be exchanged
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o the Fund shares to be acquired
o any change in dividend election
RETIREMENT PLANS
The Fund has available a form of individual retirement account ("IRA") for
investment in the Fund's shares. In general, an individual can make an annual
contribution to an IRA in an amount equal to the lesser of $2000 or 100% of the
individual's earned income. In addition, in the case of a married couple filing
a joint return, annual IRA contributions of up to $2000 can generally be made
for each spouse, as long as the combined compensation of both spouses is at
least equal to the contributed amounts. IRA contributions can, in general, be
made to either traditional deductible IRAs, traditional non-deductible IRAs or
non-deductible Roth IRAs, a new type of IRA established by the Taxpayer Relief
Act of 1997. Contributions to a Roth IRA are not deductible, but qualified
distributions from a Roth IRA are not includable in income or subject to the
additional ten-percent tax on early withdrawals, if deemed a qualified
distribution. A "qualified distribution" is a distribution that is made after
the end of the five taxable year period beginning with the first taxable year in
which the individual made a contribution to a Roth IRA, and which is made on or
after the date in which the individual attains an age of 59 1/2, on or after the
death of the individual or is attributable to the disability of the individual,
or is a distribution for specified first-time home buyer expenses or certain
education expenses.
Contributions to traditional deductible IRAs and Roth IRAs may be limited
based on adjusted gross income levels. The ability of a person who is an active
participant in an employer sponsored retirement plan to make deductible
contributions to a regular IRA is phased out based on the individual's adjusted
gross incomes. For 1998, the phase out occurs over a range of adjusted gross
incomes from $50,000 to $60,000 on a joint return and $30,000 to $40,000 on a
single return. The phase out range for a married individual who is not an active
participant but whose spouse is an active participant is between $150,000 and
$160,000.
The maximum annual contribution that can be made to a Roth IRA is also
subject to phase out rules that apply to married individuals filing joint
returns when adjusted gross income is between $150,000 and $160,000 and to
single individuals when adjusted gross income is between $95,000 and $110,000.
For both traditional deductible IRAs and Roth IRAs, the phase out range for
married individuals filing separate returns is from $0 to $10,000. The minimum
investment required to open an IRA is $250. Generally, there are penalties for
premature distributions from an IRA before the attainment of age 59 1/2, except
in the case of the participant's death or disability and certain other
circumstances including first-time home buyer expenses and certain education
expenses.
Fund shares may also be a suitable investment for assets of other types of
qualified pension or profit-sharing plans, including cash or deferred or salary
reduction "Section 401(k) plans" which give participants the right to defer
portions of their compensation for investment on a tax-deferred basis until
distributions are made from the plans.
Persons desiring information concerning investments by IRAs and other
retirement plans should write or telephone the Fund.
DISTRIBUTOR
Each of the Funds has entered into a distribution agreement dated September
15, 1993 (the "Distribution Agreements") with Reich & Tang Distributors, Inc.
(the "Distributor"), 600 Fifth Avenue, New York, New York 10020. The
Distributor, which was organized on January 4, 1991, has the exclusive right to
enter into dealer agreements with securities dealers who sell shares of the
Funds, including sales where a securities dealer automatically "sweeps" free
credit balances into a fund at the end of each day ("Sweep Arrangement")
allowing the account holder to earn dividends otherwise unavailable in the
brokerage account, and with financial institutions which may
24
<PAGE>
furnish services to shareholders on behalf of Cortland. Pursuant to plans of
distribution (the "Plans") approved by the Funds' shareholders on July 31, 1989,
each of the Funds may make distribution related payments, under a sweep
arrangement or otherwise, in an amount not to exceed on an annualized basis .25%
of the value of the Fund's assets. Securities dealers and other financial
institutions may receive distribution payments directly or indirectly from the
Funds for services that may include payments for opening shareholder accounts,
processing investor purchase and redemption orders, responding to inquiries from
shareholders concerning the status of their accounts and operations of their
Fund and communications with Cortland on behalf of Fund shareholders.
Additionally, the Distributor may pay for advertisements, promotional materials,
sales literature and printing and mailing of prospectuses to other than Fund
shareholders and other services to support distribution pursuant to the Plans.
The Distributor may also make payments to securities dealers, under a sweep
arrangement or otherwise, and to financial institutions, such as banks, out of
the investment management fee the Manager receives from the Funds, out of its
past profits or from any other source available to the Distributor.
The Plans will only make payments for expenses actually incurred by the
Distributor. The Plans will not carry over expenses from year to year and if a
Plan is terminated in accordance with its terms, the obligations of a Fund to
make payments to the Distributor pursuant to the Plan will cease and the Fund
will not be required to make any payments past the date the Plan terminates.
As a result of 12b-1 fees, a long-term shareholder in a Fund may pay more
than the economic equivalent of the maximum front-end sales charges permitted by
the Rules of the National Association of Securities Dealers, Inc.
DIVIDENDS AND TAXES
DIVIDENDS
It is the policy of Cortland, with respect to each Fund, to declare
dividends from the net investment income earned by each Fund daily; such
dividends are generally reinvested in additional Fund shares on the subsequent
business day. A shareholder may, by letter to Cortland, elect to have dividends
paid by check. Any such election or revocation thereof must be made in writing
to Cortland Trust, Inc., 600 Fifth Avenue, New York, New York 10020.
Shareholders whose dividends are being reinvested will receive a summary of
their accounts at least quarterly indicating the reinvestment of dividends.
Dividends from net realized capital gain, offset by capital loss carryovers, if
any, are generally declared and paid when realized except to the extent that a
net realized capital gain is deemed necessary to offset future capital losses.
TAXES
Each Fund is treated as a separate entity for federal income tax purposes.
Each Fund intends to qualify as a regulated investment company by satisfying the
requirements under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), including requirements with respect to diversification of assets,
distribution of income and sources of income. It is each Fund's policy to
distribute to shareholders all of its investment income (net of expenses) 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 will not be subject to federal
income tax or the 4% excise tax.
If a Fund fails to satisfy any of the Code requirements for qualification as
a regulated investment company, it will be taxed at regular corporate tax rates
on all its taxable income (including capital gains) without any deduction for
distributions to shareholders, and distributions to shareholders will be taxable
as ordinary dividends (even if derived from the Fund's net long-term capital
gains) to the extent of the Fund's current and accumulated earnings and profits.
Distributions by the MUNICIPAL FUND of its tax-exempt interest income are
designated as exempt-interest dividends, which are excludable from gross income
for federal income tax purposes. However, shareholders are required to report
the receipt of
25
<PAGE>
exempt-interest dividends, together with other tax-exempt interest, on their
federal income tax returns. In addition, these exempt-interest dividends may be
subject to the federal alternative minimum tax ("AMT") and will be taken into
account in determining the portion, if any, of Social Security benefits received
which must be included in gross income for federal income tax purposes. Further,
interest or indebtedness incurred or continued to purchase or carry shares of
the MUNICIPAL FUND (which indebtedness likely need not be directly traceable to
the purchase or carrying of such shares) will not be deductible for federal
income tax purposes. Finally, a shareholder who is (or is related to) a
"substantial user" of a facility financed by industrial development bonds held
by the MUNICIPAL FUND likely will be subject to tax on dividends paid by such
Fund that are derived from interest on such bonds.
The MUNICIPAL FUND may invest in securities the interest on which is (and
the dividends paid by the Fund derived from such interest are) subject to
federal income tax, but such taxable securities will not exceed 20% of the value
of the MUNICIPAL FUND's total assets. The percentage of dividends which
constitute exempt-interest dividends, and the percentage thereof (if any) which
constitutes an item of tax preference, will be determined annually and will be
applied uniformly to all dividends of the MUNICIPAL FUND declared during that
year. These percentages may differ from the actual percentages for any
particular day.
Distributions by a Fund of its taxable net investment income and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable to shareholders as ordinary income. Such distributions
are treated as dividends for federal income tax purposes but are not expected to
qualify for the 70% dividends-received deduction for corporate shareholders.
Distributions by a Fund of the excess, if any, of its net long-term capital gain
over its net short-term capital loss are designated as capital gain dividends
and are taxable to shareholders as long-term capital gains, regardless of the
length of time shareholders have held their shares.
Tax-exempt interest on specified private activity bonds issued after August
7, 1986, is treated as a tax preference item for purposes of the AMT. Thus,
corporate and individual shareholders of the MUNICIPAL FUND may incur an AMT
liability as a result of receiving exempt-interest dividends from the Fund to
the extent such dividends are attributable to interest from such private
activity bonds. In addition, because all exempt-interest dividends are included
in a corporate shareholder's adjusted current earnings (which is used in
computing a separate preference item for corporations), corporate shareholders
may incur an AMT liability as a result of receiving exempt-interest dividends
from the MUNICIPAL FUND.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of a Fund. In general, distributions by a Fund are taken into account by the
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by a Fund and received
by the shareholders on December 31 of the preceding year.
A shareholder will recognize gain or loss upon the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
However, as long as a Fund's Net Asset Value per share does not deviate from
$1.00, there will be no gain or loss upon the sale or redemption of shares of a
Fund. Any loss realized upon a taxable disposition of shares within six months
from the date of their purchase will be treated as a long-term capital loss to
the extent of any capital gain dividends received on such shares. All or a
portion of any loss realized upon a taxable disposition of shares of a Fund may
be disallowed if other shares of the Fund are purchased within 30 days before or
after such disposition.
If a shareholder is a non-resident alien or foreign entity shareholder,
ordinary income dividends paid to such shareholder generally will be subject to
United States withholding tax at a rate of
26
<PAGE>
30% (or lower applicable treaty rate). We urge non-United States shareholders to
consult their own tax adviser concerning the applicability of the United States
withholding tax.
Under the backup withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on ordinary income dividends
paid by a Fund. In order to avoid this backup withholding, a shareholder must
provide the Fund with a correct taxpayer identification number (which for most
individuals is his or her Social Security number) or certify that it is a
corporation or otherwise exempt from or not subject to backup withholding.
The exclusion from gross income for federal income tax purposes of
exempt-interest dividends does not necessarily result in exclusion under the
income or other tax laws of any state or local taxing authority.
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 legislative, judicial or administrative action. As the foregoing
discussion is for general information only, a prospective shareholder also
should review the more detailed discussion of federal income tax considerations
relevant to the Funds that is contained in the Statement of Additional
Information. In addition, each prospective shareholder should consult with his
own tax adviser as to the tax consequences of investments in the Funds,
including the application of state and local taxes which may differ from the
federal income tax consequences described above.
27
<PAGE>
VI. FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
Cortland General Money Market Fund
For the Year Ended March 31,
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
-------- --------- --------- -------- ---------
PER SHARE OPERATING PERFORMANCE:
(for a share outstanding
throughout the year)
Net asset value,
beginning of year........... $1.00 $1.00 $1.00 $1.00 $ 1.00
-------- --------- --------- -------- ---------
Income from investment operations:
Net investment income............ 0.045 0.047 0.044 0.049 0.038
Net realized and unrealized
gain/(loss) on investments..... 0.001 (0.001) 0.000 0.001 (0.003)+
---------- ----------- ---------- ---------- ------
Total from investment operations. 0.046 0.046 0.044 0.050 0.035
Less distributions:
Dividends from net
investment income.............. (0.045) (0.047) (0.044) (0.048) (0.038)
------------ --------- --------- --------- -----
Total distributions.............. (0.045) (0.047) (0.044) (0.048) (0.038)
------------ ---------- -------- ----------- -----
Net asset value, end of year..... $1.00 $1.00 $1.00 $1.00 $1.00
========== ========= ========= ============ ======
TOTAL RETURN..................... 4.56% 4.77% 4.52% 4.95% 3.91%+
RATIOS/SUPPLEMENTAL DATA:
Net assets,
end of year (000's omitted). $659,890 $505,442 $1,160,352 $1,159,173 $ 993,854
Ratios to average net assets:
Expenses......................... 1.00% 0.99% 1.02% 1.03% 1.03%
Net investment income............ 4.41% 4.67% 4.41% 4.86% 3.85%
Management and Distribution support
and service fees waived..... 0.03% 0.04% 0.00% 0.00% 0.02%
+ Includes the effect of a capital contribution from the Manager of $.004 per
share. Without a capital contribution the net realized and unrealized loss on
investments would have been $.007 per share and the total return would have
been 2.89%.
</TABLE>
28
<PAGE>
VI. FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
U.S. GOVERNMENT FUND
For the Year Ended March 31,
1999 1998 1997 1996 1995
-------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
(for a share outstanding
throughout the year)
Net asset value,
beginning of year................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income............ 0.042 0.046 0.043 0.047 0.038
Net realized and unrealized
gain/(loss) on investments...... 0.001 ( 0.001) ( 0.001) 0.000 ( 0.003)+
---------- ---------- ---------- ---------- ----------
Total from investment operations. 0.043 0.045 0.042 0.047 0.035
Less distributions:
Dividends from net
investment income............... ( 0.042) ( 0.045) ( 0.043) ( 0.047) ( 0.038)
---------- ---------- ---------- ---------- ----------
Total distributions................ ( 0.042) ( 0.045) ( 0.043) ( 0.047) ( 0.038)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
TOTAL RETURN....................... 4.33% 4.61% 4.37% 4.80% 3.84%+
RATIOS/SUPPLEMENTAL DATA
Net assets,
end of year (000's omitted)...... $ 64,438 $ 48,069 $ 164,464 $ 255,222 $ 218,307
Ratios to average net assets:
Expenses......................... 1.00% 0.81% 1.01% 1.04% 1.04%
Net investment income............ 4.18% 4.58% 4.30% 4.72% 3.74%
Management and Distribution support
and service fees waived.......... 0.04% 0.25% 0.02% 0.00% 0.01%
+ Includes the effect of a capital contribution from the Manager of $.006 per
share. Without a capital contribution the net realized and unrealized loss
on investments would have been $.009 per share and the total return would
have been 2.81%.
</TABLE>
29
<PAGE>
VI. FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
Municipal Money Market
For the Year Ended March 31,
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
(for a share outstanding
throughout the year)
Net asset value,
beginning of year............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income........... 0.025 0.028 0.026 0.030 0.026
--------- --------- --------- --------- ---------
Total from investment operations... 0.025 0.028 0.026 0.030 0.026
Less distributions:
Dividends from net
investment income.............. ( 0.025) ( 0.028) ( 0.026) ( 0.030) ( 0.026)
--------- --------- --------- --------- ---------
Total distributions................ ( 0.025) ( 0.028) ( 0.026) ( 0.030) ( 0.026)
--------- --------- --------- --------- ---------
Net asset value, end of year....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
TOTAL RETURN....................... 2.56% 2.81% 2.68% 3.06% 2.58%
RATIOS/SUPPLEMENTAL DATA
Net assets,
end of year (000's omitted)..... $ 49,234 $ 47,780 $ 153,322 $ 216,456 $ 224,041
Ratios to average net assets:
Expenses........................ 1.00% 1.01% 1.02% 1.03% 0.99%
Net investment income........... 2.51% 2.81% 2.64% 3.02% 2.54%
Management and Distribution support
and service fees waived......... 0.04% 0.00% 0.00% 0.00% 0.06%
</TABLE>
30
<PAGE>
CORTLAND
TRUST, INC.
PROSPECTUS
July 27, 1999
Reich & Tang Distributors, Inc.
600 Fifth Avenue
New York, NY 10020
(212) 830-5220
A Statement of Additional Information (SAI) dated July 27, 1999, and the Funds'
Annual and Semi-Annual Reports include additional information about the Funds
and their investments and are incorporated by reference into this prospectus.
You may obtain the SAI and the Annual and Semi-Annual Reports and other material
incorporated by reference without charge by calling the Funds at 1-800-221-3079.
To request other information, please call your financial intermediary or the
Funds.
A current SAI has been filed with the Securities and Exchange Commission. You
may visit the Securities and Exchange Commission's Internet website
(www.sec.gov) to view the SAI, material incorporated by reference and other
information. These materials can also be reviewed and copied at the Commission's
Public Reference Room in Washington D.C. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. In addition, copies of these materials may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009.
811-4179
<PAGE>
PILGRIM
FUNDS FOR SERIOUS INVESTORS
PILGRIM GENERAL MONEY MARKET FUND
(SHARES OF CORTLAND TRUST, INC.)
40 NORTH CENTRAL AVE., SUITE 1200, PHOENIX, AZ 85004-4424 (800) 992-0180
- --------------------------------------------------------------------------------
PROSPECTUS
JULY 27, 1999
Cortland Trust, Inc. (the "Company") is an open-end, diversified money market
fund. The Company consists of three separate money market fund series-the
Cortland General Money Market Fund, the U.S. Government Fund and the Municipal
Money Market Fund. This Prospectus relates exclusively to the Pilgrim General
Money Market Shares class (the "PILGRIM GENERAL FUND") of the Cortland General
Money Market Fund (the "Fund").
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Page
<S> <C>
Risk/Return Summary: Investments, Risks and Performance 3
Fee Table 5
Investment Objectives, Principal Investment Strategies and Related Risks 6
Management, Organization and Capital Structure 10
Shareholder Information 11
Dividends and Taxes 17
Financial Highlights 19
Telephone Transaction Authorization 20
New Account Application 25
</TABLE>
<PAGE>
PILGRIM GENERAL MONEY MARKET FUND ("PILGRIM GENERAL FUND")
RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The PILGRIM GENERAL FUND seeks to provide its investors with as high a level of
current income as is consistent with preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The PILGRIM GENERAL FUND intends to achieve its investment objective by
investing at least 80% of its assets in marketable securities and instruments
issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities ("U.S. Government Obligations"), in bank instruments (domestic
and foreign), in trust instruments, in corporate commercial instruments and in
other corporate instruments maturing in thirteen months or less (collectively,
"Money Market Obligations").
The PILGRIM GENERAL FUND is a money market fund and seeks to maintain an
investment portfolio with a dollar-weighted average maturity of 90 days or less,
to value its investment portfolio at amortized cost and to maintain a net asset
value of $1.00 per share.
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
o Although the PILGRIM GENERAL FUND seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing
in the PILGRIM GENERAL FUND. The value of the PILGRIM GENERAL FUND's
shares and the securities held by the PILGRIM GENERAL FUND can each
decline in value due to changes in interest rates. For example, rising
interest rates cause the prices of the securities that Pilgrim General
Fund holds to decrease.
o An investment in the PILGRIM GENERAL FUND is not a bank deposit and is not
insured or guaranteed by the FDIC or any other governmental agency.
o Payment of interest and preservation of capital are dependent upon the
continuing ability of issuers and/or obligators of state, municipal,
public authority, and corporate debt obligations to meet their payment
obligations. If such issuers fail to make timely payments of interest and
principal, the PILGRIM GENERAL FUND's investments would decline in value.
o The PILGRIM GENERAL FUND may invest in obligations from foreign issuers,
it is subject to risks involving a lack of liquidity, imposition of
foreign taxes, and other adverse results due to political and economic
developments.
3
<PAGE>
RISK/RETURN BAR CHART
- --------------------------------------------------------------------------------
The following bar chart and table may assist you in your decision to invest in
the PILGRIM GENERAL FUND. The bar chart shows how the PILGRIM GENERAL FUND's
annual returns have changed over the last ten calendar years. The table shows
the PILGRIM GENERAL FUND's average annual returns for the last one and five year
periods, and since inception. While analyzing this information, please note that
the PILGRIM GENERAL FUND's past performance is not an indicator of how it will
perform in the future. The PILGRIM GENERAL FUND's current 7-day yield may be
obtained by calling toll-free at 1-800-221-3079.
2
<PAGE>
<TABLE>
<CAPTION>
PILGRIM GENERAL FUND (1), (2)
[GRAPHIC OMITTED]
<S> <C>
CALENDAR YEAR END % TOTAL RETURN
1998 4.71%
1997 4.71%
1996 4.53%
1995 5.05%
1994 3.31%
1993 2.55%
1992 3.16%
</TABLE>
(1) The PILGRIM GENERAL FUND's highest quarterly return was 1.28% for the
quarter ended June 30, 1995; the lowest quarterly return was 0.63% for the
quarter ended June 30, 1993.
(2) Securities dealers may charge a fee to investors for purchasing and
redeeming shares. Therefore, the net return to such investors may be less
than if they had invested in the PILGRIM GENERAL FUND directly.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS -PILGRIM GENERAL FUND
FOR THE PERIODS ENDED DECEMBER 31, 1998
<S> <C>
One Year 4.71%
Five Years 4.46%
Since Inception [April 1, 1991] 4.11%
</TABLE>
4
<PAGE>
FEE TABLE
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the PILGRIM GENERAL FUND.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
PILGRIM GENERAL FUND
<S> <C>
Exchange Fee $5.00*
</TABLE>
* The PILGRIM GENERAL FUND may, in its sole discretion, impose an exchange fee
of up to $5.00 for each exchange. See "Exchange Privilege" herein.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
PILGRIM GENERAL FUND
<S> <C>
Management Fees 0.77%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.01%
-----
Total Annual Fund Operating Expenses 1.03%*
======
</TABLE>
* The Distributor has voluntarily waived a portion of the Distribution support
and services fee with respect to the PILGRIM GENERAL FUND. After such waivers,
the distribution support and services fee was 0.22%. The actual Total Fund
Operating Expenses were 1.00%. This fee waiver may be terminated at any time at
the option of the Fund.
<TABLE>
<CAPTION>
Example
This Example is intended to help you compare the cost of investing in the
PILGRIM GENERAL FUND with the cost of investing in other money market funds.
Assume that you invest $10,000 in the PILGRIM GENERAL FUND for the time periods
indicated and then redeem all of your shares at the end of those periods. Also
assume that your investment has a 5% return each year and that the Pilgrim
General Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
$105 $328 $569 $1,259
</TABLE>
5
<PAGE>
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
INVESTMENT OBJECTIVE
The PILGRIM GENERAL FUND seeks to provide its investors with as high a level of
current income as is consistent with preservation of capital and liquidity.
There can be no assurance that the PILGRIM GENERAL FUND will achieve its
investment objective.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The PILGRIM GENERAL FUND seeks to achieve its objective by investing at least
80% of its assets in U.S. Government Obligations, in bank instruments (domestic
and foreign), in trust instruments, in corporate commercial instruments and in
other corporate instruments maturing in thirteen months or less (collectively,
"Money Market Obligations").
The PILGRIM GENERAL FUND will invest only in U.S. dollar-denominated securities
which are rated in one of the two highest rating categories for debt obligations
by at least two nationally recognized statistical rating organizations
("NRSROs") (or one NRSRO if the instrument was rated by only one such
organization) or, if unrated, are of comparable quality as determined in
accordance with procedures established by the Board of Directors. The NRSROs
currently rating instruments of the type the PILGRIM GENERAL FUND may purchase
are Moody's Investors Service, Inc., Standard & Poor's Rating Services, a
division of the McGraw-Hill Companies, Duff and Phelps, Inc., Fitch Investors
Service, Inc., IBCA Limited and IBCA Inc.
Investments in rated securities not rated in the highest category by at least
two NRSROs (or one NRSRO if the instrument was rated by only one such
organization), and unrated securities not determined by the Board of Directors
to be comparable to those rated in the highest category, will be limited to 5%
of the PILGRIM GENERAL FUND's total assets, with the investment in any such
issuer being limited to not more than the greater of 1% of the Pilgrim General
Fund's total assets or $1 million. The PILGRIM GENERAL FUND may invest in
obligations issued or guaranteed by the U.S. Government without any such
limitation.
The PILGRIM GENERAL FUND invests in high quality debt obligations with
relatively short maturities. In addition the PILGRIM GENERAL 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 are not fundamental policies, and may be changed by
the Board of Directors, with notice to shareholders.
The securities in which the PILGRIM GENERAL FUND invests may not yield as high a
level of current income as longer term or lower grade securities, which
generally have less liquidity and greater fluctuation in value. The values of
the securities in which the PILGRIM GENERAL FUND invests fluctuate based upon
interest rates, the financial stability of the issuers and market factors.
The PILGRIM GENERAL FUND may invest in bank instruments, which consist mainly of
certificates of deposit, bankers' acceptances and time deposits. The Pilgrim
General Fund may also invest in corporate instruments supported by bank letters
of credit. The PILGRIM GENERAL FUND generally limits investments in bank
instruments to (a) those which are fully insured as to principal by the FDIC or
(b) those issued by banks which at the date of their latest public reporting
have total assets in excess of $1.5 billion. However, the
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total assets of a bank will not be the sole factor determining the Fund's
investment decisions, and the Fund may invest in bank instruments issued by
institutions which the Board of Directors believes present minimal credit risk.
The PILGRIM GENERAL FUND may invest up to 100% of its assets in obligations
issued by banks, and up to 10% of its assets in obligations issued by any one
bank, subject to the provisions of Rule 2a-7 of the Investment Company Act of
1940 (the "1940 Act"). If the bank is a domestic bank, it must be a member of
the FDIC. The PILGRIM GENERAL FUND may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks or foreign branches of
foreign banks ("Eurodollar" obligations) and domestic branches of foreign banks
("Yankee dollar" obligations). The PILGRIM GENERAL FUND will limit its aggregate
investments in foreign bank obligations, including Eurodollar obligations and
Yankee dollar obligations, to 25% of its total assets at the time of purchase,
provided that there is no limitation upon the PILGRIM GENERAL FUND investments
in (a) Eurodollar obligations, if the domestic parent of the foreign branch
issuing the obligation is unconditionally liable in the event that the foreign
branch fails to pay on the Eurodollar obligation for any reason; and (b) Yankee
dollar obligations, if the U.S. branch of the foreign bank is subject to the
same regulation as U.S. banks. Eurodollar, Yankee dollar and other foreign bank
obligations include time deposits, which are non-negotiable deposits maintained
in a bank for a specified period of time at a stated interest rate. The PILGRIM
GENERAL FUND will limit its purchases of time deposits to those which mature in
seven days or less, and will limit its purchases of time deposits maturing in
two to seven days to 10% of such Fund's total assets at the time of purchase.
The PILGRIM GENERAL FUND may invest in short-term corporate obligations and
instruments, including but not limited to corporate commercial paper, notes,
bonds and debentures. Corporate commercial instruments generally consist of
short-term unsecured promissory notes issued by corporations. The Pilgrim
General Fund may also purchase variable amount master demand notes, which are
unsecured demand notes that permit investment of fluctuating amounts of money at
variable rates of interest pursuant to arrangements with issuers who meet the
foregoing quality criteria. The interest rate on a variable amount master demand
note is periodically redetermined according to a prescribed formula. Although
there is no secondary market in master demand notes, the payee may demand
payment of the principal and interest upon notice not exceeding five business or
seven calendar days. The PILGRIM GENERAL FUND may also purchase participation
interests in loans extended by banks to companies, provided that both such banks
and such companies meet the quality standards set forth above. (See the
Statement of Additional Information for information with respect to corporate
commercial instruments and bond ratings.) The PILGRIM GENERAL FUND may also
invest in fixed or variable rate debt units representing an undivided interest
in a trust's distributions of principal and interest that a trust receives from
an underlying portfolio of bonds issued by a highly rated corporate or U.S.
Government agency issuer and/or payments from re-characterized distributions
made possible by the swap of certain payments due on the underlying bonds. The
PILGRIM GENERAL FUND's investment will be limited solely to the debt units and
in each case, must meet the credit quality standards under Rule 2a-7 of the 1940
Act. Debt units will be purchased by the PILGRIM GENERAL FUND as an
institutional accredited investor pursuant to a private placement memorandum.
Sale of debt units will be effected pursuant to Rule 144A or other exemptions
from registration under the Securities Act of 1933, subject to the eligibility
of the purchaser and compliance with trust agreement requirements. The Manager
will monitor the liquidity of the debt units under the supervision of the
Company's Board of Directors.
The PILGRIM GENERAL FUND may enter into the following arrangements. Repurchase
Agreements: under a repurchase agreement, the purchaser (for example, the
PILGRIM GENERAL FUND) acquires ownership of an obligation and the seller agrees,
at the time of the sale, to repurchase the obligation at a mutually agreed upon
time and price, thereby determining the yield during the 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, the Pilgrim
General Fund will not enter into a repurchase agreement if as a result of such
investment more than 10% of such the PILGRIM GENERAL FUND's total assets would
be invested in illiquid securities, including repurchase agreements which expire
in more than seven days. The PILGRIM GENERAL 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 the
PILGRIM GENERAL FUND on demand and the effective interest rate is negotiated on
a daily basis.
In general, the PILGRIM GENERAL 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 PILGRIM GENERAL FUND's investment
decisions, and the PILGRIM GENERAL 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
PILGRIM GENERAL FUND 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 Pilgrim
General Fund's custodian and (i) are recorded in the name of the Pilgrim General
Fund with the Federal Reserve Book-Entry System, or (ii) the Pilgrim General
Fund receives daily written confirmation of each purchase of a security and a
receipt from the custodian. The PILGRIM GENERAL FUND purchases securities
subject to a repurchase agreement only when the purchase price of the security
acquired is equal to or less than its market price at the time of purchase.
The PILGRIM GENERAL FUND may also enter into reverse repurchase agreements which
involve the sale by the PILGRIM GENERAL FUND of a portfolio security at an
agreed upon price, date and interest payment. The PILGRIM GENERAL FUND will
enter into reverse repurchase agreements for temporary or defensive purposes to
facilitate the orderly sale of portfolio securities, to accommodate abnormally
heavy redemption requests should they occur, or in some cases as a technique to
enhance income. The PILGRIM GENERAL 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. The PILGRIM GENERAL FUND will enter into reverse repurchase
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agreements only in amounts up to 10% of the value of its total assets at the
time of entering into such agreements. Reverse repurchase agreements involve the
risk that the market value of securities retained by the PILGRIM GENERAL FUND in
lieu of liquidation may decline below the repurchase price of the securities
sold by the Fund which it is obligated to repurchase. This risk, if encountered,
could cause a reduction in the net asset value of a the PILGRIM GENERAL FUND's
shares. Reverse repurchase agreements are considered to be borrowings under the
1940 Act. As such, they are subject to limitations on the level of the Pilgrim
General Fund assets that may be invested in such instruments.
Delayed delivery agreements are commitments by any of the PILGRIM GENERAL FUND
to dealers or issuers to acquire securities beyond the customary same-day
settlement for money market instruments. These commitments fix the payment price
and interest rate to be received on the investment. Delayed delivery agreements
will not be used as a speculative or leverage technique. Rather, from time to
time, the investment advisor can anticipate that cash for investment purposes
will result from scheduled maturities of existing portfolio instruments or from
net sales of shares of the PILGRIM GENERAL FUND; therefore, to assure that the
PILGRIM GENERAL FUND will be as fully invested as possible in instruments
meeting the PILGRIM GENERAL FUND investment objective, the PILGRIM GENERAL 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 are sometimes offered on a "when-issued" basis, that
is, the date for delivery of and payment for the securities is not fixed at the
date of purchase, but is set after the securities are issued (normally within
forty-five days after the date of the transaction). The payment obligation and
the interest rate that will be received on the securities are fixed at the time
the buyer enters into the commitment. The PILGRIM GENERAL FUND will only make
commitments to purchase such Money Market Instruments with the intention of
actually acquiring such securities, but the PILGRIM GENERAL FUND may sell these
securities before the settlement date if it is deemed advisable.
If the PILGRIM GENERAL FUND enters into a delayed delivery agreement or
purchases a when-issued security it will direct the Company's custodian bank to
place cash or other high grade securities (including Money Market Obligations)
in a segregated account of the PILGRIM GENERAL 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 the PILGRIM GENERAL 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 the
PILGRIM GENERAL FUND's exposure to market fluctuation; or may increase the
possibility that the PILGRIM GENERAL FUND will incur a short-term loss, it 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 Pilgrim
General Fund 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 the PILGRIM GENERAL FUND's net assets would become so
committed. The PILGRIM GENERAL FUND will enter into when-issued and delayed
delivery transactions only when the time period between trade date and
settlement date is at least 30 days and not more than 120 days.
Consistent with the objective of stability of principal, the Pilgrim General
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, it invests in Money Market Obligations
having remaining maturities of thirteen months or less and maintains a weighted
average maturity of 90 days or less. However, there can be no assurance that the
PILGRIM GENERAL FUND's net asset value per share of $1.00 will be maintained.
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The PILGRIM GENERAL FUND complies with industry-standard requirements on the
quality, maturity and diversification of its investments which are designed to
help maintain a $1.00 share price.
However, the PILGRIM GENERAL FUND is still subject to risks involving changes in
interest rates and the credit risk surrounding the issuers of Money Market
Obligations.
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Rising interest rates cause the prices of debt securities to decrease, which
would lead to a loss in the value of the PILGRIM GENERAL FUND's investment.
Moreover, changes in interest rates may be caused by various economic factors or
political events.
In addition, the PILGRIM GENERAL FUND is exposed to the credit risk of the
institutions that issue Money Market Obligations. Changes in the credit quality
of the issuers could affect their ability to meet their payment obligations of
interest or principal. Any failure to make such payments could adversely affect
the value of the security and your investment in the PILGRIM GENERAL FUND.
Investors should also note that the PILGRIM GENERAL FUND will invest in
Eurodollar and Yankee dollar obligations. Eurodollar, Yankee dollar and other
foreign obligations involve special investment risks, including the possibility
that liquidity could be impaired because of future political and economic
developments, that the obligations may be less marketable than comparable
domestic obligations of domestic issuers, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
deposits may be seized or nationalized, that foreign governmental restrictions
such as exchange controls may be adopted which might adversely affect the
payment of principal of and interest on those obligations, that the selection of
foreign obligations may be more difficult because there may be less information
publicly available concerning foreign issuers, that there may be difficulties in
enforcing a judgment against a foreign issuer or that the accounting, auditing
and financial reporting standards, practices and requirements applicable to
foreign issuers may differ from those applicable to domestic issuers. In
addition, foreign banks are not subject to examination by United States
Government agencies or instrumentalities.
Year 2000
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Manager is in the process of working with the Fund's service
providers to prepare for the year 2000. Based on information currently
available, the Manager does not expect that the Fund will incur material costs
to be year 2000 compliant. Although the Manager does not anticipate that the
year 2000 issue will have a material impact on the Fund's ability to provide
service at current levels, there can be no assurance that steps taken in
preparation for the year 2000 will be sufficient to avoid an adverse impact on
the Fund. The year 2000 Problem may also adversely affect issuers of the
securities contained in the Fund, to varying degrees based upon various factors,
and thus may have a corresponding adverse effect on the Fund's performance. The
Manager is unable to predict what effect, if any, the year 2000 Problem will
have on such issuers.
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Funds' investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"). The Manager's principal business office is located at 600 Fifth
Avenue, New York, NY 10020. As of June 30, 1999, the Manager was the investment
manager, advisor or supervisor with respect to assets aggregating in excess of
$13.6 billion. The Manager has been an investment adviser since 1970 and
currently is manager of eighteen other registered investment companies and also
advises pension trusts, profit-sharing trusts and endowments.
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Pursuant to the Investment Management Contract, the Manager manages the Fund's
portfolio of securities and makes decisions with respect to the purchase and
sale of investments, subject to the general control of the Board of Directors of
the Fund.
The Company pays the Manager an annual fee, calculated daily and paid monthly,
of 0.80% of the first $500 million of the Company's average daily net assets,
plus 0.775% of the next $500 million of the Company's average daily net assets,
plus 0.75% of the next $500 million of the Company's average daily net assets,
plus 0.725% of the Company's average daily net assets in excess of $1.5 billion.
A portion of such fees is allocated to the Fund based upon its pro rata share of
the Company's total net assets. The comprehensive fee paid by the Company is
higher than the fees paid by most other money market mutual funds, many of which
do not offer services that the Company offers. Also, most other mutual funds
bear expenses that are being borne for the Company by the Manager. During the
fiscal year ended March 31, 1999, the Company paid the Manager fees which
represented 0.77% of the Fund's average daily net assets on an annualized basis.
During such year, expenses of the Fund, including fees paid to the Manager,
amounted to 1.00% of the Fund's average daily net assets on an annualized basis.
SHAREHOLDER INFORMATION
HOW TO BUY PILGRIM GENERAL FUND SHARES
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PILGRIM GENERAL FUND are offered continuously for purchase on each day which the
New York Stock Exchange and the Company's Custodian are open for business. All
shares are purchased at the net asset value (expected to be constant at $1.00
per share, next determined after funds are received in payment for shares by the
transfer agent of the PILGRIM GENERAL FUND, DST Systems, Inc. (the "Transfer
Agent"). There is no sales charge. The minimum initial investment is $1,000 and
$250 for IRAs and the minimum subsequent investment is $100, but such minimum
amounts may be waived or changed at any time at Management's discretion. The
Fund will waive the minimum for purchases by employees of Pilgrim Securities,
Inc., ("PSI") or its affiliates, and employees of the Transfer Agent and its
affiliates. An investor wishing to open an account should use the New Account
Application included in this Prospectus.
Many of the types of instruments in which the Fund is permitted to invest are
paid for in Federal funds which are monies held by the Custodian on deposit at a
Federal Reserve Bank. Since the monies paid for shares of the Fund generally
cannot be invested by the Fund until they are converted into, and are available
to the Fund in Federal funds, which may take up to three days, payment of
dividends on the Fund's shares purchased will not commence until such conversion
and availability is achieved.
You will become a shareholder of record as of the close of business on the day
after payment is received by the Transfer Agent. Shares purchased by Federal
funds wire sent directly to the Transfer Agent (see "Purchases by Wire" below)
will be purchased at the close of business on the day on which your order is
received and you will be entitled to dividends on the next business day.
However, Federal funds wires received by the Transfer Agent after 4:00 p.m. New
York time on any business day will be deemed received by the Fund and credited
to an account on the next business day.
Although no sales charge is imposed by the Fund on purchases of its shares, a
selling agent may charge a commission or sales fee. PSI does not currently
impose any such fee. You may also purchase shares of the Fund initially by
sending a check accompanied by an application. Subsequent investments by check
must
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include account information including the account number. All checks must
be drawn on U.S. banks in U.S. funds to avoid delays and fees. Purchases made by
check are normally converted into Federal funds within two business days and are
accepted subject to collection at face value. A charge may be imposed if a check
submitted for investment does not clear.
PURCHASES BY WIRE
PILGRIM GENERAL FUND shares may be purchased by wire transfer in the form of
Federal funds. If payment is wired, it should be directed to Investors Fiduciary
Trust Company ABA #101003621 for credit to Pilgrim General Money Market Shares
A/C #752-4854, For Further Credit to: Shareholder A/C # ,Shareholder Name: .
For initial purchase by Federal funds wire, you must first obtain an account
number by telephoning the Fund at 800-336-3436. You may then instruct your bank
to wire funds as described above. After you have received an account number and
have wired funds, you must complete the Application in its entirety and send it
to:
Pilgrim Funds
P.O. Box 419368
Kansas City, MO 64141
Your completed Application must be received in order to properly register your
account. Any requests to exchange, transfer, or redeem will not be honored until
such Application is received. See the Fund's Application included in this
Prospectus.
For subsequent investments by wire, first telephone the Fund to obtain a wire
reference number prior to transmission. This helps the Fund ensure proper credit
to your account.
PURCHASES BY CHECK
An initial investment made by check must be accompanied by the Fund's
Application completed in its entirety. Additional shares of the Fund may also be
purchased by sending a check payable to the Fund, along with information
regarding your account, including the account number, to the Transfer Agent. All
checks should be drawn only on U.S. banks in U.S. funds, in order to avoid fees
and delays. Please note that third party checks will not be accepted. A charge
may be imposed if any check submitted for investment does not clear.
Orders for the purchase of PILGRIM GENERAL FUND shares are accepted only on a
"business day of the Company," which means any day on which the New York Stock
Exchange and the Custodian are open for business. It is expected that the New
York Stock Exchange and/or the Custodian will be closed during the next twelve
months on Saturday and Sundays and on September 7 (Labor Day), October 12
(Columbus Day), November 11 (Veterans' Day), November 26 (Thanksgiving Day),
December 25 (Christmas), 1998 and January 1 (New Year's Day), January 18 (Martin
Luther King Jr. Day), February 15 (Presidents' Day), April 2 (Good Friday) and
May 31 (Memorial Day), July 5 (Independence Day observance), 1999. For further
information, investors should contact PSI or any participating broker.
An order to purchase PILGRIM GENERAL FUND shares is effected only when it is
received in proper form and payment in the form of Federal funds (member bank
deposits with the Federal Reserve Bank) is received by the Company for
investment. The Company reserves the right to reject any order for the purchase
of shares. PILGRIM GENERAL FUND shares are purchased or exchanged at the net
asset value next determined after acceptance of the order. Net asset value is
normally determined at 12:00 noon New York time on
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each business day of the Company. It is anticipated that the net asset value of
the shares of the Fund will remain constant at $1.00 per share, because the Fund
uses the amortized cost method of valuing the securities held by the Fund and
rounds the Fund's per share net asset value to the nearest whole cent. The
Company, however, makes no assurance that the Fund can maintain a $1.00 net
asset value per share. The Fund will not issue share certificates but will
record investor holdings on the books of the Company in non-certificate form and
regularly advise the shareholder of his ownership position. There is no sales
charge to the investor on purchases of the PILGRIM GENERAL FUND. The costs of
distributing the PILGRIM GENERAL FUND are borne in part by the Company and in
part by the Manager and/or PSI. See "Distribution Plan" herein.
CHOOSING A DISTRIBUTION OPTION
When you buy shares of the Fund you may choose one of the following distribution
options:
1) The Share Option reinvests your income dividends and capital gains
distributions, if any, in additional shares daily. You are assigned this
automatically if no selection is indicated. Income dividends and capital gains
will be distributed in the form of additional shares on the next business day.
2) With the Cash Option, you receive both income dividends and capital gains
distributions in cash. If you select this option and the U.S. Postal Service
cannot deliver your checks, or if your checks remain uncashed for six months,
your dividends and distributions may be reinvested in your account at the
then-current net asset value and your election will be converted to the Share
Option.
3) If you are also a shareholder of any of the other Pilgrim Funds (Class A or
M), distributed by PSI, the Transfer Option permits you to have income dividends
and capital gains distributions of the Fund automatically invested in shares of
any one of those funds of which you are a shareholder at the applicable net
asset value.
Once again, you must specify which option you desire when you place your order
or submit your application. Tax consequences of distributions (described below
under "Distributions and Taxes") are the same whether you choose to receive them
in cash or to reinvest them in additional shares of the Fund or another Pilgrim
Fund.
EXCHANGE PRIVILEGE
An exchange privilege is available. Exchange requests may be made in writing to
the Fund's Shareholder Servicing Agent or by calling the Shareholder Servicing
Agent at (800) 992-0180.
Class A or M shares of a Pilgrim Fund that are not subject to a Contingent
Deferred Sales Charge (CDSC) may be exchanged for shares of the Pilgrim General
Fund. Shares of the PILGRIM GENERAL FUND acquired in the exchange may
subsequently be exchanged for shares of a mutual fund offered by Pilgrim Funds
of the same class of shares as the original shares acquired. Shareholders
exercising the exchange privilege with any of Pilgrim's other funds should
carefully review the prospectus of that fund. Exchanges of shares are sales and
may result in a gain or loss for federal or state income tax purposes. You will
automatically be assigned the telephone exchange privilege unless you mark the
box on the New Account Application that signifies that you do not wish to have
this privilege. The exchange privilege is only available in states where shares
of the fund being acquired may legally be sold.
Management may, in its sole discretion, modify the exchange privilege and begin
imposing a charge of up to $5.00 for each exchange. In addition, management may,
in its sole discretion levy a charge of up to $5.00 for each exchange effected
by professional market timers for groups of accounts which exceed 4
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annual group exchanges. The total value of shares being exchanged must at least
equal the minimum investment requirement of the Fund into which they are being
exchanged.
SYSTEMATIC EXCHANGE PRIVILEGE
Subject to the information and limitations outlined above, you may elect to have
a specified amount of shares systematically exchanged, monthly, quarterly,
semi-annually or annually (on or about the 10th of the applicable month), from
your account to an identically registered account in Class A or M of any other
Pilgrim Fund. The exchange privilege may be modified at any time or terminated
upon 60 days written notice to shareholders.
PRE-AUTHORIZED INVESTMENT PLAN
For your convenience, a pre-authorized investment program (see "Pre-Authorized
Investment Plan" on the account Application) may be established whereby your
personal bank account is automatically debited and your Fund Account is
automatically credited with additional full and fractional shares ($100
subsequent minimum investment). For further information on pre-authorized
investment plans, please contact the Fund's Shareholder Servicing Agent at (800)
992-0180.
The minimum investment requirements may be waived by PSI for purchases made
pursuant to certain programs such as payroll deduction plans and retirement
plans.
HOW TO REDEEM PILGRIM GENERAL FUND SHARES
- -----------
Shares of the Fund will be redeemed at the net asset value next determined after
receipt of a redemption request in good form by the Fund's Transfer Agent on any
day on which the Fund's net asset value is calculated. If all of your shares are
redeemed, all dividends accrued through the day of withdrawal will be remitted
to you.
REDEMPTION BY CHECK
The Transfer Agent will provide, upon your request, checks to be drawn on your
account that will clear through the Transfer Agent. These may be made payable to
the order of any person for an amount of $100 or more. When a check is presented
to the Transfer Agent for payment, the Transfer Agent will redeem a sufficient
number of full and fractional shares in your account to cover the amount of the
check. This enables you to continue earning daily income dividends until the
check has cleared. Cancelled checks will be returned to you by the Transfer
Agent. If you elect to use this method of redemption, please so signify on the
application.
You will be subject to the Transfer Agent's rules and regulations governing such
checks, including the right of the Transfer Agent not to honor checks in amounts
of less than $100 or exceeding the value of the account at the time they are
presented for payment. The Fund and the Transfer Agent reserve the right to
modify or terminate this service at any time after notification to the Fund's
shareholders.
REDEMPTION BY MAIL
A written request for redemption must be received by the Fund's Transfer Agent
in order to constitute a valid tender for redemption. The Transfer Agent may
also require a signature guarantee by an "Eligible Institution" as that term is
defined under the Securities Exchange Act of 1934. It will also be necessary for
corporate investors and other associations to have an appropriate certification
on file authorizing redemptions by a corporation or an association before a
redemption request will be considered in proper form. A
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suggested form of such certification is provided on the Application included in
this Prospectus. To determine whether a signature guarantee or other
documentation is required, shareholders may call the Fund's Shareholder
Servicing Agent at (800) 992-0180.
A signature guarantee is designed to protect the investor, the Fund, PSI, and
their agents by verifying the signature of an investor seeking to redeem or
transfer shares of the Fund. Signature guarantees are typically required at
least in the following circumstances: (1) redemptions by mail of $50,000 or
more; (2) redemptions by mail if the proceeds are to be paid to someone other
than the name(s) in which the account is registered; (3) written redemptions by
mail requesting proceeds to be sent by wire; (4) redemptions by mail requesting
proceeds to be sent to an address other than the address of record or to an
address that has been changed within 30 days; (5) requests to transfer the
registration of shares to another owner; and (6) requests for telephone
redemption authorization. These requirements may be waived or modified at the
discretion of management. Other documentation may be required under certain
circumstances and it is suggested that you contact PSI at (800) 992-0180 if you
have any questions.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to have regular monthly, quarterly, semi annual or
annual payments in any fixed amount in excess of $100 made to him or her, or to
anyone else properly designated as long as the account has a value of at least
$10,000. During the withdrawal period, a shareholder may purchase additional
shares for deposit to his or her account if the additional purchases are equal
to at least one year's scheduled withdrawals or $1,200, whichever is greater.
There are no separate charges to a shareholder under this plan. The number of
full and fractional shares equal in value to the amount of the payment will be
redeemed at net asset value. Such redemptions are normally processed on the
fifth day prior to the end of the period. Checks are then mailed on or about the
first of the following month. Shareholders who elect to have a Systematic
Withdrawal Plan must have all dividends and capital gains reinvested. To
establish a Systematic Withdrawal Plan, please complete the section entitled
"Systematic Withdrawal Plan" on the Additional Options section of the New
Account Application. To have funds automatically deposited to your bank account,
follow the instructions on the New Account Application.
You may change the amount, frequency, and payee, or terminate this plan by
giving written notice to the Fund's Transfer Agent. The Fund reserves the right
to terminate this service at any time upon written notice to you by the Fund.
EXPEDITED REDEMPTION
The Expedited Redemption privilege allows you to effect a liquidation from your
account via a telephone call and have the proceeds (maximum of $100,000) mailed
to your address of record. This privilege is automatically assigned to you
unless you check the box on the application which signifies that you do not wish
to utilize such option.
The Expedited Redemption Privilege additionally allows you to effect a
liquidation from your account and have the proceeds (minimum $5,000) wired to
your pre-designated bank account. This privilege will NOT automatically assigned
to you. If you want to take advantage of this privilege, please check the
appropriate box and attach a voided check to the New Account Application. Under
normal circumstances, proceeds will be transmitted to your bank on the first
business day following receipt of your instructions,
15
<PAGE>
provided redemptions may be made. See "Telephone Transaction Authorization" on
the New Account Application.
To effect an Expedited Redemption, please call the Transfer Agent at (800)
992-0180.
TIMING AND PRICING OF REDEMPTION ORDERS
PILGRIM GENERAL FUND shares are redeemed at their net asset value next computed
after a request for redemption in proper form (including signature guarantees
and other required documentation) is received by the Transfer Agent or PSI.
Orders for the redemption of shares received in proper form by the Transfer
Agent prior to 12 noon New York time will be confirmed as of the close of that
day. Orders received after 12 noon New York time will be confirmed on the next
business day of the Fund. The Fund will not accept requests which specify a
particular date for redemption or which specify any special conditions.
Payment of the proceeds of redeemed shares will normally be mailed within three
days following the redemption date. A charge for special handling (such as
wiring of funds) may be made by the Transfer Agent. The right of redemption may
not be suspended or the date of payment upon redemption postponed except under
unusual circumstances such as when trading on the New York Stock Exchange is
restricted or suspended. Payment of the proceeds of redemptions relating to
shares for which checks sent in payment have not yet cleared will be delayed
until it is determined that the check has cleared, which may take up to 15 days
from the date that the purchase is effected.
EXPEDITED REDEMPTION AND TELEPHONE EXCHANGE INFORMATION
The Fund and its Transfer Agent will not be responsible for the authenticity of
telephone instructions or losses, if any, resulting from unauthorized
shareholder transactions if the Fund or its Transfer Agent reasonably believe
that such instructions were genuine. The Fund and its Transfer Agent have
established procedures that the Fund believes are reasonably appropriate to
confirm that instructions communicated by telephone are genuine. These
procedures include: (i) recording telephone instructions for exchanges and
expedited redemptions; (ii) requiring the caller to give certain specific
identifying information; and (iii) providing written confirmations to
shareholders of record not later than five days following any such telephone
transaction. If the Fund and its Transfer Agent do not employ these procedures,
they may be liable for any losses due to unauthorized or fraudulent telephone
instructions.
MINIMUM ACCOUNT BALANCE
Due to the relatively high cost of handling small investments, the Fund reserves
the right, upon 60 days' written notice, to involuntarily redeem, at net asset
value, the shares of any account if the balance falls to less than $1,000 due to
shareholder withdrawal. Alternatively, the Fund also reserves the right to
liquidate sufficient shares to recover annual transfer agent fees should the
investor fail to increase his/her account value to at least $1,000.
DISTRIBUTION PLAN
The Fund has entered into a Distribution Agreement dated September 15, 1993 (the
"Distribution Agreement"), with Reich & Tang Distributors, Inc. (the
"Distributor"), 600 Fifth Avenue, New York, New York 10020. The Distributor,
which was organized on January 4, 1991, has the exclusive right to enter into
agreements with registered broker-dealers who sell the Company's shares and with
financial institutions which may furnish services to shareholders on behalf of
the Company. On April 7, 1995, the Distributor entered into a Primary Dealer
Agreement with PSI in order to provide for the offer and sale of the PILGRIM
GENERAL FUND Shares. Pursuant to a plan of distribution (the "Plan") approved by
the Fund's shareholders on July 31, 1989, the Fund may make distribution-related
payments in an amount not to
16
<PAGE>
exceed on an annualized basis 0.25% of the value of the Fund's assets.
Securities dealers and financial institutions (including PSI) may receive
distribution payments directly or indirectly from the Fund for services that may
be used to pay the costs of opening shareholder accounts, processing investor
purchase and redemption orders, responding to inquiries from shareholders
concerning the status of their accounts and the operations of the Fund and
communications with the Company on behalf of Fund shareholders. The full amount
of such payments made with respect to the PILGRIM GENERAL FUND Shares will be
paid to PSI, which will use such amounts to defray in part its costs associated
with providing the foregoing services to holders of the PILGRIM GENERAL FUND
Shares.
In addition, the Distributor may pay for advertisements, promotional materials,
sales literature and the printing and mailing of prospectuses to prospective
shareholders and other services to support distribution pursuant to the Plan.
The Distributor may also make payments to securities dealers (including PSI) and
financial institutions, such as banks, out of the investment management fee
which the Manager receives from the Fund, out of its profits or from any other
source available to the Distributor. Expenses payable under the Plan will not be
carried over from year to year and, if the Plan is terminated in accordance with
its terms, the obligations of the Fund to make payments to the Distributor, PSI
or other securities dealers pursuant to the Plan will cease and the Fund will
not be required to make any payments after such termination date.
As a result of 12b-1 fees, a long-term shareholder in the Fund may pay more than
the economic equivalent of the maximum front-end sales charges permitted by the
Rules of the National Association of Securities Dealers, Inc.
DIVIDENDS AND TAXES
DIVIDENDS
It is the policy of the Company, with respect to the Fund, to declare dividends
from the net investment income earned by the Fund daily; such dividends are
generally reinvested in additional Fund shares on the subsequent business day. A
shareholder may, by letter to the Company, elect to have dividends paid by
check. Any such election or revocation thereof must be made in writing or by
phone to Pilgrim at (800) 992-0180. Shareholders whose dividends are being
reinvested will receive a summary of their accounts at least quarterly
indicating the reinvestment of dividends. Dividends from net realized capital
gain, offset by capital loss carryovers, if any, are generally declared and paid
when realized except to the extent that a net realized capital gain is deemed
necessary to offset future capital losses.
TAXES
The Fund is treated as a separate entity for federal income tax purposes. The
Fund intends to qualify as a regulated investment company by satisfying the
requirements under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), including requirements with respect to diversification of assets,
distribution of income and sources of income. It is the Fund's policy to
distribute to shareholders all of its investment income (net of expenses) and
any capital gains (net of capital losses) in accordance with the timing
requirements imposed by the Code, so that the Fund will satisfy the distribution
requirement of Subchapter M and will not be subject to federal income tax or the
4% excise tax.
If the Fund fails to satisfy any of the Code requirements for qualification as a
regulated investment company, it will be taxed at regular corporate tax rates on
all its taxable income (including capital gains)
17
<PAGE>
without any deduction for distributions to shareholders, and distributions to
shareholders will be taxable as ordinary dividends (even if derived from the
Fund's net long-term capital gains) to the extent of the Fund's current and
accumulated earnings and profits.
Distributions by the Fund of its taxable net investment income and the excess,
if any, of its net short-term capital gain over its net long-term capital loss
are taxable to shareholders as ordinary income. Such distributions are treated
as dividends for federal income tax purposes but are not expected to qualify for
the 70% dividends-received deduction for corporate shareholders. Distributions
by the Fund of the excess, if any, of its net long-term capital gain over its
net short-term capital loss are designated as capital gain dividends and are
taxable to shareholders as long-term capital gains, regardless of the length of
time shareholders have held their shares.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of the Fund. In general, distributions by the Fund are taken into account by the
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by the Fund and received
by the shareholders on December 31 of the preceding year.
A shareholder will recognize gain or loss upon the sale or redemption of shares
of the Fund in an amount equal to the difference between the proceeds of the
sale or redemption and the shareholder's adjusted tax basis in the shares.
However, as long as the Fund's Net Asset Value per share does not deviate from
$1.00, there will be no gain or loss upon the sale or redemption of shares of
the Fund. Any loss realized upon a taxable disposition of shares within six
months from the date of their purchase will be treated as a long-term capital
loss to the extent of any capital gain dividends received on such shares. All or
a portion of any loss realized upon a taxable disposition of shares of the Fund
may be disallowed if other shares of the Fund are purchased within 30 days
before or after such disposition.
If a shareholder is a non-resident alien or foreign entity shareholder, ordinary
income dividends paid to such shareholder generally will be subject to United
States withholding tax at a rate of 30% (or lower applicable treaty rate). We
urge non-United States shareholders to consult their own tax adviser concerning
the applicability of the United States withholding tax.
Under the backup withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on ordinary income dividends
paid by the Fund. In order to avoid this backup withholding, a shareholder must
provide the Fund with a correct taxpayer identification number (which for most
individuals is his or her Social Security number) or certify that it is a
corporation or otherwise exempt from or not subject to backup withholding.
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 legislative, judicial or administrative action. As the foregoing
discussion is for general information only, a prospective shareholder also
should review the more detailed discussion of federal income tax considerations
relevant to the Funds that is contained in the Statement of Additional
Information. In addition, each prospective shareholder should consult with his
own tax adviser as to the tax consequences of investments in the Funds,
including the application of state and local taxes which may differ from the
federal income tax consequences described above.
18
<PAGE>
VI. FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
Pilgrim General Money Market Fund
For the Year Ended March 31,
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
-------- --------- --------- -------- ---------
PER SHARE OPERATING PERFORMANCE:
(for a share outstanding
throughout the year)
Net asset value,
beginning of year........... $1.00 $1.00 $1.00 $1.00 $ 1.00
-------- --------- --------- -------- ---------
Income from investment operations:
Net investment income............ 0.045 0.047 0.044 0.049 0.038
Net realized and unrealized
gain/(loss) on investments..... 0.001 (0.001) 0.000 0.001 (0.003)+
---------- ----------- ---------- ---------- ------
Total from investment operations. 0.046 0.046 0.044 0.050 0.035
Less distributions:
Dividends from net
investment income.............. (0.045) (0.047) (0.044) (0.048) (0.038)
------------ --------- --------- --------- -----
Total distributions.............. (0.045) (0.047) (0.044) (0.048) (0.038)
------------ ---------- -------- ----------- -----
Net asset value, end of year..... $1.00 $1.00 $1.00 $1.00 $1.00
========== ========= ========= ============ ======
TOTAL RETURN..................... 4.56% 4.77% 4.52% 4.95% 3.91%+
RATIOS/SUPPLEMENTAL DATA
Net assets,
end of year (000's omitted). $659,890 $505,442 $1,160,352 $1,159,173 $ 993,854
Ratios to average net assets:
Expenses......................... 1.00% 0.99% 1.02% 1.03% 1.03%
Net investment income............ 4.41% 4.67% 4.41% 4.86% 3.85%
Management and distribution support
and service fees waived..... 0.03% 0.04% 0.00% 0.00% 0.02%
+ Includes the effect of a capital contribution from the Manager of $.004 per
share. Without a capital contribution the net realized and unrealized loss on
investments would have been $.007 per share and the total return would have
been 2.89%.
</TABLE>
19
<PAGE>
TELEPHONE TRANSACTION AUTHORIZATION
AUTHORIZATION AND AGREEMENT
- -----------
I (we), the "Investor" hereby authorizes Pilgrim to accept and act conclusively
upon telephone instructions from the Investor, anyone other than the Investor
representing himself to be the Investor, or any person purporting to represent
the Investor in effecting a redemption of specified share or dollar amounts or
in effecting exchanges of shares of one (or more) Pilgrim fund(s) (the "Fund" or
"Fund(s)" or "Funds") for which such an exchange is available. Pilgrim, the Fund
and its Transfer Agent employ procedures considered by them to be reasonable to
confirm that instructions communicated by telephone are genuine. Such procedures
include requiring certain personal identification information prior to acting
upon telephone instructions, tape recording telephone communications and
providing written confirmation of instructions communicated by telephone. If
reasonable procedures are employed, neither Pilgrim, the Fund, its Transfer
Agent or its Sub-Transfer Agent will be liable for following telephone
instructions which it reasonably believes to be genuine. Pilgrim, the Fund and
its Transfer Agent may be liable for any losses due to unauthorized or
fraudulent instructions if reasonable procedures are not followed. The Investor
understands and agrees to indemnify and hold harmless Pilgrim, the Funds, their
Transfer Agent or their Sub-Transfer Agent from any liability (including
attorney's fees) arising directly or indirectly from any act or omission to act
hereunder not occasioned by their gross negligence or willful misconduct. The
Investor understands that the redemption and/or exchange privilege may be
modified or terminated at any time. The Investor also understands that these
privileges are subject to the conditions and provisions set forth herein and in
the current prospectuses of the Funds. For each exchange, the Investor will have
received and read a copy of the then current prospectus of the Fund being
purchased. The Investor(s) or their representatives certify that they have the
power and authority to select the privileges requested and to effect telephone
transactions. All persons submitting a representative warrant as individuals
that each person is an authorized representative of the Investor and that all
privileges have been duly authorized and that all signatures are genuine and
that all persons are authorized to sign and the organization has the authority
to transact telephone exchanges. The Investor will notify Pilgrim of any change
in such authority. Telephone Redemptions may be executed on all accounts other
than retirement accounts.
This Authorization shall be effective upon receipt by Pilgrim. It shall in all
respects be interpreted, enforced and governed under the laws of the State of
Arizona. Any suit, claim or action hereunder against Pilgrim and the Funds shall
have as its sole venue the County of Maricopa, State of Arizona. Any suit, claim
or action hereunder against the Transfer Agent or Sub-Transfer Agent shall have
as sole venue, the County of Jackson, State of Missouri.
If any provision of this Authorization is declared by any court to be illegal or
invalid, the validity of the remaining parts shall not be affected thereby, and
the illegal or invalid portion shall be deemed stricken from this Authorization.
Conditions
- -----------
1. Telephone redemption and/or exchange instructions received in good order
before the pricing of the Fund on any day the net asset value is calculated (a
"Business Day"), but not later than 4:00 p.m. eastern time, will be processed at
that day's closing net asset value. For each exchange my account shall be
charged an exchange fee noted in the then current prospectus. There is no fee
for telephone redemption.
20
<PAGE>
2. Telephone redemption and/or exchange instructions should be made by dialing
1-800-992-0180.
3. Exchanges will not be requested in violation of any of the terms and
conditions of the Fund's prospectus and I agree to indemnify Pilgrim, the Fund
and the Transfer Agent against any harm occasioned by their compliance with an
improper order under the Fund's prospectus.
4. Telephone redemption requests must meet the following conditions to be
accepted by Pilgrim:
(a) Proceeds of the redemption may be directly deposited into a predetermined
bank account, or mailed to the current address on the registration. This address
cannot reflect any change within the previous thirty (30) days.
(b) Certain account information will need to be provided for verification
purposes before the redemption will be executed.
(c) Only one telephone redemption (where proceeds are being mailed to the
address of record) can be processed within a 30 day period.
(d) The maximum amount which can be liquidated and sent to the address of record
at any one time is $100,000.
5. If the exchange involves the establishment of a new account, the dollar
amount being exchanged must at least equal the minimum investment requirement of
the Fund being acquired.
6. Any new account established through the exchange privilege will have the same
account information and options except as stated in the current prospectus and
subject to this authorization.
7. With respect to exchanges to Pilgrim General Money Market Fund shares,
certificated shares cannot be exchanged by telephone but must be forwarded to
Pilgrim and deposited into the Investor's account before any transaction may be
processed.
8. With respect to exchanges to Pilgrim General Money Market Fund shares, if a
portion of the shares to be exchanged are held in escrow in connection with a
Letter of Intent, the smallest number of full shares of the Fund to be purchased
on the exchange having the same aggregate net asset value as the shares being
exchanged shall be substituted in the escrow account. Shares held in escrow may
not be redeemed until the Letter of Intent has expired and/or the appropriate
adjustments have been made to the account.
9. Shares may not be exchanged and/or redeemed unless an exchange and/or
redemption privilege is offered pursuant to the Fund's current prospectus.
10. The Investor agrees that his/her ability to exchange and/or redeem under
this authorization may be cancelled, modified or restricted at any time
indiscriminately at the sole discretion of Pilgrim or by the Fund by written
notice to the address of record.
11. Proceeds of a redemption may be delayed up to 15 days or longer until the
check used to purchase the shares being redeemed has been paid by the Bank upon
which it was drawn.
21
<PAGE>
AUTHORIZED DEALER AGREEMENT
Under these plans, the Authorized Dealer signing the application acts as
principal in all purchases of Fund shares and appoints Pilgrim as its agent to
execute the purchases and to confirm each purchase to the Investor. The
Authorized Dealer hereby guarantees the genuineness of the signature (s) on the
application and represents that he is a duly licensed Authorized Dealer and may
lawfully sell Fund shares in the state designated by the Investor's mailing
address, and that he has entered into a Selling Group Agreement with the
Distributor with respect to the sale of fund shares.
Cut on perforated line
DETACH HERE AND RETURN THIS TO YOUR BANK IF YOU ARE
ESTABLISHING A PRE-AUTHORIZED INVESTMENT PLAN
(AUTHORIZATION TO HONOR CHECKS OR DEBIT
INSTRUCTIONS DRAWN BY DST SYSTEMS, INC.,
ON BEHALF OF THE PILGRIM FUNDS, FOR AUTOMATIC PURCHASE PLAN)
PRE-AUTHORIZED INVESTMENT PLAN AGREEMENT
As a convenience, I (we) hereby request and authorize you to pay and charge to
my (our) account checks or debit instructions drawn on my (our) account by DST
Systems, Inc., the Fund's Agent and payable to the order of the Fund provided
there are sufficient collected funds in said account to pay the same upon
presentation: I (we) agree that your rights with respect to each such check or
debit instruction shall be the same as if it were a check or debit instructions
drawn on you and signed personally by me (us). This authority is to remain in
effect until revoked in writing and until you actually receive such notice. I
(we) agree that you shall be fully protected in honoring any such checks or
debit instructions.
I (we) further agree that if any such check or debit instruction is dishonored,
whether with or without cause and whether intentionally or inadvertently, you
shall be under no liability whatsoever.
Signature (s) of Depositor (s) (signed exactly as shown on bank records)
X
Signed
X
Signed
Date Signed
(PLEASE PRINT)
Name of Depositor (as shown on bank records)
Bank Account Number
Name of Bank
Address of Bank
City/State/Zip of Bank
22
<PAGE>
PILGRIM
FUNDS FOR SERIOUS INVESTORS
INSTRUCTIONS FOR COMPLETING THE NEW ACCOUNT APPLICATION
This New Account Application can be used to open a new Pilgrim Account,
establish Shareholder privileges on existing accounts and be used in providing
documentation for certain transactions. The completed Application should be
forwarded along with your investment check payable to the Pilgrim General Money
Market Fund Group, or other appropriate documentation to: PILGRIM FUNDS, P.O.
BOX 419368, KANSAS CITY, MISSOURI 64141-6368.
This New Account Application may not be used to open a qualified retirement plan
account for which Investors Fiduciary Trust Company acts as custodian.
1. ACCOUNT REGISTRATION
Check the appropriate box and provide the information requested. Unless
specified, accounts with more than one owner will be assumed to be "Joint
Tenants With Rights of Survivorship".
All investors must sign the Account Application, and authorize the requested
privileges.
For a child who is under the age of majority in your state of residence,
"Gift/transfer to minor" registration must be utilized.
2 . MAILING ADDRESS
This is the address of record for your account. All account confirmation
statements will be forwarded to this address.
3. INVESTMENT INFORMATION
State the fund (s) in which you are investing and the dollar amount of the
investment. (Minimum initial investment is $1,000).
4. DIVIDEND AND DISTRIBUTION OPTIONS
Pilgrim offers several options for the treatment of dividends and
capital gains distributions, if any, from your Pilgrim investment.
You can have these payments distributed to you, or any other recipient you
choose, in cash; in additional shares of the Fund which is paying the
distribution or; in shares of another Class A or M Pilgrim Fund, at NAV without
sales charge, via the Dividends Transfer Option. The Dividend Transfer Option is
available only for open-end funds within the Pilgrim Group.
23
<PAGE>
5. AUTHORIZED DEALER INFORMATION
Your financial professional can complete this section.
6. SIGNATURES
All investors and authorized signers should sign in order to process the New
Account Application and to certify your Social Security, Tax identification
Number or if applicable, your foreign status.
7. PRE-AUTHORIZED INVESTMENT PLAN
The Pre-Authorized Investment Plan provides a systematic method of investing
periodically in the Pilgrim Fund(s) of your choice. Minimum investments
of at least $100 can be automatically debited from your bank account
periodically for investment purposes.
8. ADDITIONAL OPTIONS
The Telephone Exchange privilege will automatically be assigned to you unless
you check the box in Section 8 which states that you do not wish to have this
privilege.
The systematic Exchange Privilege allows you to automatically exchange
shares of one fund shares of the same class of another fund in regular
pre-determined amounts and at regular pre-determined intervals.
The Systematic Withdrawal Plan allows you to automatically have a specific
share or dollar amount ($100 minimum) liquidated from your account monthly,
quarterly, semi-annually or annually and forwarded to you or the payee of your
choosing as long as the account has a current value of at least $10,000. Amounts
designated for deposit to your bank account can be forwarded via the Automated
Clearing House system by attaching a voided check for such basic account to
Section 6 of the New Account Application.
The Expedited Redemption privilege allows you to effect a liquidation from your
account via a telephone call and have the proceeds (Maximum of $50,000) mailed
to your address of record. This privilege is automatically assigned to you
unless you check the box in this section which states you do not want to take
advantage of this privilege.
The Expedited Redemption privilege additionally allows you to effect a
liquidation from your account and have the proceeds (minimum $5,000) wired to
your pre-designated bank account. This privilege is NOT automatically assigned
to you. If you want to take advantage of this privilege, please check the
appropriate box and attach a voided check for such bank account to section 6 of
the New Account Application.
9. INTERESTED PARTY MAIL/DIVIDEND MAIL
You may authorize an additional party to receive copies of your confirmation
statements (your Authorized Dealer will automatically receive such copies). If
you wish to have additional copies of your confirmation statements mailed to an
address other than your address of record, check the appropriate box in Section
9 and indicate such address.
You may have your cash dividend payments or Systematic Withdrawal Plan Payments
forwarded to an address other than your address of record by so indicating in
Section 9. (If you wish your cash dividends to be forwarded to a bank for
deposit to an account, refer to Section 4 of the New Account Application).
24
<PAGE>
PILGRIM
FUNDS FOR SERIOUS INVESTORS
NEW ACCOUNT APPLICATION
Send Completed Application to: the Pilgrim Group, P.O. Box 419368,
Kansas City, Missouri 64141-6368
SECTIONS 1 THROUGH 6 MUST BE COMPLETED FOR ACCOUNT TO BE ESTABLISHED.
1. ACCOUNT REGISTRATION TYPE OF ACCOUNT (Check one only)
[] Individual
First Name Middle Initial Last Name Social Security Number*
(first individual only)
[] JOINT TENANT
Joint Tenants First Name Middle Initial Last Name
[] GIFT/TRANSFER TO MINOR
Custodian's Name (one only) Minor's Name (one only)
Under Uniform Gift/Transfers Minor's Social Security Number* to Minors Act of
(State)
[] GUARDIANSHIP/CONSERVATORSHIP
Guardian/Conservator Ward/Incompetent or Ward/Incompetentor Minor's
Minor's Name (one only) Social Security Number*
[] CORPORATION, PARTNERSHIP, TRUST OR OTHER ORGANIZATION
Exact Name of Corporation, Partnership Tax Identification
or other Organization Number*
Trustee Accounts Only: Name of all Trustees required by trust agreement to
sell/purchase shares
Date of Trust Agreement Name of Trust Tax Identification Number*
[] OTHER
* Pilgrim reserves the right to reject any application which does not include
a certified Social 5ecurity Number or Taxpayer Identification Number, or
does not indicate that such number has been applied for by checking the
"awaiting Social Security /or Taxpayer Identification Number" box on page
26.
2. MAILING ADDRESS
Street Address Apartment Number City State Zip Code
( ) ( )
Business Phone Home Phone
3. INVESTMENT INFORMATION
[ ] A check payable to the Pilgrim Group is
included for $____ to establish an account in the Pilgrim
General Money Market Fund
or
[ ] Payment has been made by Federal funds wire on
(Reference No.) (Date)
(Account No.) $(Amount)
25
<PAGE>
4. DIVIDEND AND DISTRIBUTION OPTIONS
(Check one only) -- If no option is selected, all distributions will be
reinvested.
[ ] Reinvest all dividends and capital gains.
[ ] Reinvest all dividends and capital gains into an existing account
in another Pilgrim Account using the Dividend Transfer
Option.
Fund Name Account Number
I request the payable distributions be: (Check one.)
[ ] Sent to the address in Section 2.
[ ] Directly deposited in my bank account. (Please attach a voided
check to Section 6.)
If voided check is not enclosed, will be sent to address in Section 2.
[ ] Sent to a special payee listed in Section 9.
[ ] Pay all dividends and reinvest capital gains.
[ ] Pay all capital gains in cash and reinvest dividends.
[ ] Pay all dividends and capital gains. (IF EITHER PAY OPTION IS
SELECTED, COMPLETE INFORMATION AT RIGHT)
5. AUTHORIZED DEALER INFORMATION
Authorized Dealer Name Registered Representative's Name
Branch Office Address Registered Representative's Number
City State Zip Code
Registered Representative's Authorized Signature of Authorized
Phone Dealer
6. SIGNATURES
I have read the prospectus and application for the Fund in which I am investing
and agree to its terms. I am also aware that a Telephone Exchange and Redemption
Privileges exist and that these privileges are automatically available unless
affirmatively declined. I also understand that if Pilgrim , the Fund, the
Transfer Agent, or the Sub-Transfer Agent fail to follow the procedures outlined
in the prospectus and in the Telephone Transaction Authorization hereto, such
entity may be liable for losses due to unauthorized or fraudulent instructions.
I further understand that I must carefully review each account confirmation
statement or other documentation of transaction that I receive to ensure that my
instructions have been properly acted upon. If any discrepancies are noted, I
agree to notify Pilgrim, the Fund, the Transfer Agent or the Sub-Transfer Agent
in a timely manner, but in no event more than 15 days from receipt of such
confirmation statement or documentation of transaction. Failure to notify one of
the above entities on a timely basis will relieve such entities of any liability
with respect to the transaction and any discrepancy. See Exchange Privilege and
Expedited Redemption sections for procedures. I am of legal age. Sign below
exactly as printed in registration.
ATTACH VOIDED CHECK HERE (IF APPROPRIATE)
For Corporations, Trusts, or Partnerships: We hereby certify that each of the
persons listed below have been duly elected, and are now legally holding the
offices set forth opposite his/her name and have the authority to make this
authorization. Please print titles below if signing on behalf of a business or
trust to establish this account.
CERTIFICATION: UNDER PENALTIES OF PERJURY, I/WE CERTIFY THAT:
I am not subject to backup withholding because I have not been notified by the
IRS that I am subject to backup withholding as a result of failure to report all
interest or dividends or because the IRS has notified me that I am no longer
subject to backup withholding. (If you are currently subject to backup
withholding as a result of a failure to report all interest or dividends, please
cross out the preceding statement), AND (CHECK AS APPROPRIATE):
[] The number shown above is my correct TIN, or that of the minor named in
section 1.
[] Awaiting TIN. I have not previously been issued a TIN, have applied for one
or intend to apply for one in the near future, and am waiting for a number
to be issued to me. I understand that if I do not provide a certified TIN
to Pilgrim within 60 days, Pilgrim is required to commence 31% backup
withholding until I provide a certified TIN and may be required immediately
to impose 31% backup withholding on certain withdrawals from my account
until I provide a certified TIN.
[] Exempt Payee. The account owner is an exempt payee. Individuals cannot be
exempt. (You must still provide a TIN.)
Permanent address for tax purposes:
Street address City State County Postal code
NOTE: THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISIONS OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID
BACKUP WITHHOLDING.
Signature Date President, Trustee, General Partner or
Title
Signature Date Co-owner, Secretary of Corporation, Co-
Trustee, etc.
26
<PAGE>
CHECK THE APPROPRIATE BOXES BELOW AND PROVIDE THE REQUESTED INFORMATION
[ ] I am a United States Citizen
[ ] I am a non-resident alien* (a Form W-8 will be provided to you by
Pilgrim. Please complete it as requested as soon as possible).
[ ] I am a resident alien and a social security number has been supplied on
page one of this New Account Application and a social security number has
been supplied on page one of this New Account Application (a Form 1078 will
be provided to you by Pilgrim. Please complete it and return it as
requested).
[ ] If not a United States Citizen, please indicate what country you are a
permanent tax resident of:
*If the Pilgrim account will be registered in joint registration with
another individual or individuals, each non-resident alien must complete and
return a Form W-8.
7. PRE-AUTHORIZED INVESTMENT PLAN
[ ] I wish to invest on a monthly, quarterly, semi-annual or annual basis,
directly from my checking account into the following fund (s). (Please complete
the Pre-Authorized Investment Plan Agreement herein and attach a voided check to
section 6.)
Fund Name Fund Name Fund Name
Amount $ , to start [ ] 5th or [ ] 20th of
Minimum $100 Month Year
8. ADDITIONAL OPTIONS
Telephone Exchange Privilege-- If accepted accounts must have the same account
information, options and class of shares unless you decline this privilege by
checking the box below, it will automatically be assigned to you.
[ ] I Decline telephone exchange, and do not want this privilege. (See Exchange
Privileges section for procedures.)
Systematic Exchange Privilege
[ ] I have at least $5,000 in shares in my Pilgrim General Money
Market Fund account and I would like to exchange:
$ (min. of $50) into the Fund, Account #
$ (min. of $50) into the Fund, Account #
$ (min. of $50) into the Fund, Account #
on a [ ] monthly, [ ] quarterly, [ ] semi-annual or [ ] annual basis
starting in the month of
(Exchange Privilege is only available with Class A and M Pilgrim Funds)
CHECK WRITING
The undersigned also authorizes drafts ($100 minimum) drawn on the Fund
to be honored and the redemption of a sufficient number of Fund shares to pay
such drafts. I (we) understand that the Transfer Agent is to honor drafts signed
by any (or all) owners as specified:
Any one owner All owners
Check Writing Signature Blocks
Please sign exactly as the account is to be registered (or as checks will be
signed on behalf of corporate entities)
X X
Systematic Withdrawal Plan (Withdrawal will occur about 5 business days prior to
the end of the month.) (Minimum account balance for a SWP is $10,000.)
[ ] I wish to automatically withdraw $ from this account.
[ ] Monthly [ ] Quarterly [ ] Semi-Annually [ ] Annually
I request this distribution be: (Check One)
[ ] Sent to the address listed in Section 2. To begin of .
[ ] Sent to the payee listed in Section 9. To begin of .
[ ] Directly deposited in my bank account. (Please attach a voided
check to Section 6.)
To begin __ of .
Expedited Redemption Privilege-Available on all non-retirement
accounts. Unless you decline this privilege, you will automatically be
assigned the ability to request, via the telephone, redemption proceeds to
be sent to the address in Section 2.
[ ] I wish to redeem shares by telephone and request that the proceeds be
directly deposited into my bank account. (Please attach a voided check to
Section 6.) (If voided check is not enclosed, proceeds will be sent to address
in Section 2.)
[ ] I decline telephone redemption, and do not want this privilege. See
Expedited Redemption section for procedures.
27
<PAGE>
9. INTERESTED PARTY MAIL/DIVIDEND MAIL
[ ] I wish to have my distributions sent to the address listed below.
[ ] I wish to have duplicate confirmation statements sent to the interested
party listed below.
Name of Individual
Street Address
City State Zip Code
THIS APPLICATION IS NOT A PART OF THE PROSPECTUS.
28
<PAGE>
PILGRIM
FUNDS FOR SERIOUS INVESTORS
PROSPECTUS
July 27, 1999
PILGRIM GENERAL MONEY MARKET FUND
A CLASS OF THE CORTLAND GENERAL MONEY MARKET FUND SERIES OF CORTLAND TRUST, INC.
PILGRIM FUNDS
40 NORTH CENTRAL AVENUE
SUITE 1200
PHOENIX, ARIZONA 85004-4424
A Statement of Additional Information (SAI) dated August 1, 1999, and the Funds'
Annual and Semi-Annual Reports include additional information about the Funds
and their investments and are incorporated by reference into this prospectus.
You may obtain the SAI and the Annual and Semi-Annual Reports and other material
incorporated by reference without charge by calling the Funds at 1-800-221-3079.
To request other information, please call your financial intermediary or the
Funds.
A current SAI has been filed with the Securities and Exchange Commission. You
may visit the Securities and Exchange Commission's Internet website
(www.sec.gov) to view the SAI, material incorporated by reference and other
information. These materials can also be reviewed and copied at the Commission's
Public Reference Room in Washington D.C. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. In addition, copies of these materials may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009.
811-4179
MMPROS0799
<PAGE>
- --------------------------------------------------------------------------------
LIVE OAK SHARES 600 FIFTH AVENUE
NEW YORK, N.Y. 10020
(212) 830-5220
================================================================================
LIVE OAK GENERAL MONEY MARKET FUND
LIVE OAK U.S. GOVERNMENT FUND
LIVE OAK MUNICIPAL MONEY MARKET FUND
PROSPECTUS
July 27, 1999
The Company, Cortland Trust, Inc. is an open-end, diversified money market fund
designed as a cash management service for institutional customers and
individuals. The Company consists of three portfolios (collectively, the
"Portfolios"). This Prospectus relates exclusively to the LIVE OAK classes (the
"LIVE OAK Shares") of the Portfolios (collectively, the "Funds").
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3 LIVE OAK GENERAL MONEY MARKET FUND 12 LIVE OAK MUNICIPAL MONEY MARKET FUND
3 Risk/Return Summary: Investments, Risks and 12 Risk/Return Summary: Investments, Risks and
Performance Performance
5 Fee Table 14 Fee Table
6 Investment Objectives, Principal Investment 15 Investment Objectives, Principal Investment
Strategies and Related Risks Strategies and Related Risks
8 LIVE OAK U.S. GOVERNMENT FUND 16 Principal Investment Strategies For All Funds
8 Risk/Return Summary: Investments, Risks and 19 Management, Organization and Capital Structure
Performance
10 Fee Table 20 Shareholder Information
11 Investment Objectives, Principal Investment 24 Dividends and Taxes
Strategies and Related Risks
27 Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LIVE OAK GENERAL MONEY MARKET FUND ("LIVE OAK GENERAL FUND")
RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The LIVE OAK GENERAL FUND seeks to provide its investors with as high a
level of current income as is consistent with preservation of capital and
liquidity.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The LIVE OAK GENERAL FUND intends to achieve its investment objective by
investing at least 80% of its assets in marketable securities and instruments
issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities ("U.S. Government Obligations"), in bank instruments (domestic
and foreign), in trust instruments, in corporate commercial instruments and in
other corporate instruments maturing in thirteen months or less (collectively,
"Money Market Obligations").
The LIVE OAK GENERAL FUND is a money market fund and seeks to maintain an
investment portfolio with a dollar-weighted average maturity of 90 days or less,
to value its investment portfolio at amortized cost and to maintain a net asset
value of $1.00 per share.
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
o Although the LIVE OAK GENERAL FUND seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing
in the LIVE OAK GENERAL FUND. The value of the LIVE OAK GENERAL FUND's
shares and the securities held by the LIVE OAK GENERAL FUND can each
decline in value due to changes in interest rates. For example, rising
interest rates cause the prices of the LIVE OAK GENERAL FUND's securities
to decrease.
o An investment in the LIVE OAK GENERAL FUND is not a bank deposit and is
not insured or guaranteed by the FDIC or any other governmental agency.
o Payment of interest and preservation of capital are dependent upon the
continuing ability of issuers and/or obligators of state, municipal,
public authority, and corporate debt obligations to meet their payment
obligations. If such issuers fail to make timely payments of interest and
principal, the LIVE OAK GENERAL FUND's investments would decline in value.
o The LIVE OAK GENERAL FUND may invest in obligations from foreign issuers,
it is subject to risks involving a lack of liquidity, imposition of
foreign taxes, and other adverse results due to political and economic
developments.
RISK/RETURN BAR CHART
- --------------------------------------------------------------------------------
The following bar chart and table may assist you in your decision to invest
in the LIVE OAK GENERAL FUND. The bar chart shows how the LIVE OAK General
Fund's annual returns have changed over the last three calendar years. The table
shows the LIVE OAK GENERAL FUND's average annual returns for the last one year
period and since inception. While analyzing this information, please note that
the LIVE OAK GENERAL FUND's past performance is not an indicator of how it will
perform in the future. The LIVE OAK GENERAL FUND's current 7-day yield may be
obtained by calling toll-free at 1-800-221-3079.
3
<PAGE>
<TABLE>
<CAPTION>
LIVE OAK GENERAL FUND (1), (2)
[GRAPHIC OMITTED]
<S> <C>
CALENDAR YEAR END % TOTAL RETURN
1998 4.75%
1997 4.78%
1996 4.60%
</TABLE>
(1) The LIVE OAK GENERAL FUND's highest quarterly return was 1.21% for the
quarter ended December 31, 1997; the lowest quarterly return was 1.07%
for the quarter ended June 30, 1999.
(2) Securities dealers may charge a fee to investors for purchasing and
redeeming shares. Therefore, the net return to such investors may be
less than if they had invested in the LIVE OAK GENERAL FUND directly.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS -LIVE OAK GENERAL FUND
FOR THE PERIODS ENDED DECEMBER 31, 1998
<S> <C>
One Year 4.75%
Since Inception [November 16, 1995] 4.72%
</TABLE>
4
<PAGE>
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the LIVE OAK GENERAL FUND.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
LIVE OAK GENERAL FUND
<S> <C>
Management Fees 0.77%
Distribution and Service (12b-1) Fees 0.20%
Other Expenses 0.01%
-----
Total Annual Fund Operating Expenses 0.98%
=====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other money market funds.
Assume that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. Also assume that
your investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
$100 $312 $542 $1,201
</TABLE>
5
<PAGE>
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The LIVE OAK GENERAL FUND seeks to provide its investors with as high a
level of current income as is consistent with preservation of capital and
liquidity. There can be no assurance that the LIVE OAK GENERAL FUND will achieve
its investment objective.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The LIVE OAK GENERAL FUND seeks to achieve its objective by investing at
least 80% of its assets in U.S. Government Obligations, in bank instruments
(domestic and foreign), in trust instruments, in corporate commercial
instruments and in other corporate instruments maturing in thirteen months or
less (collectively, "Money Market Obligations").
The LIVE OAK GENERAL FUND may invest in bank instruments, which consist
mainly of certificates of deposit, bankers' acceptances and time deposits. The
LIVE OAK GENERAL FUND may also invest in corporate instruments supported by bank
letters of credit. The LIVE OAK GENERAL FUND generally limits investments in
bank instruments to (a) those which are fully insured as to principal by the
FDIC or (b) those issued by banks which at the date of their latest public
reporting have total assets in excess of $1.5 billion. However, the total assets
of a bank will not be the sole factor determining the Fund's investment
decisions, and the Fund may invest in bank instruments issued by institutions
which the Board of Directors believes present minimal credit risk.
The LIVE OAK GENERAL FUND may invest up to 100% of its assets in obligations
issued by banks, and up to 10% of its assets in obligations issued by any one
bank, subject to the provisions of Rule 2a-7 of the Investment Company Act of
1940 (the "1940 Act"). If the bank is a domestic bank, it must be a member of
the FDIC. The LIVE OAK GENERAL FUND may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks or foreign branches of
foreign banks ("Eurodollar" obligations) and domestic branches of foreign banks
("Yankee dollar" obligations). The LIVE OAK GENERAL FUND will limit its
aggregate investments in foreign bank obligations, including Eurodollar
obligations and Yankee dollar obligations, to 25% of its total assets at the
time of purchase, provided that there is no limitation upon the LIVE OAK GENERAL
FUND investments in (a) Eurodollar obligations, if the domestic parent of the
foreign branch issuing the obligation is unconditionally liable in the event
that the foreign branch fails to pay on the Eurodollar obligation for any
reason; and (b) Yankee dollar obligations, if the U.S. branch of the foreign
bank is subject to the same regulation as U.S. banks. Eurodollar, Yankee dollar
and other foreign bank obligations include time deposits, which are
non-negotiable deposits maintained in a bank for a specified period of time at a
stated interest rate. The LIVE OAK GENERAL FUND will limit its purchases of time
deposits to those which mature in seven days or less, and will limit its
purchases of time deposits maturing in two to seven days to 10% of such Fund's
total assets at the time of purchase.
The LIVE OAK GENERAL FUND may invest in short-term corporate obligations and
instruments, including but not limited to corporate commercial paper, notes,
bonds and debentures. Corporate commercial instruments generally consist of
short-term unsecured promissory notes issued by corporations. The LIVE OAK
GENERAL FUND may also purchase variable amount master demand notes, which are
unsecured demand notes that permit investment of fluctuating amounts of money at
variable rates of interest pursuant to arrangements with issuers who meet the
foregoing quality criteria. The interest rate on a variable amount master demand
note is periodically redetermined according to a prescribed formula. Although
6
<PAGE>
there is no secondary market in master demand notes, the payee may demand
payment of the principal and interest upon notice not exceeding five business or
seven calendar days. The LIVE OAK GENERAL FUND may also purchase participation
interests in loans extended by banks to companies, provided that both such banks
and such companies meet the quality standards set forth above. (See the
Statement of Additional Information for information with respect to corporate
commercial instruments and bond ratings.) The LIVE OAK GENERAL FUND may also
invest in fixed or variable rate debt units representing an undivided interest
in a trust's distributions of principal and interest that a trust receives from
an underlying portfolio of bonds issued by a highly rated corporate or U.S.
Government agency issuer and/or payments from re-characterized distributions
made possible by the swap of certain payments due on the underlying bonds. The
LIVE OAK GENERAL FUND's investment will be limited solely to the debt units and
in each case, must meet the credit quality standards under Rule 2a-7 of the 1940
Act. Debt units will be purchased by the LIVE OAK GENERAL FUND as an
institutional accredited investor pursuant to a private placement memorandum.
Sale of debt units will be effected pursuant to Rule 144A or other exemptions
from registration under the Securities Act of 1933, subject to the eligibility
of the purchaser and compliance with trust agreement requirements. The Manager
will monitor the liquidity of the debt units under the supervision of the
Company's Board of Directors.
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The LIVE OAK GENERAL FUND complies with industry-standard requirements on
the quality, maturity and diversification of its investments which are designed
to help maintain a $1.00 share price.
However, the LIVE OAK GENERAL FUND is still subject to risks involving
changes in interest rates and the credit risk surrounding the issuers of Money
Market Obligations.
Rising interest rates cause the prices of debt securities to decrease, which
would lead to a loss in the value of the LIVE OAK GENERAL FUND's investment.
Moreover, changes in interest rates may be caused by various economic factors or
political events.
In addition, the LIVE OAK GENERAL FUND is exposed to the credit risk of the
institutions that issue Money Market Obligations. Changes in the credit quality
of the issuers could affect their ability to meet their payment obligations of
interest or principal. Any failure to make such payments could adversely affect
the value of the security and your investment in the LIVE OAK GENERAL FUND.
Investors should also note that the LIVE OAK GENERAL FUND will invest in
Eurodollar and Yankee dollar obligations. Eurodollar, Yankee dollar and other
foreign obligations involve special investment risks, including the possibility
that liquidity could be impaired because of future political and economic
developments, that the obligations may be less marketable than comparable
domestic obligations of domestic issuers, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
deposits may be seized or nationalized, that foreign governmental restrictions
such as exchange controls may be adopted which might adversely affect the
payment of principal of and interest on those obligations, that the selection of
foreign obligations may be more difficult because there may be less information
publicly available concerning foreign issuers, that there may be difficulties in
enforcing a judgment against a foreign issuer or that the accounting, auditing
and financial reporting standards, practices and requirements applicable to
foreign issuers may differ from those applicable to domestic issuers. In
addition, foreign banks are not subject to examination by United States
Government agencies or instrumentalities.
7
<PAGE>
LIVE OAK U.S. GOVERNMENT FUND ("LIVE OAK GOVERNMENT FUND")
RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The LIVE OAK GOVERNMENT FUND seeks to provide its investors with as high a
level of current income exempt from federal income taxes as is consistent with
the preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The LIVE OAK GOVERNMENT FUND intends to achieve its investment objective by
investing 65% of its assets in short-term marketable securities and instruments
issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities (U.S. Government Obligations").
The LIVE OAK GOVERNMENT FUND is a money market LIVE OAK GOVERNMENT FUND and
seeks to maintain an investment portfolio with a dollar-weighted average
maturity of 90 days or less, to value its investment portfolio at amortized cost
and to maintain a net asset value of $1.00 per share.
PRINCIPAL RISKS
o Although the LIVE OAK GOVERNMENT FUND seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing
in the LIVE OAK GOVERNMENT FUND. The value of the LIVE OAK Government
Fund's shares and the securities held by the LIVE OAK GOVERNMENT FUND can
each decline in value due to changes in interest rates. For example,
rising interest rates cause the prices of the LIVE OAK GOVERNMENT FUND's
securities to decrease.
o An investment in the LIVE OAK GOVERNMENT FUND is not a bank deposit and is
not insured or guaranteed by the FDIC or any other governmental agency.
o Payment of interest and preservation of capital are dependent upon the
continuing ability of issuers and/or obligators of state, municipal and
public authority debt obligations to meet their payment obligations. If
such issuers fail to make timely payments of interest and principal, the
LIVE OAK GOVERNMENT FUND's investments would decline in value.
RISK/RETURN BAR CHART
- --------------------------------------------------------------------------------
The following bar chart and table may assist you in your decision to invest
in the LIVE OAK GOVERNMENT FUND. The bar chart shows how the LIVE OAK Government
Fund's annual returns have changed over the last three calendar years. The table
shows the LIVE OAK GOVERNMENT FUND's average annual returns for the last one
year period and since inception. While analyzing this information, please note
that the LIVE OAK GOVERNMENT FUND's past performance is not an indicator of how
the LIVE OAK GOVERNMENT FUND will perform in the future. The LIVE OAK Government
Fund's current 7-day yield may be obtained by calling toll-free at
1-800-221-3079.
8
<PAGE>
<TABLE>
<CAPTION>
LIVE OAK GOVERMENT FUND (1), (2)
[GRAPHIC OMITTED]
<S> <C>
CALENDAR YEAR END % TOTAL RETURN
1998 4.60%
1997 4.70%
1996 4.55%
</TABLE>
(1) The LIVE OAK GOVERNMENT FUND's highest quarterly return was 1.18% for
the quarter ended December 31, 1997; the lowest quarterly return was
0.98% for the quarter ended June 30, 1999.
(2) Securities dealers may charge a fee to investors for purchasing and
redeeming shares. Therefore, the net return to such investors may be
less than if they had invested in the LIVE OAK GOVERNMENT FUND
directly.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS - LIVE OAK GOVERNMENT FUND
FOR THE PERIOD ENDED DECEMBER 31, 1998
<S> <C>
One Year 4.60%
Since Inception [November 16, 1995] 4.63%
</TABLE>
9
<PAGE>
FEE TABLE
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the LIVE OAK GOVERNMENT FUND.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
LIVE OAK GOVERNMENT FUND
<S> <C>
Management Fees 0.77%
Distribution and Service (12b-1) Fees 0.20%
Other Expenses 0.02%
-----
Total Annual Fund Operating Expenses 0.99%*
======
</TABLE>
* The Distributor has voluntarily waived a portion of the Distribution
support and services fee with respect to the LIVE OAK GOVERNMENT FUND. After
such waivers, the distribution support and services fee was 0.12%. The actual
Total Fund Operating Expenses were 0.91%. This fee waiver may be terminated at
any time at the option of the Fund.
<TABLE>
<CAPTION>
EXAMPLE
This Example is intended to help you compare the cost of investing in the LIVE
OAK GOVERNMENT FUND with the cost of investing in other money market funds.
Assume that you invest $10,000 in the LIVE OAK GOVERNMENT FUND for the time
periods indicated and then redeem all of your shares at the end of those
periods. Also assume that your investment has a 5% return each year and that the
LIVE OAK GOVERNMENT FUND's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
$101 $315 $547 $1,213
</TABLE>
10
<PAGE>
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The LIVE OAK GOVERNMENT FUND's investment objective is to seek to provide
its investors with a high a level of current income exempt from federal income
tax as is consistent with preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The LIVE OAK GOVERNMENT FUND endeavors to achieve its objective by investing
at least 65% of its assets in short-term "U.S. Government Obligations." U.S.
Government Obligations consist of marketable securities and instruments issued
or guaranteed by the U.S. Government or by its agencies or instrumentalities.
Direct obligations are issued by the U.S. Treasury and include bills,
certificates of indebtedness, notes and bonds. Obligations of U.S. Government
agencies and instrumentalities ("Agencies") are issued by government-sponsored
agencies and enterprises acting under authority of Congress. Although
obligations of federal agencies and instrumentalities are not debts of the U.S.
Treasury, in some cases payment of interest and principal on such obligations is
guaranteed by the U.S. Government, e.g., obligations of the Federal Housing
Administration, the Export-Import Bank of the United States, the Small Business
Administration, the Government National Mortgage Association, the General
Services Administration and the Maritime Administration; in other cases payment
of interest and principal is not guaranteed, e.g., obligations of the Federal
Home Loan Bank System and the Federal Farm Credit Bank. The LIVE OAK Government
Fund will invest in Agencies which are not guaranteed or backed by the full
faith and credit of the U.S. Government only when the Fund's Board of Directors
is satisfied that the credit risk with respect to a particular agency or
instrumentality is minimal.
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The LIVE OAK GOVERNMENT FUND complies with industry-standard requirements on
the quality, maturity and diversification of its investments which are designed
to help maintain a $1.00 share price.
However, the LIVE OAK GOVERNMENT FUND is still subject to risks involving
changes in interest rates and the credit risk surrounding the issuers of U.S.
Government Obligations.
Rising interest rates cause the prices of debt securities to decrease, which
would lead to a loss in the value of the LIVE OAK GOVERNMENT FUND's investment.
Moreover, changes in interest rates may be caused by various economic factors or
political events.
In addition, the LIVE OAK GOVERNMENT FUND is exposed to the credit risk of
the institutions that issue U.S. Government Obligations. Changes in the credit
quality of the issuers could affect their ability to meet their payment
obligations of interest or principal. Any failure to make such payments could
adversely affect the value of the security and your investment in the LIVE OAK
GOVERNMENT FUND.
11
<PAGE>
LIVE OAK MUNICIPAL MONEY MARKET FUND ("LIVE OAK MUNICIPAL FUND")
RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The LIVE OAK MUNICIPAL FUND seeks to provide its investors with as high a
level of current income exempt from federal income taxes as is consistent with
the preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The LIVE OAK MUNICIPAL FUND intends to achieve its investment objective by
investing principally in short-term, high quality, debt obligations issued by
states and municipal governments and their authorities, agencies and political
subdivisions ("Municipal Securities").
The LIVE OAK MUNICIPAL FUND is a money market fund and seeks to maintain an
investment portfolio with a dollar-weighted average maturity of 90 days or less,
to value its investment portfolio at amortized cost and to maintain a net asset
value of $1.00 per share.
PRINCIPAL RISKS
o Although the LIVE OAK MUNICIPAL FUND seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
the LIVE OAK MUNICIPAL FUND. The value of the LIVE OAK MUNICIPAL FUND's
shares and the securities held by the LIVE OAK MUNICIPAL FUND can each
decline in value due to changes in interest rates. For example, rising
interest rates will cause the prices of the LIVE OAK MUNICIPAL FUND's
securities to decrease.
o An investment in the LIVE OAK MUNICIPAL FUND is not a bank deposit and is
not insured or guaranteed by the FDIC or any other governmental agency.
o Payment of interest and preservation of capital are dependent upon the
continuing ability of issuers and/or obligators of state, municipal and
public authority debt obligations to meet their payment obligations. If
such issuers fail to make timely payments of interest and principal, the
LIVE OAK MUNICIPAL FUND's investments would decline in value.
RISK/RETURN BAR CHART
- --------------------------------------------------------------------------------
The following bar chart and table may assist you in your decision to invest
in the LIVE OAK MUNICIPAL FUND. The bar chart shows how the LIVE OAK Municipal
Fund's annual returns have changed over the last three calendar years. The table
shows the LIVE OAK MUNICIPAL FUND's average annual returns for the last one year
period and since inception. While analyzing this information, please note that
the LIVE OAK MUNICIPAL FUND's past performance is not an indicator of how it
will perform in the future. The LIVE OAK MUNICIPAL FUND's current 7-day yield
may be obtained by calling toll-free at 1-800-221-3079.
12
<PAGE>
<TABLE>
<CAPTION>
LIVE OAK MUNICIPAL FUND (1), (2)
[GRAPHIC OMITTED]
<S> <C>
CALENDAR YEAR END % TOTAL RETURN
1998 2.72%
1997 2.93%
1996 2.79%
</TABLE>
(1) The LIVE OAK MUNICIPAL FUND's highest quarterly return was 0.77% for
the quarter ended June 30, 1997; the lowest quarterly return was
0.54% for the quarter ended June 30, 1999.
(2) Securities dealers may charge a fee to investors for purchasing and
redeeming shares. Therefore, the net return to such investors may be
less than if they had invested in the LIVE OAK MUNICIPAL FUND
directly.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS - LIVE OAK MUNICIPAL FUND
FOR THE PERIOD ENDED DECEMBER 31, 1998
<S> <C>
One Year 2.72%
Since Inception [November 16, 1995] 2.83%
</TABLE>
13
<PAGE>
FEE TABLE
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the LIVE OAK MUNICIPAL FUND.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
LIVE OAK MUNICIPAL FUND
<S> <C>
Management Fees 0.77%
Distribution and Service (12b-1) Fees 0.20%
Other Expenses 0.01%
-----
Total Annual Fund Operating Expenses 0.98%*
======
</TABLE>
* The Distributor has voluntarily waived a portion of the Distribution
support and services fee with respect to the LIVE OAK MUNICIPAL FUND. After such
waivers, the distribution support and services fee was 0.17%. The actual Total
Fund Operating Expenses were 0.95%. This fee waiver may be terminated at any
time at the option of the Fund.
<TABLE>
<CAPTION>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Live
Oak MUNICIPAL FUND with the cost of investing in other money market funds.
Assume that you invest $10,000 in the LIVE OAK MUNICIPAL FUND for the time
periods indicated and then redeem all of your shares at the end of those
periods. Also assume that your investment has a 5% return each year and that the
LIVE OAK MUNICIPAL FUND's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
$100 $312 $542 $1,201
</TABLE>
14
<PAGE>
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The LIVE OAK MUNICIPAL FUND's investment objective is to seek to provide its
investors with as high a level of current income exempt from federal income tax
as is consistent with the preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The LIVE OAK MUNICIPAL FUND will invest primarily (i.e., at least 80%) in
short-term, high quality, tax-exempt, Municipal Securities.
The LIVE OAK MUNICIPAL FUND will invest in Municipal Securities which
include debt obligations issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities, the refunding
of outstanding obligations, the obtaining of funds for general operating
expenses and lending such funds to other public institutions and facilities. In
addition, certain types of private activity bonds or industrial development
bonds are issued by or on behalf of public authorities to obtain funds to
provide for the construction, equipment, repair or improvement of privately
operated facilities. Such obligations are considered to be Municipal Securities
provided that the interest paid thereon generally qualifies as exempt from
federal income tax in the opinion of bond counsel. However, interest on
Municipal Securities may give rise to federal alternative minimum tax liability
and may have other federal income tax consequences.
The LIVE OAK MUNICIPAL FUND also may purchase any Municipal Security which
depends on the credit of the U.S. Government and may invest in Municipal
Securities which are not rated if, in the opinion of the Company's investment
advisor, and in accordance with procedures established by the Board of
Directors, such securities possess creditworthiness comparable to those rated
obligations in which the LIVE OAK MUNICIPAL FUND may invest. The LIVE OAK
MUNICIPAL FUND may, from time to time, on a temporary or defensive basis, invest
in short-term, high quality U.S. Government Obligations, Money Market
Obligations and repurchase agreements. Income from any such temporary
investments would be taxable to shareholders as ordinary income. It is the
present policy of the LIVE OAK MUNICIPAL FUND to invest only in securities the
interest on which is tax-exempt. The Fund will endeavor to be invested at all
times in Municipal Securities. It is a fundamental policy of the LIVE OAK
MUNICIPAL FUND that its assets will be invested so that at least 80% of its
income will be exempt from federal income taxes. The LIVE OAK MUNICIPAL FUND may
from time to time hold cash reserves.
The LIVE OAK MUNICIPAL FUND's investment manager considers the following
factors when buying and selling securities for the portfolio: (i) availability
of cash, (ii) redemption requests, (iii) yield management, and (iv) credit
management.
In order to maintain a share price of $1.00, the LIVE OAK MUNICIPAL FUND
must comply with certain industry regulations. Other requirements pertain to the
maturity and credit quality of the securities in which the LIVE OAK Municipal
Fund may invest. The LIVE OAK MUNICIPAL FUND will only invest in securities
which have or are deemed to have a remaining maturity of 397 days or less. Also,
the average maturity for all securities contained in the LIVE OAK Municipal
Fund, on a dollar-weighted basis, will be 90 days or less.
The LIVE OAK MUNICIPAL FUND will only invest in either securities which have
been rated (or whose issuers have been rated) in the highest short-term rating
category by nationally recognized statistical rating organizations, or are
unrated securities but
15
<PAGE>
which have been determined by the LIVE OAK Municipal Fund's Board of Directors
to be of comparable quality.
Subsequent to its purchase by the LIVE OAK MUNICIPAL FUND, the quality of an
investment may cease to be rated or its rating may be reduced below the minimum
required for purchase by the LIVE OAK MUNICIPAL FUND. If this occurs, the Board
of Directors of the LIVE OAK MUNICIPAL FUND shall reassess the security's credit
risks and shall take such action as it determines is in the best interest of the
LIVE OAK MUNICIPAL FUND and its shareholders. Reassessment is not required,
however, if the security is disposed of or matures within five business days of
the Manager becoming aware of the new rating and provided further that the Board
of Directors is subsequently notified of the Manager's actions.
Although the LIVE OAK MUNICIPAL FUND will attempt to invest 100% of its
total assets in Municipal Securities, the LIVE OAK MUNICIPAL FUND reserves the
right to invest up to 20% of its total assets in taxable securities whose
interest income is subject to regular federal, state and local income tax, as
well as the Federal alternative minimum tax. The kinds of taxable securities in
which the LIVE OAK MUNICIPAL FUND may invest are limited to specific types of
short-term, fixed income securities.
As a temporary defensive measure the LIVE OAK MUNICIPAL FUND may, from time
to time, invest in securities that are inconsistent with its principal
investment strategies in an attempt to respond to adverse market, economic,
political or other conditions as determined by the Manager. Such a temporary
defensive position may prevent the LIVE OAK MUNICIPAL FUND from achieving its
investment objective.
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The LIVE OAK MUNICIPAL FUND complies with industry-standard requirements on
the quality, maturity and diversification of its investments which are designed
to help maintain a $1.00 share price.
However, the LIVE OAK MUNICIPAL FUND is still subject to risks involving
changes in interest rates and the credit risk surrounding the issuers of
Municipal Securities.
Rising interest rates cause the prices of debt securities to decrease, which
would lead to a loss in the value of the LIVE OAK MUNICIPAL FUND's investment.
Moreover, changes in interest rates may be caused by various economic factors or
political events.
In addition, the LIVE OAK MUNICIPAL FUND is exposed to the credit risk of
the institutions that issue Municipal Securities. Changes in the credit quality
of the issuers could affect their ability to meet their payment obligations of
interest or principal. Any failure to make such payments could adversely affect
the value of the security and your investment in the LIVE OAK MUNICIPAL FUND.
PRINCIPAL INVESTMENT STRATEGIES
FOR ALL FUNDS
The LIVE OAK GENERAL MONEY MARKET FUND, LIVE OAK U.S. GOVERNMENT FUND , and
LIVE OAK Municipal Money Market Fund (each, a "Fund" both, the "Funds") will
invest 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, Duff and
Phelps, Inc., Fitch Investors Service, Inc., IBCA Limited and IBCA Inc.
16
<PAGE>
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 are not fundamental
policies, and may be changed by the Board of Directors, with notice to
shareholders.
The securities in which the Funds invest may not yield as high a level of
current income as longer term or lower grade securities, which generally have
less liquidity and greater fluctuation in value. The values of the securities in
which the Funds invest fluctuate based upon interest rates, the financial
stability of the issuers and market factors.
The Company may enter into the following arrangements with respect to all
three Funds. Repurchase Agreements: under a repurchase agreement, the purchaser
(for example, one of the Funds) acquires ownership of an obligation and the
seller agrees, at the time of the sale, to repurchase the obligation at a
mutually agreed upon time and price, thereby determining the yield during the
purchaser's holding period. This arrangement results in a fixed rate of return
insulated from market fluctuations during such period. Although the underlying
collateral for repurchase agreements may have maturities exceeding one year, a
Fund will not enter into a repurchase agreement if as a result of such
investment more than 10% of such Fund's total assets would be invested in
illiquid securities, including repurchase agreements which expire in more than
seven days. A Fund may, however, enter into "continuing contract" or "open"
repurchase agreements under which the seller is under a continuing obligation to
repurchase the underlying obligation from that Fund on demand and the effective
interest rate is negotiated on a daily basis.
In general, a Fund will enter into repurchase agreements only with domestic
banks with total assets of at least $1.5 billion or with primary dealers in U.S.
Government securities. However, the total assets of a bank will not be the sole
factor determining the Fund's investment decisions, and the Fund may enter into
repurchase agreements with other institutions which the Board of Directors
believes present minimal credit risk. Nevertheless, if the seller of a
repurchase agreement fails to repurchase the obligation in accordance with the
terms of the agreement, the Fund which entered into the repurchase agreement may
incur a loss to the extent that the proceeds it realized on the sale of the
underlying obligation are less than the repurchase price. Repurchase agreements
may be considered loans to the seller of the underlying security. Income with
respect to repurchase agreements is not tax-exempt.
Securities purchased pursuant to a repurchase agreement are held by the
Fund's custodian and (i) are recorded in the name of the Fund with the Federal
Reserve Book-Entry System, or (ii) the Fund receives daily written confirmation
of each purchase of a security and a receipt from the custodian. The Funds
purchase securities subject to a repurchase agreement only when the purchase
price of the security acquired is equal to or less than its market price at the
time of purchase.
A Fund may also enter into reverse repurchase agreements which involve the
sale by a Fund of a portfolio security at an agreed
17
<PAGE>
upon price, date and interest payment. A Fund will enter into reverse repurchase
agreements for temporary or defensive purposes to facilitate the orderly sale of
portfolio securities, to accommodate abnormally heavy redemption requests should
they occur, or in some cases as a technique to enhance income. A Fund will use
reverse repurchase agreements when the interest income to be earned from the
investment of the proceeds of the transaction is greater than the interest
expense of the reverse repurchase transaction. A Fund will enter into reverse
repurchase agreements only in amounts up to 10% of the value of its total assets
at the time of entering into such agreements. Reverse repurchase agreements
involve the risk that the market value of securities retained by a Fund in lieu
of liquidation may decline below the repurchase price of the securities sold by
the Fund which it is obligated to repurchase. This risk, if encountered, could
cause a reduction in the net asset value of a Fund's shares. Reverse repurchase
agreements are considered to be borrowings under the 1940 Act. As such, they are
subject to limitations on the level of Fund assets that may be invested in.
Delayed delivery agreements are commitments by any of the Funds to dealers
or issuers to acquire securities beyond the customary same-day settlement for
money market instruments. These commitments fix the payment price and interest
rate to be received on the investment. Delayed delivery agreements will not be
used as a speculative or leverage technique. Rather, from time to time, the
Funds' investment advisor can anticipate that cash for investment purposes will
result from scheduled maturities of existing portfolio instruments or from net
sales of shares of a Fund; therefore, to assure that a Fund will be as fully
invested as possible in instruments meeting that Fund's investment objective, a
Fund may enter into delayed delivery agreements, but only to the extent of
anticipated funds available for investment during a period of not more than five
business days.
Money Market Obligations and Municipal Securities are sometimes offered on
a "when-issued" basis, that is, the date for delivery of and payment for the
securities is not fixed at the date of purchase, but is set after the securities
are issued (normally within forty-five days after the date of the transaction).
The payment obligation and the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A Fund
will only make commitments to purchase such Money Market Instruments or
Municipal Securities with the intention of actually acquiring such securities,
but a Fund may sell these securities before the settlement date if it is deemed
advisable.
If a Fund enters into a delayed delivery agreement or purchases a
when-issued security, that Fund will direct the Company's custodian bank to
place cash or other high grade securities (including Money Market Obligations
and Municipal Securities) in a segregated account of such Fund in an amount
equal to its delayed delivery agreements or when-issued commitments. If the
market value of such securities declines, additional cash or securities will be
placed in the account on a daily basis so that the market value of the account
will equal the amount of such Fund's delayed delivery agreements and when-issued
commitments. To the extent that funds are in a segregated account, they will not
be available for new investment or to meet redemptions. Investment in securities
on a when-issued basis and use of delayed delivery agreements may increase a
Fund's exposure to market fluctuation; may increase the possibility that the
LIVE OAK MUNICIPAL FUND will incur a short-term gain subject to federal
taxation; or may increase the possibility that a Fund will incur a short-term
loss, if the Fund must engage in portfolio transactions in order to honor a
when-issued commitment or accept delivery of a security under a delayed delivery
agreement. The Funds will employ techniques designed to minimize these risks.
18
<PAGE>
No additional delayed delivery agreements or when-issued commitments will be
made if more than 25% of a Fund's net assets would become so committed. The
Funds will enter into when-issued and delayed delivery transactions only when
the time period between trade date and settlement date is at least 30 days and
not more than 120 days.
The LIVE OAK MUNICIPAL FUND may attempt to improve its portfolio liquidity
by assuring same-day settlements on portfolio sales (and thus facilitate the
same-day payment of redemption proceeds) through the acquisition of "Stand-by
Commitments." A Stand-by Commitment is a right of the LIVE OAK MUNICIPAL FUND,
when it purchases Municipal Securities for its portfolio from a broker, dealer
or other financial institution, to sell the same principal amount of such
securities back to the seller, at the LIVE OAK MUNICIPAL FUND's option, at a
specified price. Stand-by Commitments are also sometimes known as "puts." The
LIVE OAK MUNICIPAL FUND will acquire Stand-by Commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition or exercisability of a Stand-by Commitment by
the LIVE OAK MUNICIPAL FUND will not affect the valuation or the average
weighted maturity of its underlying portfolio securities. See "Investment
Programs and Restrictions - Stand-by Commitments" in the Statement of Additional
Information for additional information with respect to Stand-by Commitments.
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.
YEAR 2000
- --------------------------------------------------------------------------------
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Manager is in the process of working with the Fund's service
providers to prepare for the year 2000. Based on information currently
available, the Manager does not expect that the Fund will incur material costs
to be year 2000 compliant. Although the Manager does not anticipate that the
year 2000 issue will have a material impact on the Fund's ability to provide
service at current levels, there can be no assurance that steps taken in
preparation for the year 2000 will be sufficient to avoid an adverse impact on
the Fund. The year 2000 Problem may also adversely affect issuers of the
securities contained in the Fund, to varying degrees based upon various factors,
and thus may have a corresponding adverse effect on the Fund's performance. The
Manager is unable to predict what effect, if any, the year 2000 Problem will
have on such issuers.
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Funds' investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"). The Manager's principal business office is located at 600 Fifth
Avenue, New York, NY 10020. As of June 30, 1999, the Manager was the investment
manager, advisor or supervisor with respect to assets aggregating in excess of
$13.6 billion. The Manager has been an investment adviser since 1970 and
currently is manager of seventeen other registered investment companies and also
advises pension trusts, profit-sharing trusts and endowments.
19
<PAGE>
Pursuant to the Investment Management Contract, the Manager manages the
Fund's portfolio of securities and makes decisions with respect to the purchase
and sale of investments, subject to the general control of the Board of
Directors of the Fund.
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, 1999, the Company paid the Manager fees which
represented 0.77% of the Cortland General Portfolio's average daily net assets,
0.77% of the Government Portfolio's average daily net assets and 0.77% of the
Municipal Portfolio's average daily net assets, respectively, on an annualized
basis. During such year, expenses borne by each of the Funds, including fees
paid to the Manager, amounted to 0.98% of the LIVE OAK GENERAL FUND's average
daily net assets, 0.91% of the LIVE OAK GOVERNMENT FUND's average daily net
assets and 0.95% of the LIVE OAK MUNICIPAL FUND's average daily net assets,
respectively, on an annualized basis.
SHAREHOLDER INFORMATION
HOW TO PURCHASE SHARES
GENERAL INFORMATION ON PURCHASES
Shares of each Fund may be purchased through IJL/Wachovia, 210 N. Tyron
Street, Charlotte, North Carolina 28202. 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. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans' Day, Thanksgiving Day and Christmas. The minimum initial purchase made
directly through the Company may be as low as $1,000 and subsequent purchases
will be accepted in any amount.
An order to purchase Fund shares is effective only when it is received in
proper form and payment in the form of Federal Funds (member bank deposits with
the Federal Reserve Bank) is received by the Company for investment. The Company
reserves the right to reject any order for the purchase of shares. Fund shares
are purchased or exchanged at the net asset value next determined after receipt
of the order. Net asset value is normally determined at 12 noon 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 prior to 12 noon 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
20
<PAGE>
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 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 IJL\WACHOVIA
Investors may submit their initial and subsequent investments directly
through IJL\Wachovia. For an initial investment, investors should submit payment
and, if required, a completed Investor Application to IJL\Wachovia, who will
transmit such payment to the Company on behalf of the investor and supply the
Company with required account information. Investors may have their
"free-credit" cash balances automatically invested in Fund shares on a daily
basis depending upon which Fund has been designated by the investor as the
primary Fund for his account. Automatic purchases and redemptions of Fund shares
are treated on the same basis as direct purchases and redemptions from the
Company. "Free-credit" cash balances begin to earn dividends on the first day
following the date that the share purchase or exchange order is effected and
through the date that a redemption order is effected. For further information
and for details concerning the automatic purchase and redemption of Fund shares,
contact IJL\Wachovia. The Company is not responsible for any delay caused by
IJL\Wachovia in forwarding an order to the Company. IJL\Wachovia has a
responsibility to transmit orders promptly.
PURCHASES FROM THE COMPANY
You may purchase Fund shares by wire and by mail. The Company will only
accept direct orders from investors through the Distributor or through
IJL\Wachovia. The initial purchase must be accompanied by a completed Investor
Application available from the Distributor or from IJL\Wachovia.
INITIAL PURCHASE OF SHARES
MAIL
Investors may send a check made payable to "Reich & Tang Funds" along with a
completed subscription order form to:
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232
Checks are accepted subject to collection at full value in United States
currency. Payment by a check drawn on any member bank of the Federal Reserve
System can normally be converted into Federal Funds within two business days
after receipt of the check. Checks drawn on a nonmember bank may take
substantially longer to convert into Federal Funds and to be invested in Fund
shares. An investor's subscription will not be accepted until the Fund receives
Federal Funds.
BANK WIRE
To purchase shares of the Fund using the wire system for transmittal of
money among banks, an investor should first obtain a new account number from
IJL\Wachovia and then instruct a member commercial bank to wire money
immediately to:
Investors Fiduciary Trust Company
ABA# 101003621
Reich & Tang Services, Inc.
DDA# 890752-954-6
21
<PAGE>
The investor should then promptly complete and mail the subscription order
form.
An investor planning to wire funds should instruct his bank to wire before
12 noon, New York City time, on the same day. There may be a charge by the
investor's bank for transmitting the money by bank wire, and there also may be a
charge for use of Federal Funds. The Fund does not charge investors in the Fund
for its receipt of wire transfers. Payment in the form of a "bank wire" received
prior to 12 noon, New York City time, on a Fund Business Day will be treated as
a Federal Funds payment received on that day.
PERSONAL DELIVERY
Deliver a check made payable to "Reich & Tang Funds" along with a completed
subscription order form to:
Reich & Tang Funds
600 Fifth Avenue, 9th Floor
New York, New York 10020
SUBSEQUENT PURCHASES OF SHARES
There is a $50 minimum for each subsequent purchase. All payments should
clearly indicate the shareholder's account number. Provided that the information
on the subscription order form on file with the Fund is still applicable, a
shareholder may reopen an account without filing a new subscription order form
at any time during the year the shareholder's account is closed or during the
following calendar year.
Subsequent purchases can be made either by bank wire or by personal
delivery, as indicated above or by mailing a check to the Fund's transfer agent
at:
Mutual Funds Group
P.O. Box 13232
Newark, New Jersey 07101-3232
ELECTRONIC FUNDS TRANSFERS (EFT)
AND DIRECT DEPOSIT PRIVILEGE
You may purchase Fund shares (minimum of $50) by having salary, dividend
payments, interest payments or any other payments designated by you, or by
having federal salary, social security, or certain veteran's, military or other
payments from the federal government, automatically deposited into your account.
You may deposit as much of such payments as you elect. To enroll in this
program, you must file with the Company a completed EFT Application and/or a
Direct Deposit Sign-Up Form for each type of payment that you desire to include
in the privilege. The appropriate form may be obtained from IJL\Wachovia or the
Company. You may elect at any time to terminate your participation by notifying
in writing the appropriate depositing entity and/or federal agency. Death or
legal incapacity will terminate your participation in the privilege. Further,
the Company may terminate your participation upon 30 days' notice to you.
HOW TO REDEEM SHARES
You may redeem your shares, in whole or in part, on any day on which the
Fund's net asset value is calculated. Shares are redeemed at the net asset value
next determined after receipt of proper notice of redemption. If you redeem all
of your shares, you will receive payment of all dividends declared but unpaid
through the date of redemption. If you redeem only a portion of the shares in
your account, the dividends declared but unpaid on the shares redeemed will not
be distributed to you until the next regular dividend payment date. If your
redemption order is received prior to 12 noon Eastern time, the redemption will
be effective on that day and the Company will endeavor to transmit payment that
same business day. If the notice of redemption is received 12 noon Eastern time,
the redemption will be made on the next business day.
22
<PAGE>
Some of the redemption procedures described below may require you to
complete and file an authorization form in advance. If purchases are made by
check, redemption of those shares by wire, by check redemption or by telephone
are restricted for fifteen calendar days following the purchase of shares. Under
certain circumstances the Company may redeem accounts of less than $500 or
impose a monthly service charge of not more than $10 on such accounts.
REDEMPTIONS THROUGH
IJL\WACHOVIA
Shareholders may redeem shares by instructing IJL\Wachovia to effect their
redemption transactions. IJL\Wachovia will transmit the required redemption
information to the Company and the proceeds from that redemption will be
transmitted to IJL\Wachovia for the account of the shareholder. IJL\Wachovia may
impose redemption minimums, service fees or other requirements. IJL\Wachovia has
a responsibility to transmit redemption requests promptly.
REDEMPTIONS BY CHECK
Shareholders may use checks to effect redemptions. The standard checking
allows checks to be drawn in any amount of $250 or more. Checks drawn in amounts
of less than $250 may be returned to the payee or a $15 fee will be imposed for
such checks paid.
Shareholders may elect to establish a Key Account. A Key Account provides
draft checking services which is part of a range of cash management services
provided by the Manager and/or its affiliates. The account entitles shareholders
to write checks in any amount that will clear through an agent bank.
SHAREHOLDERS WHO ARE INTERESTED IN PARTICIPATING IN THE KEY ACCOUNT PROGRAM
SHOULD CONSIDER THE INFORMATION AVAILABLE FROM IJL\WACHOVIA WITH RESPECT TO THE
KEY ACCOUNT, INCLUDING THE FEES RELATED THERETO.
The payee of a check may cash or deposit it in the same way as an ordinary
bank check. When a check is presented to the agent bank for payment, the agent
bank will cause the Company to redeem a sufficient number of shares to cover the
amount of the check. Shareholders are entitled to dividends on the shares
redeemed up until the day on which the check is presented to the agent bank for
payment. Checks drawn on insufficient funds will be returned to the payee and a
fee (currently $16) will be imposed. Additionally, a fee (currently $20) will be
imposed for stop payment orders.
PREAUTHORIZED REDEMPTIONS
Shareholders may make preauthorized redemptions by contacting the Company
by:
(a) calling (212) 830-5280 if calling from New York or
(b) calling toll free at (800) 433-1918 if calling from elsewhere in the
United States or
(c) sending a telegram or letter to Reich & Tang, 600 Fifth Avenue, New York,
New York 10020
and have the proceeds mailed or wired only to IJL\Wachovia or a previously
designated bank account if (a) shares were paid for in Federal Funds or were
purchased by check and have been on the Company's books at least fifteen
calendar days and (b) a telephone redemption authorization included in the
Investor Application is on file with the Company before the redemption request
is placed. This authorization requires designation of a brokerage or bank
account to which the redemption payment is to be sent. The proceeds will not be
mailed or wired to other than the designated account. Redemptions of $10,000 or
more will be sent by bank wire if requested. Smaller amounts will normally be
mailed to the designated account.
The Company will employ procedures to confirm that telephone redemption
instructions
23
<PAGE>
are genuine, and will require that shareholders electing such option provide a
form of personal identification. The failure by the Company to employ such
procedures may cause the Company to be liable for any losses incurred by
investors due to telephone redemptions based upon unauthorized or fraudulent
instructions.
REDEMPTIONS BY LETTER OF INSTRUCTION
Shareholders may redeem shares by a letter of instruction sent directly to
Reich & Tang Funds, 600 Fifth Avenue, New York, New York 10020, containing:
(a) your IJL\Wachovia account number
(b) your redemption Fund choice
(c) your name and telephone number
(d) the dollar amount or number of shares to be redeemed or a statement that
all shares in the account are to be redeemed
(e) payment instructions (normally redemption proceeds will be mailed to the
shareholder's address as registered with the Company)
(f) signature(s) of the registered shareholder(s)
(g) signature(s) guaranteed stamped under the signature and signed and
guaranteed by an eligible guarantor institution which includes a domestic
bank, a domestic savings and loan institution, a domestic credit union, a
member bank of the Federal Reserve System or a member firm of a national
securities exchange, pursuant to the Company's standards and procedures.
The proceeds of redemption are sent to the shareholder's bank or the
shareholder's address as it appears in the Company's records. In order to change
such designation, the shareholder must submit a written notification to the
Company with the signature guarantee(s) described above.
EXCHANGES
Shares of each Fund may be exchanged at net asset value for shares of any of
the other Funds without charge by instructions to IJL\Wachovia or by mail. The
value of the shares being exchanged must meet the minimum initial investment
requirements of the Fund. Mail exchange orders should be addressed and sent as
shown under the heading "Redemptions by Letter of Instruction" and must contain:
o your IJL\Wachovia account number
o your name and telephone number
o the amount of shares to be exchanged (or, if all shares are to be
exchanged, a statement to this effect)
o the Fund shares to be exchanged
o the Fund shares to be acquired
o any change in dividend election.
DISTRIBUTOR
Each of the Funds has entered into a distribution agreement dated September
15, 1993 (the "Distribution Agreements") with Reich & Tang Distributors, Inc.
(the "Distributor"), 600 Fifth Avenue, New York, New York 10020. The
Distributor, which was organized on January 4, 1991, has the exclusive right to
enter into dealer agreements with securities dealers who sell shares of the
Funds, including sales where a securities dealer automatically "sweeps" free
credit balances into a fund at the end of each day ("Sweep Arrangement")
allowing the account holder to earn dividends otherwise unavailable in the
brokerage account, and with financial institutions which may furnish services to
shareholders on behalf of the Company. Pursuant to plans of distribution (the
"Plans") approved by the Funds' Boards on November
24
<PAGE>
9, 1995, each of the Funds may make distribution related payments, under a sweep
arrangement or otherwise, in an amount not to exceed on an annualized basis .20%
of the value of the Fund's assets. Securities dealers and other financial
institutions may receive distribution payments directly or indirectly from the
Funds for services that may include payments for opening shareholder accounts,
processing investor purchase and redemption orders, responding to inquiries from
shareholders concerning the status of their accounts and operations of their
Fund and communications with the Company on behalf of Fund shareholders.
Additionally, the Distributor may pay for advertisements, promotional materials,
sales literature and printing and mailing of prospectuses to other than Fund
shareholders and other services to support distribution pursuant to the Plans.
The Distributor may also make payments to securities dealers, under a sweep
arrangement or otherwise, and to financial institutions, such as banks, out of
the investment management fee the Manager receives from the Funds, out of its
past profits or from any other source available to the Distributor.
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.
DIVIDENDS AND TAXES
DIVIDENDS
It is the policy of the Company, with respect to each Fund, to declare
dividends from the net investment income earned by each Fund daily; such
dividends are generally reinvested in additional Fund shares on the subsequent
business day. A shareholder may, by letter to the Company, elect to have
dividends paid by check. Any such election or revocation thereof must be made in
writing to Reich & Tang Funds, Inc., 600 Fifth Avenue, New York, New York 10020.
Shareholders whose dividends are being reinvested will receive a summary of
their accounts at least quarterly indicating the reinvestment of dividends.
Dividends from net realized capital gain, offset by capital loss carryovers, if
any, are generally declared and paid when realized except to the extent that a
net realized capital gain is deemed necessary to offset future capital losses.
TAXES
Each Fund is treated as a separate entity for federal income tax purposes.
Each Fund intends to qualify as a regulated investment company by satisfying the
requirements under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), including requirements with respect to diversification of assets,
distribution of income and sources of income. It is each Fund's policy to
distribute to shareholders all of its investment income (net of expenses) and
any capital gains (net of capital losses) in accordance with the timing
requirements imposed by the Code, so that each Fund will each satisfy the
distribution requirement of Subchapter M and will not be subject to federal
income tax or the 4% excise tax.
If a Fund fails to satisfy any of the Code requirements for qualification as
a regulated investment company, it will be taxed at regular corporate tax rates
on all its taxable income (including capital gains) without any deduction for
distributions to shareholders, and distributions to shareholders will be taxable
as ordinary dividends (even if derived from the Fund's net long-term capital
gains) to the extent of the Fund's current and accumulated earnings and profits.
Distributions by the LIVE OAK MUNICIPAL FUND of its tax-exempt interest
income are designated as exempt-interest dividends, which are excludable from
gross income for
25
<PAGE>
federal income tax purposes. However, shareholders are required to report the
receipt of exempt-interest dividends, together with other tax-exempt interest,
on their federal income tax returns. In addition, these exempt-interest
dividends may be subject to the federal alternative minimum tax ("AMT") and will
be taken into account in determining the portion, if any, of Social Security
benefits received which must be included in gross income for federal income tax
purposes. Further, interest or indebtedness incurred or continued to purchase or
carry shares of the LIVE OAK MUNICIPAL FUND (which indebtedness likely need not
be directly traceable to the purchase or carrying of such shares) will not be
deductible for federal income tax purposes. Finally, a shareholder who is (or is
related to) a "substantial user" of a facility financed by industrial
development bonds held by the LIVE OAK MUNICIPAL FUND likely will be subject to
tax on dividends paid by such Fund that are derived from interest on such bonds.
The LIVE OAK MUNICIPAL FUND may invest in securities the interest on which
is (and the dividends paid by the Fund derived from such interest are) subject
to federal income tax, but such taxable securities will not exceed 20% of the
value of the LIVE OAK MUNICIPAL FUND's total assets. The percentage of dividends
which constitute exempt-interest dividends, and the percentage thereof (if any)
which constitutes an item of tax preference, will be determined annually and
will be applied uniformly to all dividends of the LIVE OAK MUNICIPAL FUND
declared during that year. These percentages may differ from the actual
percentages for any particular day.
Distributions by a Fund of its taxable net investment income and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable to shareholders as ordinary income. Such distributions
are treated as dividends for federal income tax purposes but are not expected to
qualify for the 70% dividends-received deduction for corporate shareholders.
Distributions by a Fund of the excess, if any, of its net long-term capital gain
over its net short-term capital loss are designated as capital gain dividends
and are taxable to shareholders as long-term capital gains, regardless of the
length of time shareholders have held their shares.
Tax-exempt interest on specified private activity bonds issued after August
7, 1986, is treated as a tax preference item for purposes of the AMT. Thus,
corporate and individual shareholders of the LIVE OAK MUNICIPAL FUND may incur
an AMT liability as a result of receiving exempt-interest dividends from the
Fund to the extent such dividends are attributable to interest from such private
activity bonds. In addition, because all exempt-interest dividends are included
in a corporate shareholder's adjusted current earnings (which is used in
computing a separate preference item for corporations), corporate shareholders
may incur an AMT liability as a result of receiving exempt-interest dividends
from the LIVE OAK MUNICIPAL FUND.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of a Fund. In general, distributions by a Fund are taken into account by the
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by a Fund and received
by the shareholders on December 31 of the preceding year.
A shareholder will recognize gain or loss upon the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
However, as long as a Fund's Net Asset Value per share does not deviate from
$1.00, there will be no gain or loss upon the sale or redemption of shares of a
Fund. Any loss realized upon a taxable disposition of shares within six months
from
26
<PAGE>
the date of their purchase will be treated as a long-term capital loss to the
extent of any capital gain dividends received on such shares. All or a portion
of any loss realized upon a taxable disposition of shares of a Fund may be
disallowed if other shares of the Fund are purchased within 30 days before or
after such disposition.
If a shareholder is a non-resident alien or foreign entity shareholder,
ordinary income dividends paid to such shareholder generally will be subject to
United States withholding tax at a rate of 30% (or lower applicable treaty
rate). We urge non-United States shareholders to consult their own tax adviser
concerning the applicability of the United States withholding tax.
Under the backup withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on ordinary income dividends
paid by a Fund. In order to avoid this backup withholding, a shareholder must
provide the Fund with a correct taxpayer identification number (which for most
individuals is his or her Social Security number) or certify that it is a
corporation or otherwise exempt from or not subject to backup withholding.
The exclusion from gross income for federal income tax purposes of
exempt-interest dividends does not necessarily result in exclusion under the
income or other tax laws of any state or local taxing authority.
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 legislative, judicial or administrative action. As the foregoing
discussion is for general information only, a prospective shareholder also
should review the more detailed discussion of federal income tax considerations
relevant to the Funds that is contained in the Statement of Additional
Information. In addition, each prospective shareholder should consult with his
own tax adviser as to the tax consequences of investments in the Funds,
including the application of state and local taxes which may differ from the
federal income tax consequences described above.
27
<PAGE>
VI. FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
Live Oak General Money Market Fund Shares
For the Year Ended March 31,
-------------------------------------------------------------------------
1999 1998 1997 1996+
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding
throughout the period)
Net asset value,
beginning of period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------
Income from investment operations:
Net investment income............. 0.045 0.048 0.045 0.018
Net realized and unrealized
gain/(loss) on investments....... 0.001 ( 0.001) 0.000 0.000
------------ ------------ ------------ ------------
Total from investment operations.... 0.046 0.047 0.045 0.018
Less distributions:
Dividends from net
investment income................ ( 0.045 ) ( 0.047 ) ( 0.045 ) ( 0.018 )
------------ ------------ ------------ ------------
Total distributions................. ( 0.045 ) ( 0.047 ) ( 0.045 ) ( 0.018 )
------------ ------------ ------------ ------------
Net asset value, end of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============
Total Return........................ 4.59% 4.84% 4.59% 4.78%*
Ratios/Supplemental Data
Net assets,
end of period (000's omitted)..... $ 812,816 $ 609,818 $ 440,457 $ 351,030
Ratios to average net assets:
Expenses.......................... 0.98% 0.91% 0.95% 0.97%*
Net investment income............. 4.43% 4.78% 4.48% 4.68%*
Management and distribution support
and service fees waived........... 0.00% 0.05% 0.02% 0.02%*
* Annualized
+ Live Oak shares commenced distribution on November 16, 1995.
</TABLE>
28
<PAGE>
VI. FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
Live Oak U.S. Government Fund Shares
For the Year Ended March 31,
------------------------------------------------
1999 1998 1997 1996+
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding
throughout the period)
Net asset value,
beginning of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- ---------
Income from investment operations:
Net investment income........... 0.043 0.049 0.044 0.017
Net realized and unrealized
gain/(loss) on investments..... 0.001 ( 0.001) ( 0.001) 0.000
--------- --------- --------- ---------
Total from investment operations.. 0.044 0.048 0.043 0.017
Less distributions:
Dividends from net
investment income.............. ( 0.043) ( 0.046) ( 0.044) ( 0.017)
--------- --------- --------- ---------
Total distributions............... ( 0.043) ( 0.046) ( 0.044) ( 0.017)
--------- --------- --------- ---------
Net asset value, end of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= =========
Total Return...................... 4.42% 4.75% 4.53% 4.74%*
Ratios/Supplemental Data
Net assets,
end of period (000's omitted)... $ 78,987 $ 66,829 $ 55,057 $ 47,328
Ratios to average net assets:
Expenses........................ 0.91% 0.68% 0.86% 0.89%*
Net investment income........... 4.29% 4.89% 4.45% 4.64%*
Management and Distribution support
and service fees waived......... 0.08% 0.24% 0.12% 0.11%*
* Annualized
+ Live Oak shares commenced distribution on November 16, 1995.
</TABLE>
29
<PAGE>
VI. FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
Live Oak Municipal Money Market Shares
For the Year Ended March 31,
------------------------------------------------
1999 1998 1997 1996+
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
(for a share outstanding
throughout the period)
Net asset value,
beginning of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- ---------
Income from investment operations:
Net investment income........... 0.026 0.029 0.027 0.011
--------- --------- --------- ---------
Total from investment operations.. 0.026 0.029 0.027 0.011
Less distributions:
Dividends from net
investment income.............. ( 0.026) ( 0.029) ( 0.027) ( 0.011)
--------- --------- --------- ---------
Total distributions............... ( 0.026) ( 0.029) ( 0.027) ( 0.011)
--------- --------- --------- ---------
Net asset value, end of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= =========
Total Return...................... 2.60% 2.93% 2.77% 2.96%*
Ratios/Supplemental Data
Net assets,
end of period (000's omitted)... $ 70,124 $ 67,697 $ 58,794 $ 49,663
Ratios to average net assets:
Expenses........................ 0.95% 0.90% 0.93% 0.96%*
Net investment income........... 2.57% 2.86% 2.72% 2.91%*
Management and Distribution support
and service fees waived......... 0.03% 0.07% 0.04% 0.03%*
* Annualized
+ Live Oak shares commenced distribution on November 16, 1995.
</TABLE>
30
<PAGE>
[GRAPHIC OMITTED]
IJL WACHOVIA
DIVISION OF WACHOVIA SECURITIES, INC.
LIVE OAK SHARES
GENERAL MONEY MARKET FUND
US GOVERNMENT FUND
MUNICIPAL MONEY MARKET FUND
July 27, 1999
A Statement of Additional Information (SAI) dated July 27, 1999, and the Funds'
Annual and Semi-Annual Reports include additional information about the Funds
and their investments and are incorporated by reference into this prospectus.
You may obtain the SAI and the Annual and Semi-Annual Reports and other material
incorporated by reference without charge by calling the Funds at 1-800-221-3079.
To request other information, please call your financial intermediary or the
Funds.
======================================================
======================================================
A current SAI has been filed with the Securities and Exchange Commission. You
may visit the Securities and Exchange Commission's Internet website
(www.sec.gov) to view the SAI, material incorporated by reference and other
information. These materials can also be reviewed and copied at the Commission's
Public Reference Room in Washington D.C. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. In addition, copies of these materials may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C.
20549-6009.
811-4179
[GRAPHIC OMITTED]
IJL WACHOVIA
DIVISION OF WACHOVIA SECURITIES, INC.
MEMBER NEW YORK STOCK EXCHANGE, INC.
MEMBER SIPC
CORPORATE HEADQUARTERS
IJL FINANCIAL CENTER
201 N. TRYON STREET
CHARLOTTE, NORTH CAROLINA 28202
<PAGE>
- --------------------------------------------------------------------------------
BRADFORD SHARES 600 FIFTH AVENUE
NEW YORK, N.Y. 10020
(212) 830-5220
================================================================================
BRADFORD U.S. GOVERNMENT MONEY MARKET FUND
BRADFORD SHORT-TERM MUNICIPAL MONEY MARKET FUND
PROSPECTUS
July 27, 1999
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 Funds (collectively, the
"Portfolios"). This Prospectus relates exclusively to the Bradford classes (the
"Bradford Shares") of two of the Company's Funds, the U.S. Government Money
Market Fund and the Municipal Money Market Fund, (collectively, the "Funds").
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<S> <C>
3 BRADFORD U.S. GOVERNMENT MONEY MARKET FUND
3 Risk/Return Summary: Investments, Risks and Performance
5 Fee Table
6 Investment Objectives, Principal Investment Strategies and Related Risks
7 BRADFORD SHORT-TERM MUNICIPAL MONEY MARKET FUND
7 Risk/Return Summary: Investments, Risks and Performance
9 Fee Table
10 Investment Objectives, Principal Investment Strategies and Related Risks
11 Principal Investment Strategies For Both Funds
14 Management, Organization and Capital Structure
15 Shareholder Information
17 Dividends and Taxes
20 Financial Highlights
</TABLE>
<PAGE>
BRADFORD U.S. GOVERNMENT MONEY MARKET FUND ("BRADFORD U.S. GOVERNMENT FUND")
RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
INVESTMENT OBJECTIVE
The BRADFORD U.S. GOVERNMENT FUND seeks to provide its investors with as
high a level of current income exempt from federal income taxes as is consistent
with the preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The BRADFORD U.S. GOVERNMENT FUND intends to achieve its investment
objective by investing 65% of its assets in short-term marketable securities and
instruments issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities (U.S. Government Obligations").
The BRADFORD U.S. GOVERNMENT FUND is a money market BRADFORD U.S. Government
Fund and seeks to maintain an investment portfolio with a dollar-weighted
average maturity of 90 days or less, to value its investment portfolio at
amortized cost and to maintain a net asset value of $1.00 per share.
PRINCIPAL RISKS
o Although the BRADFORD U.S. GOVERNMENT FUND seeks to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the BRADFORD U.S. GOVERNMENT FUND. The value of the BRADFORD
U.S. GOVERNMENT FUND's shares and the securities held by the BRADFORD U.S.
GOVERNMENT FUND can each decline in value due to changes in interest rates.
For example, rising interest rates cause the prices of the BRADFORD U.S.
GOVERNMENT FUND's securities to decrease.
o An investment in the BRADFORD U.S. GOVERNMENT FUND is not a bank deposit
and is not insured or guaranteed by the FDIC or any other governmental
agency.
o Payment of interest and preservation of capital are dependent upon the
continuing ability of issuers and/or obligators of state, municipal and
public authority debt obligations to meet their payment obligations. If
such issuers fail to make timely payments of interest and principal, the
BRADFORD U.S. GOVERNMENT FUND's investments would decline in value.
3
<PAGE>
RISK/RETURN BAR CHART
- --------------------------------------------------------------------------------
The following bar chart and table may assist you in your decision to invest
in the BRADFORD U.S. GOVERNMENT FUND. The bar chart shows the BRADFORD U.S.
GOVERNMENT FUND's annual return for the last calendar year. The table shows
BRADFORD U.S. GOVERNMENT FUND's average annual returns for the last one year
period and since inception. While analyzing this information, please note that
the BRADFORD U.S. GOVERNMENT FUND's past performance is not an indicator of how
it will perform in the future.
<TABLE>
<CAPTION>
BRADFORD U.S. GOVERNMENT FUND (1), (2)
[GRAPHIC OMITTED]
<S> <C>
CALENDAR YEAR END % TOTAL RETURN
1998 4.68%
</TABLE>
(1) The BRADFORD U.S. GOVERNMENT FUND's highest quarterly return was 1.20% for
the quarter ended September 30, 1998; the lowest quarterly return was 0.99%
for the quarter ended March 31, 1999.
(2) Securities dealers may charge a fee to investors for purchasing and
redeeming shares. Therefore, the net return to such investors may be less
than if they had invested in the BRADFORD U.S. GOVERNMENT FUND directly.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS - BRADFORD U.S. GOVERNMENT FUND
FOR THE PERIODS ENDED DECEMBER 31, 1998
<S> <C>
One Year 4.68%
Since Inception [October 1, 1997] 4.71%
</TABLE>
4
<PAGE>
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the BRADFORD U.S. GOVERNMENT FUND.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
BRADFORD U.S. GOVERNMENT FUND
<S> <C>
Management Fees 0.77%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.02%
-----
Total Annual Fund Operating Expenses 1.04%*
======
</TABLE>
* The Distributor has voluntarily waived a portion of the Distribution
support and services fee with respect to the BRADFORD U.S. GOVERNMENT FUND.
After such waivers, the distribution support and services fee was 0.06%. The
actual Total Fund Operating Expenses were 0.85%. This fee waiver may be
terminated at any time at the option of the Fund.
<TABLE>
<CAPTION>
EXAMPLE
This Example is intended to help you compare the cost of investing in the
BRADFORD U.S. GOVERNMENT FUND with the cost of investing in other money market
funds.
Assume that you invest $10,000 in the BRADFORD U.S. GOVERNMENT FUND for
the time periods indicated and then redeem all of your shares at the end of
those periods. Also assume that your investment has a 5% return each year and
that the BRADFORD U.S. GOVERNMENT FUND's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
$106 $331 $574 $1,271
</TABLE>
5
<PAGE>
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES
AND RELATED RISKS
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The BRADFORD U.S. GOVERNMENT FUND's investment objective is to seek to
provide its investors with a high a level of current income exempt from federal
income tax as is consistent with preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The BRADFORD U.S. GOVERNMENT FUND endeavors to achieve its objective by
investing at least 65% of its assets in short-term "U.S. Government
Obligations." U.S. Government Obligations consist of marketable securities and
instruments issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities. Direct obligations are issued by the U.S. Treasury and
include bills, certificates of indebtedness, notes and bonds. Obligations of
U.S. Government agencies and instrumentalities ("Agencies") are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies and instrumentalities are not
debts of the U.S. Treasury, in some cases payment of interest and principal on
such obligations is guaranteed by the U.S. Government, e.g., obligations of the
Federal Housing Administration, the Export-Import Bank of the United States, the
Small Business Administration, the Government National Mortgage Association, the
General Services Administration and the Maritime Administration; in other cases
payment of interest and principal is not guaranteed, e.g., obligations of the
Federal Home Loan Bank System and the Federal Farm Credit Bank. The BRADFORD
U.S. 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.
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The BRADFORD U.S. GOVERNMENT FUND complies with industry-standard
requirements on the quality, maturity and diversification of its investments
which are designed to help maintain a $1.00 share price.
However, the BRADFORD U.S. GOVERNMENT FUND is still subject to risks
involving changes in interest rates and the credit risk surrounding the issuers
of U.S. Government Obligations.
Rising interest rates cause the prices of debt securities to decrease,
which would lead to a loss in the value of the BRADFORD U.S. GOVERNMENT FUND's
investment. Moreover, changes in interest rates may be caused by various
economic factors or political events.
In addition, the BRADFORD U.S. GOVERNMENT FUND is exposed to the credit
risk of the institutions that issue U.S. Government Obligations. Changes in the
credit quality of the issuers could affect their ability to meet their payment
obligations of interest or principal. Any failure to make such payments could
adversely affect the value of the security and your investment in the Bradford
U.S. GOVERNMENT FUND.
6
<PAGE>
BRADFORD SHORT-TERM MUNICIPAL MONEY MARKET FUND
("BRADFORD SHORT-TERM MUNICIPAL FUND")
RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE
Investment Objective
- --------------------------------------------------------------------------------
The BRADFORD SHORT-TERM MUNICIPAL FUND seeks to provide its investors with
as high a level of current income exempt from federal income taxes as is
consistent with the preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The BRADFORD SHORT-TERM MUNICIPAL FUND intends to achieve its investment
objective by investing principally in short-term, high quality, debt obligations
issued by states and municipal governments and their authorities, agencies and
political subdivisions ("Municipal Securities").
The BRADFORD SHORT-TERM MUNICIPAL FUND is a money market fund and seeks to
maintain an investment portfolio with a dollar-weighted average maturity of 90
days or less, to value its investment portfolio at amortized cost and to
maintain a net asset value of $1.00 per share.
PRINCIPAL RISKS
o Although the BRADFORD SHORT-TERM MUNICIPAL FUND seeks to preserve the value
of your investment at $1.00 per share, it is possible to lose money by
investing in the Bradford Short-Term MUNICIPAL FUND. The value of the
BRADFORD SHORT-TERM Municipal Fund's shares and the securities held by the
BRADFORD SHORT-TERM Municipal Fund can each decline in value due to changes
in interest rates. For example, rising interest rates will cause the prices
of the Bradford Short-Term MUNICIPAL FUND's securities to decrease.
o An investment in the BRADFORD SHORT-TERM MUNICIPAL FUND is not a bank
deposit and is not insured or guaranteed by the FDIC or any other
governmental agency.
o Payment of interest and preservation of capital are dependent upon the
continuing ability of issuers and/or obligators of state, municipal and
public authority debt obligations to meet their payment obligations. If
such issuers fail to make timely payments of interest and principal, the
BRADFORD SHORT-TERM MUNICIPAL FUND's investments would decline in value.
7
<PAGE>
RISK/RETURN BAR CHART
- --------------------------------------------------------------------------------
The following bar chart and table may assist you in your decision to invest
in the BRADFORD SHORT-TERM MUNICIPAL FUND. The bar chart shows the Bradford
Short-Term MUNICIPAL FUND's annual return for the last calendar year. The table
shows BRADFORD SHORT-TERM MUNICIPAL FUND's average annual returns for the last
one year period and since inception. While analyzing this information, please
note that the BRADFORD SHORT-TERM MUNICIPAL FUND's past performance is not an
indicator of how it will perform in the future.
<TABLE>
<CAPTION>
BRADFORD SHORT-TERM MUNICIPAL FUND (1), (2)
[GRAPHIC OMITTED]
<S> <C>
CALENDAR YEAR END % TOTAL RETURN
1998 2.80%
</TABLE>
(1) The BRADFORD SHORT-TERM MUNICIPAL FUND's highest quarterly
return was 0.75% for the quarter ended June 30, 1998; the lowest
quarterly return was 0.57% for the quarter ended March 31, 1999.
(2) Securities dealers may charge a fee to investors for purchasing
and redeeming shares. Therefore, the net return to such
investors may be less than if they had invested in the Bradford
Short-Term MUNICIPAL FUND directly.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS - BRADFORD SHORT-TERM MUNICIPAL FUND
FOR THE PERIODS ENDED DECEMBER 31, 1998
<S> <C>
One Year 2.80%
Since Inception [October 1, 1997] 2.85%
</TABLE>
8
<PAGE>
FEE TABLE
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the BRADFORD SHORT-TERM MUNICIPAL FUND.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
BRADFORD SHORT-TERM MUNICIPAL FUND
<S> <C>
Management Fees 0.77%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.01%
-----
Total Annual Fund Operating Expenses 1.03%*
======
</TABLE>
* The Distributor has voluntarily waived a portion of the Distribution
support and services fee with respect to the BRADFORD SHORT-TERM MUNICIPAL FUND.
After such waivers, the distribution support and services fee was 0.07%. The
actual Total Fund Operating Expenses were 0.85%. This fee waiver may be
terminated at any time at the option of the Fund.
<TABLE>
<CAPTION>
EXAMPLE
This Example is intended to help you compare the cost of investing in the
BRADFORD SHORT-TERM MUNICIPAL FUND with the cost of investing in other money
market funds.
Assume that you invest $10,000 in the BRADFORD SHORT-TERM MUNICIPAL FUND for the
time periods indicated and then redeem all of your shares at the end of those
periods. Also assume that your investment has a 5% return each year and that the
BRADFORD SHORT-TERM MUNICIPAL FUND's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
$105 $328 $569 $1,259
</TABLE>
9
<PAGE>
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The BRADFORD SHORT-TERM MUNICIPAL FUND's investment objective is to seek to
provide its investors with as high a level of current income exempt from federal
income tax as is consistent with the preservation of capital and liquidity.
PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The BRADFORD SHORT-TERM MUNICIPAL FUND will invest primarily (i.e., at least
80%) in short-term, high quality, tax-exempt, Municipal Securities.
The BRADFORD SHORT-TERM 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 federal income tax consequences.
The BRADFORD SHORT-TERM 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 SHORT-TERM MUNICIPAL FUND may invest. The
BRADFORD SHORT-TERM 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 SHORT-TERM 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 SHORT-TERM 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
Short-Term MUNICIPAL FUND may from time to time hold cash reserves.
The BRADFORD SHORT-TERM MUNICIPAL FUND's investment manager considers the
following factors when buying and selling securities for the portfolio: (i)
availability of cash, (ii) redemption requests, (iii) yield management, and (iv)
credit management.
In order to maintain a share price of $1.00, the BRADFORD SHORT-TERM
MUNICIPAL FUND must comply with certain industry regulations. Other requirements
pertain to the maturity and credit quality of the securities in which the
BRADFORD SHORT-TERM MUNICIPAL FUND may invest. The BRADFORD SHORT-TERM Municipal
Fund will only invest in securities which have or are deemed to have a remaining
maturity of 397 days or less. Also, the average maturity for all securities
contained in the BRADFORD SHORT-TERM MUNICIPAL FUND, on a dollar-weighted basis,
will be 90 days or less.
The BRADFORD SHORT-TERM MUNICIPAL FUND will only invest in either securities
which have been rated (or whose issuers have been rated) in the highest
short-term rating category by nationally recognized statistical rating
10
<PAGE>
organizations, or are unrated securities but which have been determined by the
BRADFORD SHORT-TERM MUNICIPAL FUND's Board of Directors to be of comparable
quality.
Subsequent to its purchase by the BRADFORD SHORT-TERM MUNICIPAL FUND, the
quality of an investment may cease to be rated or its rating may be reduced
below the minimum required for purchase by the BRADFORD SHORT-TERM Municipal
Fund. If this occurs, the Board of Directors of the BRADFORD SHORT-TERM
MUNICIPAL FUND shall reassess the security's credit risks and shall take such
action as it determines is in the best interest of the BRADFORD SHORT-TERM
MUNICIPAL FUND and its shareholders. Reassessment is not required, however, if
the security is disposed of or matures within five business days of the Manager
becoming aware of the new rating and provided further that the Board of
Directors is subsequently notified of the Manager's actions.
Although the BRADFORD SHORT-TERM MUNICIPAL FUND will attempt to invest 100%
of its total assets in Municipal Securities, the BRADFORD SHORT-TERM Municipal
Fund reserves the right to invest up to 20% of its total assets in taxable
securities whose interest income is subject to regular federal, state and local
income tax, as well as the Federal alternative minimum tax. The kinds of taxable
securities in which the BRADFORD SHORT-TERM MUNICIPAL FUND may invest are
limited to specific types of short-term, fixed income securities.
As a temporary defensive measure the BRADFORD SHORT-TERM MUNICIPAL FUND may,
from time to time, invest in securities that are inconsistent with its principal
investment strategies in an attempt to respond to adverse market, economic,
political or other conditions as determined by the Manager. Such a temporary
defensive position may prevent the BRADFORD SHORT-TERM MUNICIPAL FUND from
achieving its investment objective.
PRINCIPAL RISKS
- --------------------------------------------------------------------------------
The BRADFORD SHORT-TERM MUNICIPAL FUND complies with industry-standard
requirements on the quality, maturity and diversification of its investments
which are designed to help maintain a $1.00 share price.
However, the BRADFORD SHORT-TERM MUNICIPAL FUND is still subject to risks
involving changes in interest rates and the credit risk surrounding the issuers
of Municipal Securities.
Rising interest rates cause the prices of debt securities to decrease, which
would lead to a loss in the value of the BRADFORD SHORT-TERM MUNICIPAL FUND's
investment. Moreover, changes in interest rates may be caused by various
economic factors or political events.
In addition, the BRADFORD SHORT-TERM MUNICIPAL FUND is exposed to the credit
risk of the institutions that issue Municipal Securities. Changes in the credit
quality of the issuers could affect their ability to meet their payment
obligations of interest or principal. Any failure to make such payments could
adversely affect the value of the security and your investment in the Bradford
Short-Term MUNICIPAL FUND.
PRINCIPAL INVESTMENT STRATEGIES FOR BOTH FUNDS
The BRADFORD U.S. GOVERNMENT FUND, and BRADFORD SHORT-TERM MUNICIPAL MONEY
MARKET FUND (each, a "Fund" both, the "Funds") will invest 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, Duff and Phelps, Inc.,
Fitch Investors Service, Inc., IBCA Limited and IBCA Inc.
11
<PAGE>
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.
Both Funds invest 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 are not fundamental
policies, and may be changed by the Board of Directors, with notice to
shareholders.
The securities in which the Funds invest may not yield as high a level of
current income as longer term or lower grade securities, which generally have
less liquidity and greater fluctuation in value. The values of the securities in
which the Funds invest fluctuate based upon interest rates, the financial
stability of the issuers and market factors.
A Fund may enter into the following arrangements with respect to both Funds.
Repurchase Agreements: under a repurchase agreement, the purchaser (for example,
one of the Funds) acquires ownership of an obligation and the seller agrees, at
the time of the sale, to repurchase the obligation at a mutually agreed upon
time and price, thereby determining the yield during the purchaser's holding
period. This arrangement results in a fixed rate of return insulated from market
fluctuations during such period. Although the underlying collateral for
repurchase agreements may have maturities exceeding one year, a Fund will not
enter into a repurchase agreement if as a result of such investment more than
10% of such Fund's total assets would be invested in illiquid securities,
including repurchase agreements which expire in more than seven days. A Fund
may, however, enter into "continuing contract" or "open" repurchase agreements
under which the seller is under a continuing obligation to repurchase the
underlying obligation from that Fund on demand and the effective interest rate
is negotiated on a daily basis.
In general, a Fund will enter into repurchase agreements only with domestic
banks with total assets of at least $1.5 billion or with primary dealers in U.S.
Government securities. However, the total assets of a bank will not be the sole
factor determining the Fund's investment decisions, and the Fund may enter into
repurchase agreements with other institutions which the Board of Directors
believes present minimal credit risk. Nevertheless, if the seller of a
repurchase agreement fails to repurchase the obligation in accordance with the
terms of the agreement, the Fund which entered into the repurchase agreement may
incur a loss to the extent that the proceeds it realized on the sale of the
underlying obligation are less than the repurchase price. Repurchase agreements
may be considered loans to the seller of the underlying security. Income with
respect to repurchase agreements is not tax-exempt.
Securities purchased pursuant to a repurchase agreement are held by the
Fund's custodian and (i) are recorded in the name of the Fund with the Federal
Reserve Book-Entry System, or (ii) the Fund receives daily written confirmation
of each purchase of a security and a receipt from the custodian. The Funds
purchase securities subject to a repurchase agreement only when the purchase
price of the security acquired is equal to or less than its market price at the
time of purchase.
A Fund may also enter into reverse repurchase agreements which involve the
sale by a Fund of a portfolio security at an agreed upon price, date and
interest payment. A Fund will enter into reverse repurchase agreements for
temporary or defensive purposes to facilitate the orderly sale of portfolio
securities, to accommodate abnormally heavy redemption requests should they
occur, or in some cases as a technique to enhance income. A Fund will use
reverse repurchase agreements when the interest income to be earned from the
investment of the proceeds of the transaction
12
<PAGE>
is greater than the interest expense of the reverse repurchase transaction. A
Fund will enter into reverse repurchase agreements only in amounts up to 10% of
the value of its total assets at the time of entering into such agreements.
Reverse repurchase agreements involve the risk that the market value of
securities retained by a Fund in lieu of liquidation may decline below the
repurchase price of the securities sold by the Fund which it is obligated to
repurchase. This risk, if encountered, could cause a reduction in the net asset
value of a Fund's shares. Reverse repurchase agreements are considered to be
borrowings under the 1940 Act. As such, they are subject to limitations on the
level of Fund assets that may be invested in such instruments.
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 SHORT-TERM MUNICIPAL FUND will incur a short-term gain subject to
federal taxation; or may increase the possibility that a Fund will incur a
short-term loss, if the Fund must engage in portfolio transactions in order to
honor a when-issued commitment or accept delivery of a security under a delayed
delivery agreement. The Funds will employ techniques designed to minimize these
risks.
No additional delayed delivery agreements or when-issued commitments will be
made if more than 25% of a Fund's net assets would become so committed. The
Funds will enter into when-issued and delayed delivery transactions only when
the time period between trade date and settlement date is at least 30 days and
not more than 120 days.
The BRADFORD SHORT-TERM 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
Short-Term 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
Short-Term MUNICIPAL FUND's
13
<PAGE>
option, at a specified price. Stand-by Commitments are also sometimes known as
"puts." The BRADFORD SHORT-TERM 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 Short-Term 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.
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.
YEAR 2000
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Manager is in the process of working with the Fund's service
providers to prepare for the year 2000. Based on information currently
available, the Manager does not expect that the Fund will incur material costs
to be year 2000 compliant. Although the Manager does not anticipate that the
year 2000 issue will have a material impact on the Fund's ability to provide
service at current levels, there can be no assurance that steps taken in
preparation for the year 2000 will be sufficient to avoid an adverse impact on
the Fund. The year 2000 Problem may also adversely affect issuers of the
securities contained in the Fund, to varying degrees based upon various factors,
and thus may have a corresponding adverse effect on the Fund's
performance. The Manager is unable to predict what effect, if any, the year 2000
Problem will have on such issuers.
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Funds' investment adviser is Reich & Tang Asset Management L.P. (the
"Manager"). The Manager's principal business office is located at 600 Fifth
Avenue, New York, NY 10020. As of June 30, 1999, the Manager was the investment
manager, advisor or supervisor with respect to assets aggregating in excess of
$13.6 billion. The Manager has been an investment adviser since 1970 and
currently is manager of eighteen other registered investment companies and also
advises pension trusts, profit-sharing trusts and endowments.
Pursuant to the Investment Management Contract, the Manager manages the
Fund's portfolio of securities and makes decisions with respect to the purchase
and sale of investments, subject to the general control of the Board of
Directors of the Fund.
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, 1999, the Company paid the Manager fees which
represented 0.77% of the Government Portfolio's average daily net assets and
0.77% of the Municipal Portfolio's average daily net assets, respectively, on an
annualized basis.
14
<PAGE>
During such year, expenses borne by each of the Funds, including fees paid to
the Manager, amounted to 0.85% of the BRADFORD U.S. GOVERNMENT FUND's average
daily net assets and 0.85% of the BRADFORD SHORT-TERM MUNICIPAL FUND's average
daily net assets, respectively, on an annualized basis.
SHAREHOLDER ACCOUNT INFORMATION
PRICING OF FUND SHARES
The Fund is open the same days that both the New York Stock Exchange (NYSE)
and the Fund's custodian, Investors Fiduciary Trust Company (IFTC) are open for
regular business - generally Monday through Friday. Currently, either NYSE or
IFTC, or both, are closed in observance of the following holidays:
New Year's Day
Labor Day
Martin Luther King Jr. Day
Columbus Day
Presidents' Day
Veterans' Day
Good Friday
Thanksgiving Day
Memorial Day
Christmas Day
Independence Day
The Fund tries to maintain a constant $1 per share value. To achieve this $1
per share price, the Fund's portfolio securities are valued at cost, and any
discount or premium created by market movement, including changes in interest
rates, is amortized to maturity.
The Fund prices its shares for purposes of your buying or selling shares
each day, at 12:00 noon Eastern Time. When you purchase or sell shares of the
Fund, the shares to be bought or sold will be priced as of the next time the
Fund prices its shares after your order is received by the Fund.
BUYING FUND SHARES
- --------------------------------------------------------------------------------
Fund shares may only be purchased on a day the Fund is open and are sold
only to customers of Bradford. For assistance in buying Fund shares, you should
contact your Bradford broker.
Minimum Investments Initial Additional
Regular Bradford
Securities Account $250.00 None
Bradford IRAs $100.00 None
BCM Program None None
For further information regarding the regular Bradford securities account,
a Bradford IRA or the BCM Program, including the frequency with which excess
available cash will be invested in the Fund for you automatically, please
contact your Bradford broker.
15
<PAGE>
SELLING FUND SHARES
- --------------------------------------------------------------------------------
You may sell (redeem) Fund shares only on a day the Fund is open for
business. You may chose to sell Fund shares by any of the following methods:
o By written or oral request to your Bradford broker. To have your shares
priced that day, your Bradford broker must receive your request by 12 noon
Eastern time.
o By check if you have requested check writing privileges in connection with
your Fund account. Your checks may be made payable to anyone and are
subject to a $500 minimum amount for each check written. There is no per
check charge although a fee will be imposed by Bankers Trust Company, which
will clear the checks, for each check for which you request stop payment.
You may not present a check for immediate cash payment at the offices of
either Bradford or Bankers Trust Company.
Your shares in the Fund may also be sold (redeemed) automatically in the
following instances:
o To satisfy any debit balances in a regular Bradford securities account or
BCM account resulting from settlement of securities transactions in that
account.
o To satisfy debit balances on any VISA card issued to you in connection with
a BCM account.
o To satisfy debit balances in your BCM account as a result of checks written
on that account.
o Upon the closing of your regular securities account or BCM account with
Bradford.
o If your account in the Fund falls below the required minimum amount and,
after 30 days prior written notice to you, you have not increased the
balance in your account to at least that minimum.
Generally, the Fund will make payment for any shares you sell (redeem)
within one business day, but in no event later than seven days. Exceptions to
this general rule are: (1) when trading on the NYSE has been suspended; or (2)
when your check for the purchase of such shares has not yet cleared (which may
take up to fifteen days).
There are no charges imposed upon your sale (redemption) of Fund shares.
DISTRIBUTOR
Each of the Funds has entered into a distribution agreement dated September
15, 1993 (the "Distribution Agreements") with Reich & Tang Distributors, Inc.
(the "Distributor"), 600 Fifth Avenue, New York, New York 10020. The
Distributor, which was organized on January 4, 1991, has the exclusive right to
enter into dealer agreements with securities dealers who sell shares of the
Funds, including sales where a securities dealer automatically "sweeps" free
credit balances into a fund at the end of each day ("Sweep Arrangement")
allowing the account holder to earn dividends otherwise unavailable in the
brokerage account, and with financial institutions which may furnish services to
shareholders on behalf of the Company. Pursuant to plans of distribution (the
"Plans") approved by the Funds' Boards on March 5, 1997, each of the Funds may
make distribution related payments, under a sweep arrangement or otherwise, in
an amount not to exceed on an annualized basis .25% of the value of the Fund's
assets. Securities dealers and other financial institutions may receive
distribution payments directly or indirectly from the Funds for services that
may include payments for opening shareholder accounts, processing investor
purchase and redemption orders, responding to inquiries from shareholders
concerning the status of their accounts and operations of their Fund and
communications with the Company on behalf of Fund shareholders. Additionally,
the Distributor may pay for advertisements, promotional materials, sales
literature and
16
<PAGE>
printing and mailing of prospectuses to other than Fund shareholders and other
services to support distribution pursuant to the Plans. The Distributor may also
make payments to securities dealers, under a sweep arrangement or otherwise, and
to financial institutions, such as banks, out of the investment management fee
the Manager receives from the Funds, out of its past profits or from any other
source available to the Distributor.
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.
DIVIDENDS AND TAXES
DIVIDENDS
It is the policy of the Company, with respect to each Fund, to declare
dividends from the net investment income earned by each Fund daily; such
dividends are generally reinvested in additional Fund shares on the subsequent
business day. A shareholder may, by letter to the Company, elect to have
dividends paid by check. Any such election or revocation thereof must be made in
writing to Reich & Tang Funds, Inc., 600 Fifth Avenue, New York, New York 10020.
Shareholders whose dividends are being reinvested will receive a summary of
their accounts at least quarterly indicating the reinvestment of dividends.
Dividends from net realized capital gain, offset by capital loss carryovers, if
any, are generally declared and paid when realized except to the extent that a
net realized capital gain is deemed necessary to offset future capital losses.
TAXES
Each Fund is treated as a separate entity for federal income tax purposes.
Each Fund intends to qualify as a regulated investment company by satisfying the
requirements under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), including requirements with respect to diversification of assets,
distribution of income and sources of income. It is each Fund's policy to
distribute to shareholders all of its investment income (net of expenses) 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 will not be subject to federal
income tax or the 4% excise tax.
If a Fund fails to satisfy any of the Code requirements for qualification as
a regulated investment company, it will be taxed at regular corporate tax rates
on all its taxable income (including capital gains) without any deduction for
distributions to shareholders, and distributions to shareholders will be taxable
as ordinary dividends (even if derived from the Fund's net long-term capital
gains) to the extent of the Fund's current and accumulated earnings and profits.
Distributions by the BRADFORD SHORT-TERM MUNICIPAL FUND of its tax-exempt
interest income are designated as exempt-interest dividends, which are
excludable from gross income for federal income tax purposes. However,
shareholders are required to report the receipt of exempt-interest dividends,
together with other tax-exempt interest, on their federal income tax returns. In
addition, these exempt-interest dividends may be subject to the federal
alternative minimum tax ("AMT") and will be taken into account in determining
the portion, if any, of Social Security benefits received which must be included
in gross income for federal income tax purposes. Further, interest or
indebtedness incurred or continued to purchase or carry shares of the Bradford
Short-Term MUNICIPAL FUND (which indebtedness likely need not be directly
traceable to the purchase or carrying of such shares) will not be deductible for
federal income tax purposes. Finally, a shareholder who is (or is related to) a
"substantial user"
17
<PAGE>
of a facility financed by industrial development bonds held by the BRADFORD
SHORT-TERM MUNICIPAL FUND likely will be subject to tax on dividends paid by
such Fund that are derived from interest on such bonds.
The BRADFORD SHORT-TERM 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 SHORT-TERM 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 SHORT-TERM MUNICIPAL FUND declared during that year. These percentages
may differ from the actual percentages for any particular day.
Distributions by a Fund of its taxable net investment income and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable to shareholders as ordinary income. Such distributions
are treated as dividends for federal income tax purposes but are not expected to
qualify for the 70% dividends-received deduction for corporate shareholders.
Distributions by a Fund of the excess, if any, of its net long-term capital gain
over its net short-term capital loss are designated as capital gain dividends
and are taxable to shareholders as long-term capital gains, regardless of the
length of time shareholders have held their shares.
Tax-exempt interest on specified private activity bonds issued after August
7, 1986, is treated as a tax preference item for purposes of the AMT. Thus,
corporate and individual shareholders of the BRADFORD SHORT-TERM MUNICIPAL FUND
may incur an AMT liability as a result of receiving exempt-interest dividends
from the Fund to the extent such dividends are attributable to interest from
such private activity bonds. In addition, because all exempt-interest dividends
are included in a corporate shareholder's adjusted current earnings (which is
used in computing a separate preference item for corporations), corporate
shareholders may incur an AMT liability as a result of receiving exempt-interest
dividends from the BRADFORD SHORT-TERM MUNICIPAL FUND.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of a Fund. In general, distributions by a Fund are taken into account by the
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by a Fund and received
by the shareholders on December 31 of the preceding year.
A shareholder will recognize gain or loss upon the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
However, as long as a Fund's Net Asset Value per share does not deviate from
$1.00, there will be no gain or loss upon the sale or redemption of shares of a
Fund. Any loss realized upon a taxable disposition of shares within six months
from the date of their purchase will be treated as a long-term capital loss to
the extent of any capital gain dividends received on such shares. All or a
portion of any loss realized upon a taxable disposition of shares of a Fund may
be disallowed if other shares of the Fund are purchased within 30 days before or
after such disposition.
If a shareholder is a non-resident alien or foreign entity shareholder,
ordinary income dividends paid to such shareholder generally will be subject to
United States withholding tax at a rate of 30% (or lower applicable treaty
rate). We urge non-United States shareholders to consult their own tax adviser
concerning the applicability of the United States withholding tax.
Under the backup withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on ordinary income dividends
paid by a Fund. In order to avoid this backup withholding, a shareholder must
provide the Fund with a correct taxpayer identification number (which for most
individuals is his
18
<PAGE>
or her Social Security number) or certify that it is a corporation or otherwise
exempt from or not subject to backup withholding.
The exclusion from gross income for federal income tax purposes of
exempt-interest dividends does not necessarily result in exclusion under the
income or other tax laws of any state or local taxing authority.
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 legislative, judicial or administrative action. As the foregoing
discussion is for general information only, a prospective shareholder also
should review the more detailed discussion of federal income tax considerations
relevant to the Funds that is contained in the Statement of Additional
Information. In addition, each prospective shareholder should consult with his
own tax adviser as to the tax consequences of investments in the Funds,
including the application of state and local taxes which may differ from the
federal income tax consequences described above.
19
<PAGE>
FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
Bradford U.S. Government Fund
For the Year Ended March 31,
<S> <C> <C>
1999 1998++
---- ----
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year $1.00 $1.00
----- -----
Income from investment operations:
Net investment income 0.044 0.026
Net realized and unrealized
gain/loss on investments 0.001 (0.001)
----- -----
Total from investment operations 0.45 0.025
Less distributions:
Dividends from net investment income (0.044) (0.024)
----- -----
Total distributions (0.044) (0.024)
Net asset value, end of year $1.00 $1.00
===== =====
Total Return 4.49% 4.83%*
Ratios/Supplemental Data
Net assets, end of period (000's omitted) $62,098 $51,584
Ratios to average net assets:
Expenses 0.85% 0.86%*
Net investment income 4.37% 5.22%*
Management and Distribution support
and service fees waived 0.19% 0.18%*
* Annualized
++ Bradford shares commenced distribution on October 1, 1997.
</TABLE>
20
<PAGE>
FINANCIAL HIGHLIGHTS
This financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned [or lost] on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, is included in the annual report, which is
available upon request.
<TABLE>
<CAPTION>
Bradford Short-Term Municipal Money Market Fund
For the Year Ended March 31,
<S> <C> <C>
1999 1998++
---- ----
Per Share Operating Performance:
(for a share outstanding throughout the year)
Net asset value, beginning of year $1.00 $1.00
----- -----
Income from investment operations:
Net investment income 0.027 0.014
----- -----
Total from investment operations 0.027 0.014
Less distributions:
Dividends from net investment income (0.027) (0.014)
----- -----
Total distributions (0.027) (0.014)
Net asset value, end of year $1.00 $1.00
===== =====
Total Return 2.71% 2.87%*
Ratios/Supplemental Data
Net assets, end of year (000's omitted) $182,829 $172,315
Ratios to average net assets:
Expenses 0.85% 0.86%*
Net investment income 2.67% 2.81%*
Management and Distribution support
and service fees waived 0.18% 0.17%
* Annualized
++ Bradford shares commenced distribution on October 1, 1997.
</TABLE>
21
<PAGE>
BRADFORD SHARES
BRADFORD U.S. GOVERNMENT MONEY MARKET FUND
BRADFORD SHORT-TERM MUNICIPAL MONEY MARKET FUND
J.C. BRADFORD & CO.
MEMBERS NEW YORK STOCK EXCHANGE
MEMBERS SIPC
July 27, 1999
A Statement of Additional Information (SAI) dated July 27, 1999, and the Funds'
Annual and Semi-Annual Reports include additional information about the Funds
and their investments and are incorporated by reference into this prospectus.
You may obtain the SAI and the Annual and Semi-Annual Reports and other material
incorporated by reference without charge by calling the Funds at 1-800-221-3079.
To request other information, please call your financial intermediary or the
Funds.
======================================================
======================================================
A current SAI has been filed with the Securities and Exchange Commission. You
may visit the Securities and Exchange Commission's Internet website
(www.sec.gov) to view the SAI, material incorporated by reference and other
information. These materials can also be reviewed and copied at the Commission's
Public Reference Room in Washington D.C. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. In addition, copies of these materials may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C.
20549-6009.
811-4179
<PAGE>
- --------------------------------------------------------------------------------
CORTLAND 600 FIFTH AVENUE, NEW YORK, NY 10020
TRUST, INC. (212) 830-5280
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
July 27, 1999
Cortland Trust, Inc.
consisting of the following portfolios:
Cortland General Money Market Fund
U.S. Government Fund
Municipal Money Market Fund
and the
Pilgrim General Fund
This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with the Prospectus for the Cortland Trust, Inc. (the "Company"),
dated July 27, 1999, which may be obtained from your securities dealer or by
writing to Reich & Tang Distributors, Inc. (the "Distributor"), 600 Fifth
Avenue, New York, New York 10020, or toll free at (800) 433-1918. If you wish to
invest in shares of the Pilgrim General Money Market Fund Shares ("Pilgrim
General Fund") you should obtain a separate Prospectus, dated July 27, 1999, by
writing to Pilgrim Securities, Inc., 40 North Central Ave., Suite 1200, Phoenix,
AZ 85004-4424 or by calling (800) 992-0180. This Statement of Additional
Information should be read in conjunction with the Company's Annual Report dated
March 31, 1999, which is hereby incorporated by reference.
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C> <C>
General Information about the Company 2 Net Asset Value Determination 16
Investment Programs and Restrictions 2 Dividends and Tax Matters 16
Investment Programs 2 Dividends 16
When-Issued Securities 5 Tax Matters 17
Stand-by Commitments 5 Qualification as a Regulated
Municipal Participations 6 Investment Company 17
Investment Restrictions 6 Excise Tax on Regulated
Directors and Officers 7 Investment Companies 19
Compensation Table 8 Fund Distributions 19
Manager and Investment Advisor 8 Sale or Redemption of Shares 20
Expenses 11 Foreign Shareholders 21
Distributor and Plans of Distribution 12 Effect of Future Legislation and
Custodian 14 Local Tax Considerations 21
Transfer Agent 14 Yield Information 21
Sub-Accounting 14 Portfolio Transactions 22
Principal Holders of Securities 14 The Company and Its Shares 23
Reports 15 Investment Ratings 25
Financial Statements 15
Share Purchases and Redemptions 15
Purchases and Redemptions 15
</TABLE>
<PAGE>
GENERAL INFORMATION ABOUT THE COMPANY
Cortland Trust, Inc. (the "Company") is a money market mutual fund, formerly
known as "Cortland Trust." 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.
INVESTMENT PROGRAMS AND RESTRICTIONS
INVESTMENT PROGRAMS
Information concerning the fundamental investment objectives of the Company and
each Fund is set forth in each Prospectus. The principal features of the
investment programs and the primary risks associated with those investment
programs of the Company and the Funds are discussed in each Prospectus under the
caption "Investment Objectives, Principal Investment Strategies and Related
Risks".
The following is a more detailed description of the portfolio instruments
eligible for purchase by the Funds which augments the summary of the Company's
and the Funds' investment programs which appears in each Prospectus, under the
aforementioned captions. The Company seeks to achieve its objectives by
investing in portfolios of short-term instruments rated high quality by a major
rating service or determined to be of high quality by Reich & Tang under the
supervision of the Board of Directors.
Subsequent to its purchase by a Fund, a particular issue of Money Market
Obligations or Municipal Securities, as defined in each Prospectus, may cease to
be rated, or its rating may be reduced below the minimum required for purchase
by the Funds. Neither event requires the elimination of such obligation from a
Fund's portfolio, but Reich & Tang will consider such an event to be relevant in
its determination of whether the Fund should continue to hold such obligation in
its portfolio. To the extent that the ratings accorded by a nationally
recognized statistical rating organization ("NRSRO") for Money Market
Obligations or Municipal Securities may change as a result of changes in these
rating systems, the Company will attempt to use comparable ratings as standards
for its investments in Money Market Obligations and Municipal Securities in
accordance with the investment policies contained herein.
The Municipal Money Market Fund may, from time to time, on a temporary or
defensive basis, invest in U.S. Government Obligations, Money Market Obligations
and repurchase agreements. The Municipal Money Market Fund may invest in these
temporary investments, for example, due to market conditions or pending
investment of proceeds from sales of shares or proceeds from the sale of
portfolio securities or in anticipation of redemptions. Although interest earned
from such temporary investments will be taxable as ordinary income, the
Municipal Money Market Fund intends to minimize taxable income through
investment, when possible, in short-term tax-exempt securities, which may
include shares of investment companies whose dividends are tax-exempt. (See
"Investment Programs and Restrictions - Investment Restrictions" for limitations
on the Municipal Money Market Fund's investment in repurchase agreements and
shares of other investment companies.) It is a fundamental policy of the
Municipal Money Market Fund that the Municipal Money Market Fund's assets will
be invested so that at least 80% of the Municipal Money Market Fund's income
will be exempt from federal income taxes. However, there is no limitation on the
percentage of such income which may constitute an item of tax preference and
which may therefore give use to an alternative minimum tax liability for
individual shareholders. The Municipal Money Market Fund may hold cash reserves
pending the investment of such reserves in Municipal Securities or short-term
tax-exempt securities.
The investment objectives and policies of the Company are "fundamental" only
where noted. Fundamental policies may only be changed by a vote of the majority
of the outstanding shares of the affected Funds. (See "The Company and its
Shares".) There can be no assurance that the Funds' objectives will be achieved.
The following is a more detailed description of the portfolio instruments
eligible for purchase by the Company's three Funds which augments the summary of
each Fund's investment program which appears in the Prospectus for the Company
and Prospectus for the Pilgrim General Fund under the caption "Investment
Objectives, Principal Investment Strategies and Related Risks". The Company
seeks to achieve the objectives of its Portfolios by investing in portfolios of
money market instruments.
The U.S. Government Fund limits investments to U.S. Government Obligations
consisting of marketable securities and instruments issued or guaranteed by the
U.S. Government or by certain of its agencies or instrumentalities. Direct
obligations are issued by the U.S. Treasury and include bills, certificates of
indebtedness, notes and bonds. Obligations of U.S. Government agencies and
instrumentalities ("Agencies") are issued by government-sponsored agencies and
2
<PAGE>
enterprises acting under authority of Congress. Certain Agencies are backed by
the full faith and credit of the U.S. Government, and others are not.
The Cortland General Money Market Fund portfolio may include, in addition to
direct U.S. Government Obligations, the following investments:
Agencies that are not backed by the full faith and credit of the U.S.
Government, such as obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank.
Bank Instruments which consist mainly of certificates of deposit, bankers'
acceptances and time deposits. Certificates of deposit represent short-term
interest-bearing deposits of commercial banks and against which certificates
bearing fixed rates of interest are issued. Bankers' acceptances are short-term
negotiable drafts endorsed by commercial banks, which arise primarily from
international commercial transactions. Time deposits are non-negotiable deposits
maintained in a bank for a specified period of time at a stated interest rate.
The Cortland General Money Market Fund limits investments to bank instruments
described in each Prospectus under the caption "Investment Objectives, Principal
Investment Strategies and Related Risks".
Corporate Commercial Instruments consisting of short-term unsecured promissory
notes issued by corporations to finance short-term credit needs. (See
"Investment Program and Restrictions - Investment Ratings" herein for
information with respect to commercial paper ratings.) Among the instruments
that the Cortland General Money Market Fund may purchase are variable amount
master demand notes, which are unsecured demand notes that permit investment of
fluctuating amounts of money at variable rates of interest pursuant to
arrangements between the issuer and the payee or its agent whereby the
indebtedness on the notes may vary and the interest rate is periodically
redetermined.
In addition, the Cortland General Money Market Fund may purchase loan
participations, which consist of interests in loans made by banks to
corporations, where both the bank and the corporation meet the Company's credit
standards. The Cortland General Money Market Fund generally purchases loan
participation certificates maturing in seven days or less.
The Municipal Money Market Fund endeavors to achieve its objective by investing
in the following securities. Municipal Securities in which the Municipal Money
Market Fund may invest include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Securities may be issued include the refunding of
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In addition,
certain types of industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide for the construction, equipment,
repair or improvement of privately operated housing facilities, airport, mass
transit, industrial, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. The interest paid on such bonds may be exempt
from federal income tax, although current federal tax laws place substantial
limitations on the purposes and size of such issues. Such obligations are
considered to be Municipal Securities, provided that the interest paid thereon
qualifies as exempt from federal income tax in the opinion of bond counsel.
However, interest on Municipal Securities may give rise to a federal alternative
minimum tax liability and may have other collateral federal income tax
consequences. (See "Dividends and Tax Matters - Tax Matters" herein).
The two major classifications of Municipal Securities are bonds and notes. Bonds
may be further categorized as "general obligation" or "revenue" issues. General
obligation bonds are secured by the issuer's pledge of its faith, credit, and
taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Tax-exempt
industrial development bonds are in most cases revenue bonds and do not
generally carry the pledge of the credit of the issuing municipality. Notes are
short-term instruments which usually mature in less than two years. Most notes
are general obligations of the issuing municipalities or agencies and are sold
in anticipation of a bond sale, collection of taxes or receipt of other
revenues. There are, of course, variations in the risks associated with
Municipal Securities, both within a particular classification and between
classifications. The Municipal Money Market Fund's assets may consist of any
combination of general obligation bonds, revenue bonds, industrial revenue bonds
and notes. The percentage of such securities in the Municipal Money Market
Fund's portfolio will vary from time to time.
For the purpose of diversification, the identification of the issuer of
Municipal Securities depends on the terms and conditions of the security. When
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating the
subdivision and the security is backed only by the
3
<PAGE>
assets and revenues of the subdivision, such subdivision would be deemed to be
the sole issuer. Similarly, in the case of an industrial development bond, if
that bond is backed only by the assets and revenues of the non-governmental
user, then such non-governmental user would be deemed to be the sole issuer. If,
however, in either case, the creating government or some other entity guarantees
a security, such a guarantee would be considered a separate security and will be
treated as an issue of such government or other agency. Certain Municipal
Securities may be secured by the guarantee or irrevocable letter of credit of a
major banking institution. In such case, the Municipal Money Market Fund
reserves the right to invest up to 10% of its total assets in Municipal
Securities guaranteed or secured by the credit of a single bank. Furthermore, if
the primary issuer of a Municipal Security or some other non-governmental user
which guarantees the payment of interest on and principal of a Municipal
Security possesses credit characteristics which qualify an issue of Municipal
Securities for a high quality rating from a major rating service (or a
determination of high quality by Reich & Tang and the Board of Directors of the
Company) without reference to the guarantee or letter of credit of a banking
institution, the banking institution will not be deemed to be an issuer for the
purpose of applying the foregoing 10% limitation.
From time to time, various proposals to restrict or eliminate the federal income
tax exemption for interest on Municipal Securities have been introduced before
Congress. Similar proposals may be introduced in the future, and, if enacted,
the availability of Municipal Securities for investment by the Municipal Money
Market Fund could be adversely affected. In such event, the Board of Directors
would reevaluate the investment objective and policies and submit possible
changes in the structure of the Municipal Money Market Fund for the
consideration of shareholders.
The Company may enter into the following arrangements with respect to all three
Funds:
1) Repurchase Agreements under which the purchaser (for example, one of the
Funds) acquires ownership of an obligation (e.g., a debt instrument or time
deposit) and the seller agrees, at the time of the sale, to repurchase the
obligation at a mutually agreed upon time and price, thereby determining
the yield during the purchaser's holding period. This arrangement results
in a fixed rate of return insulated from market fluctuations during such
period. Although the underlying collateral for repurchase agreements may
have maturities exceeding one year, a Fund will not enter into a repurchase
agreement if as a result of such transaction more than 10% of a Fund's
total assets would be invested in illiquid securities, including repurchase
agreements expiring in more than seven days. A Fund may, however, enter
into a "continuing contract" or "open" repurchase agreement under which the
seller is under a continuing obligation to repurchase the underlying
obligation from the Fund on demand and the effective interest rate is
negotiated on a daily basis. In general, the Funds will enter into
repurchase agreements only with domestic banks with total assets of at
least $1.5 billion or with primary dealers in U.S. Government securities,
but total assets will not be the sole determinative factor, and the Funds
may enter into repurchase agreements with other institutions which the
Board of Directors believes present minimal credit risks. Nevertheless, if
the seller of a repurchase agreement fails to repurchase the debt
instrument in accordance with the terms of the agreement, the Fund which
entered into the repurchase agreement may incur a loss to the extent that
the proceeds it realizes on the sale of the underlying obligation are less
than the repurchase price. Repurchase agreements are considered to be loans
by the Company under the 1940 Act.
2) Reverse Repurchase Agreements involving the sale of money market
instruments held by a Fund, with an agreement that the Fund will repurchase
the instruments at an agreed upon price and date. A Fund will employ
reverse repurchase agreements when necessary to meet unanticipated net
redemptions so as to avoid liquidating other money market instruments
during unfavorable market conditions, or in some cases as a technique to
enhance income, and only in amounts up to 10% of the value of a Fund's
total assets at the time it enters into a reverse repurchase agreement. At
the time it enters into a reverse repurchase agreement, the Fund will place
in a segregated custodial account high-quality debt securities having a
dollar value equal to the repurchase price. A Fund will utilize reverse
repurchase agreements when the interest income to be earned from portfolio
investments which would otherwise have to be liquidated to meet redemptions
is greater than the interest expense incurred as a result of the reverse
repurchase transactions.
3) Delayed Delivery Agreements involving commitments by a Fund to dealers or
issuers to acquire securities or instruments at a specified future date
beyond the customary same-day settlement for money market instruments.
These commitments may fix the payment price and interest rate to be
received on the investment. Delayed delivery agreements will not be used as
a speculative or leverage technique. Rather, from time to time, the Manager
can anticipate that cash for investment purposes will result from scheduled
maturities of existing portfolio instruments or from net sales of shares of
the Fund. To assure that a Fund will be as fully invested as possible in
instruments meeting that Fund's investment objective, a Fund may enter into
delayed delivery agreements, but only to the extent of anticipated funds
available for investment during a period of not more than five business
days. Until the settlement date, that Fund will set aside in a segregated
account high-quality debt securities of a dollar value
4
<PAGE>
sufficient at all times to make payment for the delayed delivery
securities. Not more than 25% of a Fund's total assets will be committed to
delayed delivery agreements and when-issued securities, as described below.
The delayed delivery securities, which will not begin to accrue interest
until the settlement date, will be recorded as an asset of the Fund and
will be subject to the risks of market fluctuation. The purchase price of
the delayed delivery securities is a liability of the Fund until
settlement. Absent extraordinary circumstances, the Fund will not sell or
otherwise transfer the delayed delivery securities prior to settlement. If
cash is not available to the Fund at the time of settlement, the Fund may
be required to dispose of portfolio securities that it would otherwise hold
to maturity in order to meet its obligation to accept delivery under a
delayed delivery agreement. The Board of Directors has determined that
entering into delayed delivery agreements does not present a materially
increased risk of loss to shareholders, but the Board of Directors may
restrict the use of delayed delivery agreements if the risk of loss is
determined to be material or if it affects the constant net asset value of
any of the Funds.
WHEN-ISSUED SECURITIES
Many new issues of Money Market Obligations and Municipal Securities are offered
on a "when-issued" basis, that is, the date for delivery of and payment for the
securities is not fixed at the date of purchase, but is set after the securities
are issued (normally within forty-five days after the date of the transaction).
The payment obligation and the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A Fund
will only make commitments to purchase such Money Market Obligations and
Municipal Securities with the intention of actually acquiring such securities,
but such Fund may sell these securities before the settlement date if it is
deemed advisable. No additional when-issued commitments will be made if as a
result more than 25% of such Fund's net assets would become committed to
purchases of when-issued securities and delayed delivery agreements.
If one of the Funds purchases a when-issued security, it will direct its
custodian bank to collateralize the when-issued commitment by establishing a
segregated account in the same fashion as required for a Delayed Delivery
Agreement. The special custody account will likewise be marked-to-market, and
the amount in the special custody account will be increased if necessary to
maintain adequate coverage of the when-issued commitments.
Securities purchased on a when-issued basis and the securities held in a Fund's
portfolio are subject to changes in market value based upon the public's
perception of the creditworthiness of the issuer and changes in the level of
interest rates (which will generally result in all of those securities changing
in value in the same way, i.e., all those securities experiencing appreciation
when interest rates rise). Therefore, if, in order to achieve higher interest
income, a Fund is to remain substantially fully invested at the same time that
it has purchased securities on a when-issued basis, there will be a possibility
that the market value of such Fund's assets will fluctuate to a greater degree.
Furthermore, when the time comes for such Fund to meet its obligations under
when-issued commitments, the Fund will do so by using then-available cash flow,
by sale of the securities held in the separate account, by sale of other
securities or, although it would not normally expect to do so, by directing the
sale of the when-issued securities themselves (which may have a market value
greater or less than the Fund's payment obligation).
A sale of securities to meet such obligations carries with it a greater
potential for the realization of net short-term capital gains, which are not
exempt from federal income taxes. The value of when-issued securities on the
settlement date may be more or less than the purchase price.
STAND-BY COMMITMENTS
The Municipal Money Market Fund may attempt to improve its portfolio liquidity
by assuring same-day settlements on portfolio sales (and thus facilitate the
same-day payment of redemption proceeds) through the acquisition of "Stand-by
Commitments." A Stand-by Commitment is a right of the Municipal Money Market
Fund, when it purchases Municipal Securities for its portfolio from a broker,
dealer or other financial institution, to sell the same principal amount of such
securities back to the seller, at the Municipal Money Market Fund's option, at a
specified price. The Municipal Money Market Fund will acquire Stand-by
Commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes, and the acquisition or
exercisability of a Stand-by Commitment will not affect the valuation of its
underlying portfolio securities, which will continue to be valued in accordance
with the method described under "Share Purchases and Redemptions - Net Asset
Value Determination." The weighted average maturity of the Municipal Money
Market Fund's portfolio will not be affected by the acquisition of a Stand-by
Commitment.
The Stand-by Commitments acquired by the Municipal Money Market Fund will
generally have the following features: (1) they will be in writing and will be
physically held by the Municipal Money Market Fund's custodian; (2) they may be
exercised by the Municipal Money Market Fund at any time prior to the underlying
security's maturity; (3) they will be entered into only with dealers, banks and
broker-dealers who in the Manager's opinion present a minimal risk of default;
(4) the Municipal Money Market Fund's right to exercise them will be
unconditional and unqualified; (5) although the
5
<PAGE>
Stand-by Commitments will not be transferable, Municipal Securities purchased
subject to such commitments could be sold to a third party at any time, even
though the commitment was outstanding; and (6) their exercise price will be (i)
the Municipal Money Market Fund's acquisition cost of the Municipal Securities
which are subject to the commitment (excluding any accrued interest which the
Municipal Money Market Fund paid on their acquisition), less any amortized
market premium or plus amortized market or original issue discount during the
period the securities were owned by the Municipal Money Market Fund, plus (ii)
all interest accrued on the securities since the last interest payment date.
Since the Municipal Money Market Fund values its portfolio securities on the
amortized cost basis, the amount payable under a Stand-by Commitment will be
substantially the same as the value of the underlying security.
The Company expects that Stand-by Commitments generally will be available
without the payment of any direct or indirect compensation. However, if
necessary and advisable, the Municipal Money Market Fund will pay for Stand-by
Commitments, either separately in cash or by paying higher prices for portfolio
securities which are acquired subject to the commitments. As a matter of policy,
the total amount "paid" in either manner for outstanding Stand-by Commitments
held by the Municipal Money Market Fund will not exceed 1/2 of 1% of the value
of its total assets calculated immediately after any Stand-by Commitment is
acquired. The Municipal Money Market Fund expects to refrain from exercising
Stand-by Commitments to avoid imposing a loss on a dealer and jeopardizing the
Company's business relationship with that dealer, except when necessary to
provide liquidity. The Municipal Money Market Fund will not acquire a Stand-by
Commitment unless immediately after the acquisition, with respect to 75% of the
total amortized cost value of its assets, not more than 5% of such Fund's total
amortized cost value of its assets will be invested in Stand-by Commitments with
the same institution.
The acquisition of a Stand-by Commitment would not affect the valuation or
assumed maturity of the underlying Municipal Securities which, as noted, would
continue to be valued in accordance with the amortized cost method. Stand-by
Commitments acquired by the Municipal Money Market Fund would be valued at zero
in determining net asset value. Where the Municipal Money Market Fund paid any
consideration directly or indirectly for a Stand-by Commitment, its cost would
be reflected as unrealized depreciation for the period during which the Stand-by
Commitment was held by such Fund.
MUNICIPAL PARTICIPATIONS
The Municipal Money Market Fund may invest in participation agreements with
respect to Municipal Securities under which the Municipal Money Market Fund
acquires an undivided interest in the Municipal Security and pays a bank which
sells the participation a servicing fee. The participation agreement will have a
variable rate of interest and may be terminated by the Municipal Money Market
Fund on seven days' notice, in which event such Fund receives from the issuer of
the participation the par value of the participation plus accrued interest as of
the date of termination. Before entering into purchases of participations the
Company will obtain an opinion of counsel (generally, counsel to the issuer of
the participation) or a letter ruling from the Internal Revenue Service to the
effect that interest earned with respect to municipal participations qualifies
as exempt-interest income under the Code. The Company has been advised that it
is the present policy of the Internal Revenue Service not to issue private
letter rulings relating to municipal participations. In the absence of an
opinion of counsel or a letter ruling from the Internal Revenue Service, the
Municipal Money Market Fund will refrain from investing in participation
agreements.
INVESTMENT RESTRICTIONS
In addition to the Fund's investment objectives, the following investment
restrictions have been adopted by the Funds as fundamental policies, which means
they can be changed only by a majority shareholder vote. A "majority vote of
shareholders" means the affirmative vote of the holders of the lesser of (1)
more then 50% of the outstanding shares of the Fund or (2) 67% or more of the
shares present at a meeting if more than 50% of the outstanding shares of the
Fund are represented at the meeting in person or by proxy. Therefore, none of
the Funds will:
1) purchase any Money Market Obligation or Municipal Security, if, as a result
of such purchase, more than 5% of a Fund's total assets would be invested
in securities of issuers, which, with their predecessors, have been in
business for less than three years;
2) invest in shares of any other investment company, other than in connection
with a merger, consolidation, reorganization or acquisition of assets;
except that the Municipal Money Market Fund may invest up to 10% of its
assets in securities of other investment companies (which also charge
investment advisory fees) and then only for temporary purposes in
investment companies whose dividends are tax-exempt, provided that the
Municipal Money Market Fund will not invest more than 5% of its assets in
securities of any one investment company nor purchase more than 3% of the
outstanding voting stock of any investment company;
6
<PAGE>
3) invest more than 10% of the value of a Fund's total assets in illiquid
securities, including variable amount master demand notes (if such
notes provide for prepayment penalties) and repurchase agreements with
remaining maturities in excess of seven days;
4) invest in companies for the purpose of exercising control;
5) underwrite any issue of securities, except to the extent that the
purchase of securities, either directly from the issuer or from an
underwriter for an issuer, and the later disposition of such
securities in accordance with the Funds' investment programs, may be
deemed an underwriting;
6) purchase or sell real estate, but this shall not prevent investments
in securities secured by real estate or interests therein;
7) sell securities short or purchase any securities on margin, except for
such short-term credits as are necessary for the clearance of
transactions;
8) purchase or retain securities of an issuer if, to the knowledge of the
Company, the directors and officers of the Company and the Manager,
each of whom owns more than 1/2 of 1% of such securities, together own
more than 5% of the securities of such issuer;
9) mortgage, pledge or hypothecate any assets except to secure permitted
borrowings and reverse repurchase agreements and then only in an
amount up to 15% of the value of any Fund's total assets at the time
of borrowing or entering into a reverse repurchase agreement; or
10) purchase or sell commodities or commodity futures contracts or
interests in oil, gas or other mineral exploration or development
program (a Fund may, however, purchase and sell securities of
companies engaged in the exploration, development, production,
refining, transporting and marketing of oil, gas or minerals).
In order to permit the sale of the Funds' shares in certain states, the Company
may make commitments more restrictive than the restrictions described above.
Should the Company determine that any such commitment is no longer in the best
interest of the Funds and their shareholders it will revoke the commitment by
terminating sales of its shares in the state(s) involved. Pursuant to one such
commitment, the Company has agreed that the Cortland General Money Market Fund
will not invest in: (i) warrants; (ii) real estate limited partnerships; or
(iii) oil, gas or mineral leases.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values or assets
will not constitute a violation of such restriction.
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, 45 - President and Director of the Company, has been President
of the Mutual Funds Division of the Manager since September 1994. Mr. Duff was
formerly Director of Mutual Fund Administration at NationsBank with which he was
associated from June 1981 to August 1994. Mr. Duff is President and a
Director/Trustee of 13 other funds in the Reich & Tang Fund Complex, President
of Back Bay Funds, Inc., Director of Pax World Money Market Fund, Inc.,
Executive Vice President of Delafield Fund, Inc. and Reich & Tang Equity Fund,
Inc., and President and Chief Executive Officer of Tax Exempt Proceeds Fund,
Inc.
OWEN DALY II, 74 - 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, 57 - Director of the Company, Volvo North America Corporation,
535 Madison Avenue, New York, NY 10022. President of Volvo North America
Corporation.
CARL FRISCHLING, 62 - Director of the Company, 919 Third Avenue, New York, NY
10022. Partner, Kramer Levin Naftalis & Frankel LLP (law firm). Director, ERD
Waste, Inc. (waste management company), Aegis Consumer Finance (auto leasing
company) and Lazard Funds, Inc. (investment companies). Formerly, Partner, Reid
& Priest (law firm); and, prior thereto, Partner, Spengler Carlson Gubar Brodsky
& Frischling (law firm).
JAMES L. SCHULTZ, 62 - Director of the Company, Cherrington Corporate Center,
Bldg. One, 1700 Beaver Grade Road, Coraopolis, Pennsylvania 15108. President,
Treasurer and Director of Computer Research, Inc.
7
<PAGE>
RICHARD DESANCTIS, 42 - Vice President and Treasurer of the Company, has been
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. Mr. De Sanctis is Treasurer of 18 funds in the Reich & Tang Fund Complex.
MOLLY FLEWHARTY, 48 - Vice President of the Company, has been Vice President of
the Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. with which she was associated from
December 1977 to September 1993. Ms. Flewharty is also Vice President of 18
other funds in the Reich & Tang Fund Complex.
DANA E. MESSINA, 42 - Vice President of the Company, has been 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. with which she was associated from December
1980 to September 1993. Ms. Messina is also Vice President of 15 other funds in
the Reich & Tang Fund Complex.
RUBEN TORRES, 50 - Vice President of the Company, has been Vice President of
Operations of Reich & Tang Services, Inc. since January 1991. Mr. Torres was
formerly Vice President and Assistant Treasurer of Cortland Financial Group,
Inc.
BERNADETTE N. FINN, 51 - Vice President and Secretary of the Company, has been
Vice President of the Mutual Funds Division of the Manager since September 1993.
Ms. Finn was formerly Vice President and Assistant Secretary of Reich & Tang,
Inc. with which she was associated from September 1970 to September 1993. Ms.
Finn is also Secretary of 13 other funds in the Reich & Tang Fund Complex, and a
Vice President and Secretary of 5 funds in the Reich & Tang Fund Complex.
ROSANNE HOLTZER, 34 - Assistant Treasurer of the Company, has been Vice
President of the Mutual Funds division of the Manager since December 1997. Ms.
Holtzer was formerly Manager of Fund Accounting for the Manager with which she
was associated from June 1986. Ms. Holtzer is also Assistant Treasurer of 18
other funds in the Reich & Tang Fund Complex.
Each director who is not an "interested person" receives an annual fee from the
Company of $10,000 for his services as a director and a fee of $1,250 for each
Board meeting attended, and all directors are reimbursed by the Company for
expenses incurred in connection with attendance at meetings of the Board of
Directors.
<TABLE>
<CAPTION>
Compensation Table
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Name of Person, Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation from
Position from Registrant for Fiscal Benefits Accrued as Part Benefits upon Retirement Fund and Fund Complex
Year of Fund Expenses 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, $11,250 0 0 $11,250 (1 Fund)
Director
James L. Schultz $15,000 0 0 $15,000 (1 Fund)
Director
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ended March 31, 1999 and, with respect to certain of the funds
in the Fund Complex, estimated to be paid during the fiscal year ended March 31,
1999. The parenthetical number represents the number of investment companies
(including the Fund) from which such person receives compensation that are
considered part of the same Fund complex as the Fund, because, among other
things, they have a common investment advisor.
MANAGER AND INVESTMENT ADVISOR
Reich & Tang Asset Management L.P., a Delaware limited partnership, with its
principal offices at 600 Fifth Avenue, New York, New York 10020, serves as the
manager and investment advisor of the Company and its three Funds pursuant to
agreements with the Funds dated August 30, 1996 (the "Management/Investment
Advisory Agreements"). Under the Management/Investment Advisory Agreements,
Reich & Tang Asset Management L.P. (the "Manager") provides, either directly or
indirectly through contracts with others, all services required for the
management of the Company. The Manager bears all ordinary operating expenses
associated with the Company's operation except: (a) the fees of the
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<PAGE>
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, as of June 30, 1999, investment manager, advisor or supervisor
with respect to assets aggregating in excess of $13.6 billion. The Manager
currently acts as investment manager or administrator of eighteen other
investment companies and also advises pension trusts, profit sharing trusts and
endowments.
Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") was the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager, due to a restructuring by New England
Investment Companies, Inc. ("NEIC"). Subsequently, effective March 31, 1998,
Nvest Companies, L.P. ("Nvest Companies") due to a change in name of NEICOP,
replaced NEICOP as the limited partner and owner of a 99.5% interest in the
Manager.
Reich & Tang Asset Management, Inc. (an indirect wholly-owned subsidiary of
Nvest Companies) is the sole general partner and owner of the remaining 0.5%
interest of the Manager. Nvest Corporation, a Massachusetts Corporation
(formerly known as New England Investment Companies, Inc.), serves as the
managing general partner of Nvest Companies.
Reich & Tang Asset Management, Inc. is an indirect subsidiary of Metropolitan
Life Insurance Company ("MetLife"). Also, MetLife directly and indirectly owns
approximately 47% of the outstanding partnership interests of Nvest Companies
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc.
owns, directly and indirectly, approximately 13% of the outstanding partnership
interests of Nvest Companies.
Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through seventeen subsidiaries,
divisions and affiliates offering a wide array of investment styles and products
to institutional clients. Its business units, in addition to the Manager,
include AEW Capital Management, L.P., Back Bay Advisors, L.P., Capital Growth
Management, L.P., Greystone Partners, L.P., Harris Associates, L.P., Jurika &
Voyles, L.P., Kobrick Funds, LLC, Loomis, Sayles & Company, L.P., New England
Funds, L.P., Nvest Advisor Services, L.P., Nvest Associates, Inc., Nvest
Retirement Services, Nvest Services Company, Snyder Capital Management, L.P.,
Vaughan, Nelson, Scarborough & McCullough, L.P., and Westpeak Investment
Advisors, L.P. These affiliates in the aggregate are investment advisors or
managers of more than 80 other registered investment companies.
The name change did not result in a change in control of the Manager and has no
impact upon the Manager's performance of its responsibilities and obligations.
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 for an
initial period extending to June 30, 1998. By their terms, the
Management/Investment Advisory Agreements may be continued from year to year
thereafter. The Management /Investment Advisory Agreements were most recently
approved for continuance by the Board of Directors of the Fund on June 10, 1999,
and will remain in effect from year to year as long as their continuation is
approved at least annually by (i) the Board of Directors or the vote of a
majority of the outstanding voting securities of the Fund, and (ii) a majority
of the Directors of the Fund who are not interested persons of any party to the
Management/Investment Advisory Agreements, cast in person at a meeting called
for the purpose of voting on such approval.
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.
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<PAGE>
Under the Management/Investment Advisory Agreements, the Manager: (a) supervises
and manages all aspects of the Company's operations and the operations of each
of the Company's three Funds; (b) furnishes the Company with such office space,
heat, light, utilities, equipment and personnel as may be necessary for the
proper operation of the Funds and the Company's principal executive office; (c)
monitors the performance by all other persons furnishing services to the Company
on behalf of each Fund and the shareholders thereof and periodically reports on
such performance to the Board of Directors;
8
<PAGE>
(d) investigates, selects and conducts relationships on behalf of the Company
with custodians, depositories, accountants, attorneys, underwriters, brokers and
dealers, insurers, banks, printers and other service providers and entities
performing services to the Funds and their shareholders; (e) furnishes the Funds
with all necessary accounting services; and (f) reviews and supervises the
preparation of all financial, tax and other reports and regulatory filings. The
expenses of furnishing the foregoing are borne by the Manager. See "Expenses"
below.
In consideration of the services to be provided by the Manager and the expenses
to be borne by the Manager under the Management/Investment Advisory Agreements,
the Manager receives annual fees from each of the Portfolios, calculated daily
and paid monthly, of 0.800% of the first $500 million of the Company's average
daily net assets, 0.775% of the average daily 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, 1999, March 31, 1998 and March 31, 1997 the Company paid to the
Manager the management fees set forth in the table below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Year Management Fees
1999 Payable Waived Paid
---- ------- ------ ----
Cortland General $9,651,092 $0 $9,651,092
U.S. Government 1,371,830 0 1,371,830
Municipal 2,252,782 0 2,252,782
1998
Cortland General $10,788,822 $428,000 $10,360,822
U.S. Government 1,493,237 361,000 1,132,237
Municipal 1,853,830 0 1,853,830
1997
Cortland General $10,885,158 $0 $10,885,158
U.S. Government 1,851,957 50,000 1,801,957
Municipal 1,698,486 0 1,698,486
</TABLE>
The Management/Investment Advisory Agreements were approved by the Board of
Directors, including a majority of directors who are not interested persons (as
defined in the 1940 Act), of the Portfolios or the Manager, effective August 30,
1996 for a two-year period. The Management/Investment Advisory Agreements will
continue year-to-year thereafter if they are specifically approved at least
annually by the Board of Directors and by the affirmative vote of a majority of
the directors who are not parties to such Management/Investment Advisory
Agreements or "interested persons" of any such party by votes cast in person at
a meeting called for such purpose. The Portfolios or the Manager may terminate
the Management/Investment Advisory Agreements on 60 days' written notice without
penalty. Each Management/Investment Advisory Agreement terminates automatically
in the event of its "assignment," as defined in the 1940 Act. The Manager shall
not be liable to the Portfolios or to their shareholders for any act or omission
by the Manager or for any loss sustained by a Fund or its shareholders except in
the case of the Manager's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty. The Company's (Portfolios') right to use the name
"Cortland" in its name in any form or combination may terminate upon termination
of the Manager as the Company's (Portfolios') investment manager.
Pursuant to the terms of the Management/Investment Advisory Agreements, the
Manager: (a) provides the Company with certain executive, administrative and
clerical services as are deemed advisable by the Board of Directors; (b)
arranges, but does not pay for, the periodic updating of prospectuses and
statements of additional information and supplements thereto, proxy materials,
tax returns, reports to each Fund's shareholders and reports to and filings with
the SEC and state Blue Sky authorities; (c) provides the Board of Directors on a
regular basis with financial reports and analyses of the Funds' operations and
the operation of comparable investment companies; (d) obtains and evaluates
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<PAGE>
pertinent information about significant developments and economic, statistical
and financial data, domestic, foreign or otherwise, whether affecting the
economy generally or any of the Funds and whether concerning the individual
issuers whose securities are included in the portfolios of the Company's three
Funds; (e) determines which issuers and securities shall be represented in the
Funds' portfolios and regularly reports thereon to the Company's Board of
Directors; (f) formulates and implements continuing programs for the purchases
and sales of securities for the Funds; and (g) takes, on behalf of the Funds,
all actions which appear to be necessary to carry into effect such purchase and
sale programs, including the placing of orders for the purchase and sale of
portfolio securities. Any investment program undertaken by the Manager will at
all times be subject to the policies and control of the Board of Directors. The
Manager shall not be liable to the Funds or to their shareholders for any act or
omission by the Manager or for any loss sustained by a Fund or its shareholders
except in the case of the Manager's willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
EXPENSES
Pursuant to the Management/Investment Advisory Agreements, the Manager
furnishes, without cost to the Company, the services of the President, Secretary
and one or more Vice Presidents of the Company and such other personnel as are
required for the proper conduct of the Funds' affairs and to carry out their
obligations under the Management/Investment Advisory Agreements. Pursuant to the
Management/Investment Advisory Agreements, the Manager maintains, at its expense
and without cost to the Funds, a trading function in order to carry out its
obligations to place orders for the purchase and sale of portfolio securities
for the Funds. The Manager, on behalf of its affiliate, Reich & Tang
Distributors, Inc. (the "Distributor"), pays out of the management fees from
each of the Funds and payments under a Plan of Distribution (see "Distributor
and Plans of Distribution") the expenses of printing and distributing
prospectuses and statements of additional information and any other promotional
or sales literature used by the Distributor or furnished by the Distributor to
purchasers or dealers in connection with the public offering of the Funds'
shares, the expenses of advertising in connection with such public offering and
all legal expenses in connection with the foregoing.
Except as set forth below, the Manager pays all expenses of the Funds,
including, without limitation: the charges and expenses of any registrar, any
custodian or depository appointed by the Company for the safekeeping of its
cash, portfolio securities and other property, and any stock transfer, dividend
or accounting agent or agents appointed by the Company; all fees payable by the
Company to federal, state or other governmental agencies; the costs and expenses
of engraving or printing certificates representing shares of the Company (the
Company does not issue share certificates at the present time); all costs and
expenses in connection with the registration and maintenance of registration of
the Funds and their shares with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting, and distributing
prospectuses and statements of additional information of the Company and
supplements thereto to the Company's shareholders and to potential shareholders
of the Funds; all expenses of shareholders' meetings and of preparing, printing
and mailing of proxy statements and reports to shareholders; all expenses
incident to the payment of any dividend, distribution, withdrawal or redemption,
whether in shares or in cash; charges and expenses of any outside service used
for pricing of the Funds' shares; routine fees and expenses of legal counsel and
of independent accountants, in connection with any matter relating to the
Company; postage; insurance premiums on property or personnel (including
officers and directors) of the Company which inure to its benefit; and all other
charges and costs of the Funds' operations unless otherwise explicitly assumed
by the Company. The Company is responsible for payment of the following expenses
not borne by the Manager: (a) the fees of the directors who are not "interested
persons" of the Company, as defined by the 1940 Act, and travel and related
expenses of the directors for attendance at meetings, (b) interest, taxes and
brokerage commissions (which can be expected to be insignificant), (c)
extraordinary expenses, if any, including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto, (d)
any shareholder service or distribution fee payable by the Company under the
plan of distribution described below, and (e) membership dues of any industry
association.
Expenses which are attributable to any of the Company's Funds are charged
against the income of such Fund in determining net income for dividend purposes.
Expenses of the Company which are not directly attributable to the operations of
any single Fund are allocated among the Funds based upon the relative net assets
of each Fund.
The Manager has agreed to reduce its aggregate fees for any fiscal year, or to
reimburse each Fund, to the extent required so that the amount of the ordinary
expenses of each Fund (excluding brokerage commissions, interest, taxes and
extraordinary expenses such as litigation costs) paid or incurred by any of the
Funds do not exceed the expense limitations applicable to the Funds imposed by
the securities laws or regulations of those states or jurisdictions in which
such Fund's shares are registered or qualified for sale.
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<PAGE>
DISTRIBUTOR AND PLANS OF DISTRIBUTION
The Distributor serves as the principal underwriter of the Company's shares
pursuant to Distribution Agreements dated September 15, 1993. The Distributor
has an office located at 600 Fifth Avenue, New York, New York 10020.
Pursuant to the Distribution Agreements, the Distributor: (a) solicits and
receives orders for the purchase of shares of the Funds, accepts or rejects such
orders on behalf of the Company in accordance with the Company's currently
effective Prospectuses and transmits such orders as are accepted to the Company
as promptly as possible; (b) receives requests for redemptions and transmits
such redemption requests to the Company as promptly as possible; (c) responds to
inquiries from shareholders concerning the status of their accounts and the
operation of the Company; and (d) provides daily information concerning yields
and dividend rates to shareholders. The Distributor shall not be liable to the
Company or to its shareholders for any act or omission or any loss sustained by
the Company or its shareholders except in the case of the Distributor's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Distributor receives no compensation from the Company for its services.
On April 7, 1995, the Distributor entered into a Primary Dealer Agreement with
Pilgrim Securities, Inc. ("PSI") in order to provide for the offer and sale of
the Pilgrim General Fund pursuant to a separate Prospectus applicable to such
shares.
The Funds have adopted plans of distribution under Rule 12b-1 of the 1940 Act
(the "Plans"). Pursuant to the Plans, the Distributor may pay certain
promotional and advertising expenses and may compensate certain registered
securities dealers (including Pilgrim Securities, Inc.) and financial
institutions for services provided in connection with the processing of orders
for purchase or redemption of the shares of the Company and furnishing other
shareholder services. Payments by the Distributor are paid out of the management
fees and distribution plan payments received by the Manager and/or its
affiliates from each of the Funds, out of past profits or from any other source
available to the Distributor. The Distributor may enter into shareholder
processing and service agreements (the "Shareholder Service Agreements") with
any securities dealer who is registered under the Securities Exchange Act of
1934 and a member in good standing of the National Association of Securities
Dealers, Inc., and with banks and other financial institutions which may wish to
establish accounts or sub-accounts on behalf of their customers ("Shareholder
Service Agents"). For processing investor purchase and redemption orders,
responding to inquiries from Company shareholders concerning the status of their
accounts and operations of the Funds and communicating with the Company and the
Distributor, the Company may pay each such Shareholder Service Agent (or if no
Shareholder Service Agent provides services, the Distributor, to cover
expenditures for advertising, sales literature and other promotional materials
on behalf of the Company) an amount not to exceed on an annual basis 0.25% of
the aggregate average daily net assets that such Shareholder Service Agent's
customers maintain with the Company during the term of any Shareholder Service
Agreement. During the fiscal year ended March 31, 1999, the amount payable to
the Company was $1,416,410, $133,237 and $118,803 for expenses incurred pursuant
to the Plans on behalf of the Cortland General Money Market Fund, the U.S.
Government Fund and the Municipal Money Market Fund, respectively, of this
amount $169,971, $21,318 and $17,877 was voluntarily waived for the Cortland
General Money Market Fund, the U.S. Government Fund and the Municipal Money
Market Fund, respectively, all of which amounts were spent in payment to
financial intermediaries in connection with the distribution of the Funds'
shares. During the fiscal year ended March 31, 1998, the Company paid
$2,279,946, $278,868 and $245,314 for expenses incurred pursuant to the Plans on
behalf of the Cortland General Money Market Fund, the U.S. Government Fund and
the Municipal Money Market Fund, respectively, all of which amounts were spent
in payment to financial intermediaries in connection with the distribution of
the Funds' shares. During the fiscal year ended March 31, 1997, the Company paid
$2,618,147, $479,697 and $419,942 on behalf of the Cortland General Money Market
Fund, the U.S. Government Fund and the Municipal Money Market Fund,
respectively, under the Plans.
The Distributor, under the Plans, may also make payments to Shareholder Service
Agents out of the investment management fees received by the Manager from each
of the Funds, out of its past profits or from any other source available to the
Distributor. During the fiscal year ended March 31, 1999, the Distributor paid
Shareholder Service Agents $4,526,144, $1,173,860 and $1,837,213, on behalf of
the Cortland General Money Market Fund, the U.S. Government Fund and the
Municipal Money Market Fund, respectively, under the Plans. During the fiscal
year ended March 31, 1998, the Distributor paid Shareholder Service Agents
$5,760,453, $845,153 and $1,074,158, on behalf of the Cortland General Money
Market Fund, the U.S. Government Fund and the Municipal Money Market Fund,
respectively, under the Plans. During the fiscal year ended March 31, 1997, the
Distributor paid Shareholder Service Agents $5,142,902, $907,365 and $766,048,
on behalf of the Cortland General Money Market Fund, the U.S. Government Fund
and the Municipal Money Market Fund, respectively, under the Plans.
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
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<PAGE>
Distributor's analysis of: (1) the contribution that the Shareholder Service
Agent makes to each of the Funds by increasing assets under management and
reducing expense ratios; (2) the nature, quality and scope of services being
provided by the Shareholder Service Agent; (3) the cost to the Company if
shareholder services were provided directly by the Company or other authorized
persons; (4) the costs incurred by the Shareholder Service Agent in connection
with providing services to shareholders; and (5) the need to respond to
competitive offers of others, which could result in assets being withdrawn from
a Fund and an increase in the expense ratio for any of the Funds.
The Distribution Agreements for each of the Funds were last renewed by the Board
of Directors on June 10, 1999, to provide for the distribution of the shares of
each of the Funds. The Distribution Agreements will continue in effect from year
to year if specifically approved at least annually by the Board of Directors and
the affirmative vote of a majority of the directors who are not parties to the
Distribution Agreements or any Shareholder Service Agreement or "interested
persons" of any such party by votes cast in person at a meeting called for such
purpose. In approving the Plans, the directors determined, in the exercise of
their business judgment and in light of their fiduciary duties as directors of
the Company, that there was a reasonable likelihood that the Plans would benefit
the Funds and their shareholders. The Plans may only be renewed if the directors
make a similar determination for each subsequent year. On June 10, 1999 the
Plans were renewed by the Company's Board of Directors and by the directors who
have no direct or indirect financial interest in the Plans to continue in effect
for an additional year. The Plans may not be amended to increase the maximum
amount of payments by the Company or the Manager to its Shareholder Service
Agents without shareholder approval, and all material amendments to the
provisions of the Plans must be approved by the Board of Directors and by the
directors who have no direct or indirect financial interest in the Plans, by
votes cast in person at a meeting called for the purpose of such vote. Each Fund
or the Distributor may terminate the Distribution Agreements on 60 days' written
notice without penalty. The Distribution Agreements terminate automatically in
the event of their "assignment," as defined in the 1940 Act. The services of the
Distributor to the Funds are not exclusive, and it is free to render similar
services to others. The Plans may also be terminated by each of the Funds or by
the Manager or in the event of their "assignment," as defined in the 1940 Act,
on the same basis as the Distribution Agreements.
Although it is a primary objective of the Plans to reduce expenses of the Funds
by fostering growth in the Funds' net assets, there can be no assurance that
this objective of the Plans will be achieved; however, based on the data and
information presented to the Board of Directors by the Manager and the
Distributor, the Board of Directors determined that there is a reasonable
likelihood that the benefits of growth in the size of the Funds can be
accomplished under the Plans.
When the Board of Directors approved the Distribution Agreements, the Primary
Dealer Agreement, the forms of Shareholder Service Agreement and the Plans, the
Board of Directors requested and evaluated such information as they deemed
reasonably necessary to make an informed determination that the Distribution
Agreements, Plans and related agreements should be approved. They considered and
gave appropriate weight to all pertinent factors necessary to reach the good
faith judgment that the Distribution Agreements, Plans and related agreements
would benefit the Funds and their respective shareholders.
The Board of Directors reviewed, among other things, (1) the nature and extent
of the services to be provided by the Manager, the Distributor and the
Shareholder Service Agents, (2) the value of all benefits received by the
Manager, (3) the overhead expenses incurred by the Manager attributable to
services provided to the Company's shareholders, and (4) expenses of the Company
being assumed by the Manager.
In connection with the approval of the Plans, the Board of Directors also
determined that the Funds would be expected to receive at least the following
benefits:
1) The Distributor and Shareholder Service Agents will furnish rapid
access by a shareholder to his Fund account for the purpose of
effecting executions of purchase and redemption orders.
2) The Distributor and Shareholder Service Agents will provide prompt,
efficient and reliable responses to inquiries of a shareholder
concerning his account status.
3) The Company's ability to sustain a relatively predictable flow of cash
for investment purposes and to meet redemptions facilitates more
successful, efficient portfolio management and the achievement of each
of the Funds' fundamental policies and objectives of providing
stability of principal, liquidity, and, consistent with the foregoing,
the highest possible current income, is enhanced by a stable network
of distribution.
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<PAGE>
4) A successful distribution effort will assist the Manager in
maintaining and increasing the organizational strength needed to serve
the Company.
5) The establishment of an orderly system for processing sales and
redemptions is also important to the Company's goal of maintaining the
constant net asset value of each Fund's shares, which most
shareholders depend upon. By identifying potential investors whose
needs are served by the objectives of the Fund, a well-developed,
dependable network of Shareholder Service Agents may help to curb
sharp fluctuations in rates of redemptions and sales, thereby reducing
the chance that an unanticipated increase in net redemptions could
adversely affect the ability of the Funds to stabilize their net asset
values per share.
6) The Company expects to share in the benefits of growth in the Funds'
net assets by achieving certain economies of scale based on a
reduction in the management fees, although the Manager will receive a
larger fee if net assets grow.
The Plans will only make payments for expenses actually incurred by the
Distributor. The Plans will not carry over expenses from year to year and if a
Plan is terminated in accordance with its terms, the obligations of a Fund to
make payments to the Distributor pursuant to the Plan will cease and the Fund
will not be required to make any payments past the date the Plan terminates.
The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit federally chartered or supervised banks from engaging in the business
of underwriting, selling or distributing securities. Accordingly, the
Distributor will engage banks as shareholder service agents only to perform
administrative and shareholder servicing functions. While the matter is not free
from doubt, the management of Cortland believes that such laws should not
preclude a bank from acting as a shareholder service agent. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a bank
were prohibited from so acting, shareholder clients of such bank would be
permitted to remain Cortland shareholders and alternate means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of Cortland might occur and shareholders serviced by such bank might
no longer be able to avail themselves of any automatic investment or other
services then being provided by such bank. It is not expected that shareholders
would suffer any adverse financial consequences as a result of any of these
occurrences.
State law may, in some jurisdictions, differ from the foregoing discussion of
the Glass-Steagall Act and from other applicable federal law. Prior to entering
into shareholder servicing agreements with banks in Texas, Cortland will obtain
a representation from such banks that they are either registered as dealers in
Texas, or that they will not engage in activities that would constitute acting
as dealers under Texas State law.
CUSTODIAN
Investors Fiduciary Trust Company, acts as custodian for the Company's portfolio
securities and cash. Investors Fiduciary Trust Company receives such
compensation from the Manager for its services in such capacity as is agreed to
from time to time by Investors Fiduciary Trust Company and the Manager. The
address of Investors Fiduciary Trust Company is 801 Pennsylvania Avenue, Kansas
City, Missouri 64105.
TRANSFER AGENT
Reich & Tang Services, Inc., 600 Fifth Avenue, New York, New York 10020, acts as
transfer agent except with respect to the Pilgrim General Fund. All costs
associated with performing such services are borne by the Manager.
DST Systems, Inc., P.O. Box 419368, Kansas City, Missouri 64141, acts as
transfer agent with respect to the Pilgrim General Fund. All costs associated
with performing such services are borne by Pilgrim Securities, Inc.
SUB-ACCOUNTING
The Manager, at its expense, will provide sub-accounting services to all
shareholders, except those shareholders of the Pilgrim General Fund, and
maintain information with respect to underlying owners. Investors, such as bank
trust departments, investment counselors and brokers, who purchase shares for
the account of others, can make arrangements through the Manager for these
sub-accounting services.
PRINCIPAL HOLDERS OF SECURITIES
On June 30, 1999 there were 881,494,480 total shares of the Company outstanding.
On June 30, 1999 there were 764,664,836 outstanding shares of the Cortland
General Money Market Fund, 61,957,182 outstanding shares of the U.S. Government
Fund and 54,872,462 outstanding shares of the Municipal Money Market Fund. As of
June 30, 1999 the amount of shares owned by all officers and directors of the
Funds as a group was less than 1% of the outstanding shares of each Fund. Set
forth below is certain information as to persons who owned 5% or more of each
Fund's outstanding shares as of :
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nature of
Name and address Fund % of Class Ownership
JW Genesis Securities, Inc. General Money Market 36.50% Record
As Agent for various owners U.S. Government 40.44% Record
980 North Federal Hwy Municipal Money Market 20.28% Record
Boca Raton, FL 33432
Freeman Wellwood & Co. Inc. General Money Market 10.24% Record
As Agent for various owners U.S. Government 8.42% Record
1501 4th Ave. Suite 2800 Municipal Money Market 12.74% Record
Seattle, WA 98101
BHC Securities General Money Market 6.19% Record
As Agent for various owners U.S. Government 7.15% Record
1 Commerce Square Municipal Money Market 15.62% Record
200 5 Market Street 12th Floor
Philadelphia, PA 19103-3212
Southwest Securities, Inc.
1201 Elm Street Suite 4300 Municipal Money Market 7.06% Record
Dallas, TX 75270
</TABLE>
REPORTS
The Company furnishes shareholders with semi-annual reports containing
information about the Funds and their operations, including a schedule of
investments held in the Funds' portfolios and the financial statements for each
Fund. The annual financial statements are audited by the Company's independent
auditors. The Board of Directors has selected Ernst & Young LLP, 787 Seventh
Avenue, New York, NY 10019, as the Company's independent auditors to audit the
Funds' financial statements and to review the Funds' tax returns.
FINANCIAL STATEMENTS
The audited financial statements for the Fund and the report of Ernst & Young
LLP thereon for the fiscal year ended March 31, 1999 are herein incorporated by
reference to the Fund's Annual Report. The Annual Report is available upon
request and without charge.
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 Prospectuses under the caption
"Shareholder Information".
The possibility that shareholders who maintain accounts of less than $500 in
value ($1,000 in value for Pilgrim General Fund) will be subject to mandatory
redemption is also described under the caption "How to Redeem Shares" (under the
caption "How to Redeem Pilgrim General Fund Shares" with respect to the Pilgrim
General Fund). If the Board of Directors authorizes mandatory redemption of such
small accounts, the holders of shares with a value of less than $500 (less than
$1,000 for the Pilgrim General Fund) will be notified that they must increase
their investment to $500 ($1,000 for the Pilgrim General Fund) or their shares
will be redeemed on or after the 60th day following such notice or pay a fee.
The minimum account balance of $1,000 with respect to Pilgrim General Fund is
not applicable to IRA accounts. Involuntary redemptions will not be made if the
decline in value of the account results from a decline in the net asset value of
a share of any of the Funds. The Company does not presently redeem such small
accounts and does not currently intend to do so.
The right of redemption may be suspended or the date of payment postponed when
(a) trading on the New York Stock Exchange is restricted, as determined by
applicable rules and regulations of the SEC, (b) the New York Stock
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<PAGE>
Exchange is closed for other than customary weekend and holiday closings, (c)
the SEC has by order permitted such suspension, or (d) an emergency as
determined by the SEC exists making disposal of portfolio securities or the
valuation of the net assets of a Fund not reasonably practicable.
NET ASSET VALUE DETERMINATION
The net asset values of the Funds are determined daily as of 12 noon Eastern
time on each day the New York Stock Exchange and the Company's custodian are
open for business.
For the purpose of determining the price at which shares of the Funds are issued
and redeemed, the net asset value per share is calculated immediately after the
daily dividend declaration by: (a) valuing all securities and instruments of a
Fund as set forth below; (b) deducting such Fund's liabilities; (c) dividing the
resulting amount by the number of shares outstanding of such Fund; and (d)
rounding the per share net asset value to the nearest whole cent. As discussed
below, it is the intention of the Company to maintain a net asset value per
share of $1.00 for each of the Funds.
The debt instruments held in each of the Fund's portfolios are valued on the
basis of amortized cost. This method involves valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price a Fund would receive if it sold the entire
portfolio. During periods of declining interest rates, the daily yield for a
Fund, computed as described under the caption "Dividends and Tax Matters" below,
may be higher than a similar computation made by a fund with identical
investments utilizing a method of valuation based upon market prices and
estimates of market prices for all of its portfolio instruments. Thus, if the
use of amortized cost by a Fund results in a lower aggregate portfolio value for
such Fund on a particular day, a prospective investor in the Fund would be able
to obtain a somewhat higher yield than would result from an investment in a fund
utilizing solely market values, and existing investors in such Fund would
receive less investment income. The converse would apply in a period of rising
interest rates.
As it is difficult to evaluate the likelihood of exercise or potential benefit
of a Stand-by Commitment, described under the caption "Investment Programs and
Restrictions - Stand-by Commitments," such commitments will be considered to
have no value, regardless of whether any direct or indirect consideration is
paid for such commitments. Where the Municipal Money Market Fund has paid for a
Stand-by Commitment, its cost will be reflected as unrealized depreciation for
the period during which the commitment is held.
The valuation of the portfolio instruments based upon their amortized cost, the
calculation of each Fund's per share net asset value to the nearest whole cent
and the concomitant maintenance of the net asset value per share of $1.00 for
each of the Funds is permitted in accordance with applicable rules and
regulations of the SEC, which require the Funds to adhere to certain conditions.
Each Fund maintains a dollar-weighted average portfolio maturity of 90 days or
less, purchases only instruments having remaining maturities of thirteen months
or less and invests only in securities determined by the Manager to be of high
quality with minimal credit risk. The Board of Directors is required to
establish procedures designed to stabilize, to the extent reasonably possible,
each Fund's price per share at $1.00 as computed for the purpose of sales and
redemptions. Such procedures include review of a Fund's portfolio holdings by
the Board of Directors, at such intervals as they may deem appropriate, to
determine whether the net asset value calculated by using available market
quotations or other reputable sources for a Fund deviates from $1.00 per share
and, if so, whether such deviation may result in material dilution or is
otherwise unfair to existing holders of the shares of the Fund. In the event the
Board of Directors determines that such a deviation exists for a Fund, it will
take such corrective action as the Board of Directors deems necessary and
appropriate, including the sale of portfolio instruments prior to maturity to
realize capital gains or losses or to shorten the average portfolio maturity;
the withholding of dividends; redemption of shares in kind; or the establishment
of a net asset value per share by using available market quotations.
DIVIDENDS AND TAX MATTERS
DIVIDENDS
All of the net income earned by each Fund is declared daily as dividends to the
respective holders of record of each Fund. Net income for each of the Funds for
dividend purposes (from the time of the immediately preceding determination
thereof) consists of (a) interest accrued and discount earned, if any, on the
assets of each Fund and any general income of the Company prorated to such Fund
based on the relative net assets of such Fund, less (b) amortization of premium
and accrued expenses for the applicable dividend period attributable directly to
such Fund and general expenses of the Company prorated to such Fund based on the
relative net assets of such Fund. The amount of discount or premium on
instruments in each Fund's portfolio is fixed at the time of purchase of the
instruments. See
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<PAGE>
"Net Asset Value Determination" above. Realized gains and losses on portfolio
securities held by each Fund will be reflected in the net asset value of such
Fund. Each Fund expects to distribute any net realized short-term gains of such
Fund at least once each year, although it may distribute them more frequently if
necessary in order to maintain such Fund's net asset value at $1.00 per share.
The Funds do not expect to realize net long-term capital gains.
Should any of the Funds incur or anticipate any unusual expense, loss or
depreciation which would adversely affect the net asset value per share or net
income per share of a Fund for a particular period, the Board of Directors would
at that time consider whether to adhere to the present dividend policy described
above or to revise it in light of then prevailing circumstances. For example, if
the net asset value per share of a Fund were reduced, or was anticipated to be
reduced, below $1.00, the Board of Directors may suspend further dividend
payments with respect to that Fund until the net asset value per share returns
to $1.00. Thus, such expense or loss or depreciation might result in a
shareholder receiving no dividends for the period during which he held shares of
the Fund and/or in his receiving upon redemption a price per share lower than
the price which he paid.
Dividends on a Fund's shares are normally payable on the first day following the
date that a share purchase or exchange order is effective and on the date that a
redemption order is effective. The net income of a Fund for dividend purposes is
determined as of 12:00 noon Eastern time on each "business day" of the Company,
as defined in the Prospectus and immediately prior to the determination of each
Fund's net asset value on that day. Dividends are declared daily and reinvested
in additional full and fractional shares of each Fund at net asset value. A
shareholder may elect to have the declared dividends paid monthly to him by
check.
TAX MATTERS
The following is only a summary of certain additional federal income tax
considerations generally affecting the Funds and their shareholders that are not
described in their Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussions here and in the Prospectuses are not intended as substitutes for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund has elected to be taxed as a regulated investment company for federal
income tax purposes under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, a Fund is not subject
to federal income tax on the portion of its net investment income (i.e., taxable
interest, dividends and other taxable ordinary income, net of expenses) and
capital gain net income (i.e., the excess of capital gains over capital losses)
that it distributes to shareholders, provided that it distributes at least 90%
of its investment company taxable income (i.e., net investment income and the
excess of net short-term capital gain over net long-term capital loss) and, with
respect to the Municipal Money Market Fund, at least 90% of its tax-exempt
income (net of expenses allocable thereto) for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are described below. Distributions by a Fund made during the taxable
year or, under specified circumstances, within twelve months after the close of
the taxable year, will be considered distributions of income and gains of the
taxable year and will therefore count toward satisfaction of the Distribution
Requirement.
If a Fund has a net capital loss (i.e., the excess of capital losses over
capital gains) for any year, the amount thereof may be carried forward up to
eight years and treated as a short-term capital loss which can be used to offset
capital gains in such years. As of March 31, 1999, the Cortland General Fund,
U.S. Government Fund, and Municipal Fund have capital loss carryforwards of
$1,848,708, $686,669, and $28,940, respectively, expiring, with respect to the
Cortland General Fund, $243,842 in the year 2003 and $1,604,866 in the year
2004; with respect to the U.S. Government Fund, $235,428 in the year 2003 and
$451,241 in the year 2004; and, with respect to the Municipal Fund, $13,541 in
the year 2001, $3,530 in the year 2002, and $11,869 in the year 2003. Under Code
Section 382, if a Fund has an "ownership change," the Fund's use of its capital
loss carryforwards in any year following the ownership change will be limited to
an amount equal to the net asset value of the Fund immediately prior to the
ownership change multiplied by the highest adjusted long-term tax-exempt rate
(which is published monthly by the Internal Revenue Service (the "IRS")) in
effect for any month in the 3-calendar-month period ending with the calendar
month in which the ownership change occurs (the rate for June 1999 is 4.85%).
Each Fund will use its best efforts to avoid having an ownership change.
However, because of circumstances which may be beyond the control of a Fund,
there can be no assurance that the Fund will not have, or has not already had,
an ownership change. If a Fund has or has had an ownership change, any capital
gain net income for any year following the ownership change in excess of the
annual limitation on the capital loss carryforwards will have to be distributed
by the Fund and will be taxable to shareholders as described under "Fund
Distributions" below.
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<PAGE>
In addition to satisfying the Distribution Requirement, a regulated investment
company must 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").
In general, gain or loss recognized by a Fund on the disposition of an asset
will be a capital gain or loss. In addition, gain will be recognized as a result
of certain constructive sales, including short sales "against the box." However,
gain recognized on the disposition of a debt obligation (including municipal
obligations) purchased by a Fund at a market discount (generally, at a price
less than its principal amount) will be treated as ordinary income to the extent
of the portion of the market discount which accrued during the period of time
the Fund held the debt obligation.
Further, the Code also treats as ordinary income a portion of the capital gain
attributable to a transaction where substantially all of the return realized is
attributable to the time value of a Fund's net investment in the transaction
and: (1) the transaction consists of the acquisition of property by the Fund and
a contemporaneous contract to sell substantially identical property in the
future; (2) the transaction is a straddle within the meaning of section 1092 of
the Code; (3) the transaction is one that was marketed or sold to the Fund on
the basis that it would have the economic characteristics of a loan but the
interest-like return would be taxed as capital gain; or (4) the transaction is
described as a conversion transaction in the Treasury Regulations. The amount of
the gain recharacterized generally will not exceed the amount of the interest
that would have accrued on the net investment for the relevant period at a yield
equal to 120% of the federal long-term, mid-term, or short-term rate, depending
upon the type of instrument at issue, reduced by an amount equal to: (1) prior
inclusions of ordinary income items from the conversion transaction and (2) the
capital interest on acquisition indebtedness under Code section 263(g). Built-in
losses will be preserved where the Fund has a built-in loss with respect to
property that becomes a part of a conversion transaction. No authority exists
that indicates that the converted character of the income will not be passed
through to the Fund's shareholders.
In general, for purposes of determining whether capital gain or loss recognized
by a Fund on the disposition of an asset is long-term or short-term, the holding
period of the asset may be affected if (1) the asset is used to close a "short
sale" (which includes for certain purposes the acquisition of a put option) or
is substantially identical to another asset so used, (2) the asset is otherwise
held by the Fund as part of a "straddle" (which term generally excludes a
situation where the asset is stock and the Fund grants a qualified covered call
option (which, among other things, must not be deep-in-the-money) with respect
thereto) or (3) the asset is stock and the Fund grants an in-the-money qualified
covered call option with respect thereto. In addition, a Fund may be required to
defer the recognition of a loss on the disposition of an asset held as part of a
straddle to the extent of any unrecognized gain on the offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or loss recognized by
a Fund from a closing transaction with respect to, an option written by the Fund
will be treated as a short-term capital gain or loss.
Certain transactions that may be engaged in by a Fund (such as regulated futures
contracts and options on futures contracts) will be subject to special tax
treatment as "Section 1256 contracts." Section 1256 contracts are treated as if
they are sold for their fair market value on the last business day of the
taxable year, even though a taxpayer's obligations (or rights) under such
contracts have not terminated (by delivery, exercise, entering into a closing
transaction or otherwise) as of such date. Any gain or loss recognized as a
consequence of the year-end deemed disposition of Section 1256 contracts is
taken into account for the taxable year together with any other gain or loss
that previously was recognized upon the termination of Section 1256 contracts
during that taxable year. Any capital gain or loss for the taxable year with
respect to Section 1256 contracts (including any capital gain or loss arising as
a consequence of the year-end deemed sale of such contracts) is generally
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. A Fund, however, may elect not to have this special tax treatment apply to
Section 1256 contracts that are part of a "mixed straddle" with other
investments of the Fund that are not Section 1256 contracts.
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 made a taxable year election for excise tax purposes as
discussed below) to treat all or any part of any net capital loss, any net
long-term capital loss or any net foreign currency loss incurred after October
31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, each Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities,
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securities of other regulated investment companies, and securities of other
issuers (as to each of which the Fund has not invested more than 5% of the value
of the Fund's total assets in securities of such issuer and does not hold more
than 10% of the outstanding voting securities of such issuer), and no more than
25% of the value of its total assets may be invested in the securities of any
one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which the Fund
controls and which are engaged in the same or similar trades or businesses.
Generally, an option (call or put) with respect to a security is treated as
issued by the issuer of the security, not the issuer of the option. For purposes
of asset diversification testing, obligations issued or guaranteed by agencies
or instrumentalities of the U.S. Government such as the Federal Agricultural
Mortgage Corporation, the Farm Credit System Financial Assistance Corporation, a
Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association, the Government National Mortgage Corporation, and
the Student Loan Marketing Association are treated as U.S. Government
securities.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to 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 Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that a Fund may in certain circumstances be required to liquidate portfolio
investments to make sufficient distributions to avoid excise tax liability.
FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment company
taxable income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes, but they will not qualify for the 70% dividends-received deduction for
corporate shareholders.
Each Fund may either retain or distribute to shareholders its net capital gain
for each taxable year. Each Fund currently intends to distribute any such
amounts. Net capital gain that is distributed and designated as a capital gain
dividend will be taxable to shareholders as long-term capital gain, regardless
of the length of time the shareholder has held his shares or whether such gain
was recognized by the Fund prior to the date on which the shareholder acquired
his shares.
Conversely, if a Fund elects to retain its net capital gain, the Fund will be
taxed thereon (except to the extent of any available capital loss carryovers) at
the 35% corporate tax rate. If a Fund elects to retain its net capital gain, it
is expected that the Fund also will elect to have shareholders of record on the
last day of its taxable year treated as if each received a distribution of his
pro rata share of such gain, with the result that each shareholder will be
required to report his pro rata share of such gain on his tax return as
long-term capital gain, will receive a refundable tax credit for his pro rata
share of tax paid by the Fund on the gain, and will increase the tax basis for
his shares by an amount equal to the deemed distribution less the tax credit.
The Municipal Fund intends to qualify to pay exempt-interest dividends by
satisfying the requirement that at the close of each quarter of the its taxable
year at least 50% of the Municipal Fund's total assets consists of tax-exempt
municipal obligations. Distributions from the Municipal Fund will constitute
exempt-interest dividends to the extent of such Fund's
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tax-exempt interest income (net of expenses and amortized bond premium).
Exempt-interest dividends distributed to shareholders of the Municipal Fund are
excluded from gross income for federal income tax purposes. However,
shareholders required to file a federal income tax return will be required to
report the receipt of exempt-interest dividends on their returns. Moreover,
while exempt-interest dividends are excluded from gross income for federal
income tax purposes, they may be subject to alternative minimum tax ("AMT") in
certain circumstances and may have other collateral tax consequences as
discussed below. Distributions by a Fund of any investment company taxable
income or of any net capital gain will be taxable to shareholders as discussed
above.
AMT is imposed in addition to, but only to the extent it exceeds, the regular
tax and is computed at a maximum marginal rate of 28% for non-corporate
taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's
alternative minimum taxable income ("AMTI") over an exemption amount.
Exempt-interest dividends derived from certain "private activity" municipal
obligations issued after August 7, 1986 will generally constitute an item of tax
preference includable in AMTI for both corporate and non-corporate 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 Fund is denied a deduction for interest
on indebtedness incurred or continued to purchase or carry shares of the Fund.
Moreover, a shareholder who is (or is related to) a "substantial user" of a
facility financed by industrial development bonds held by the Municipal Fund
will likely be subject to tax on dividends paid by the Fund which are derived
from interest on such bonds. Receipt of exempt-interest dividends may result in
other collateral federal income tax consequences to certain taxpayers, including
financial institutions, property and casualty insurance companies, and foreign
corporations engaged in a trade or business in the United States. Prospective
investors should consult their own advisers as to such consequences.
Distributions by a Fund that do not constitute ordinary income dividends,
exempt-interest dividends, or capital gain dividends will be treated as a return
of capital to the extent of (and in reduction of) the shareholder's tax basis in
his shares; any excess will be treated as gain realized from a sale of the
shares, as discussed below.
Distributions by a Fund will be treated in the manner described above regardless
of whether such distributions are paid in cash or reinvested in additional
shares of the Fund (or of another fund). Shareholders receiving a distribution
in the form of additional shares will be treated as receiving a distribution in
an amount equal to the fair market value of the shares received, determined as
of the reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of a Fund reflects realized but undistributed
income or gain, or unrealized appreciation in the value of the assets held by
the Fund, distributions of such amounts will be taxable to the shareholder in
the manner described above, although such distributions economically constitute
a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which they 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 U.S. Government Series) on December 31 of such
calendar year provided 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) to them during
the year.
Each Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has failed to
provide a correct taxpayer identification number, (2) who is subject to backup
withholding for failure properly to report the receipt of interest or dividend
income, or (3) who has failed to certify to the Fund that it is not subject to
backup withholding or that it is an "exempt recipient" (such as a corporation).
SALE OR REDEMPTION OF SHARES
Each Fund seeks to maintain a stable net asset value of $1.00 per share;
however, there can be no assurance that the Funds will be able to maintain such
value. If the net asset value deviates from $1.00 per share, a shareholder will
recognize gain or loss on the sale or redemption of shares of a Fund in an
amount equal to the difference between the proceeds of the sale or redemption
and the shareholder's adjusted tax basis in the shares. All or a portion of any
loss so recognized may be disallowed if the shareholder purchases other shares
of a Fund within 30 days before or after the sale or redemption. In general, any
gain or loss arising from (or treated as arising from) the sale or redemption of
shares of a Fund will be considered capital gain or loss and will be long-term
capital gain or loss if the shares were held
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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 with respect to 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. Capital losses in any year are deductible only to the extent of capital
gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from a Fund is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends paid to
the shareholder will be subject to U.S. withholding tax at the rate of 30% (or
lower applicable treaty rate) on 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 or redemption of shares of a Fund, capital gain
dividends, exempt-interest dividends, and amounts retained by a Fund that are
designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then ordinary income and capital gain
dividends received in respect of, and any gains realized upon the sale of,
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. taxpayers.
In the case of a noncorporate foreign shareholder, a Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or subject to withholding at a reduced treaty
rate), unless the shareholder furnishes the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund, including the
applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and 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.
Rules of state and local taxation of ordinary income dividends, exempt-interest
dividends and capital gain dividends from regulated investment companies may
differ from the rules for U.S. federal income taxation described above.
Shareholders are urged to consult their tax advisers as to the consequences of
these and other state and local tax rules affecting investment in a Fund.
YIELD INFORMATION
The yield for each Fund can be obtained by calling your securities dealer or the
Distributor at (212) 830-5280 if calling from New Jersey, Alaska or Hawaii, or
by calling toll free at (800) 433-1918 if calling from elsewhere in the
continental U.S. The yield for the Pilgrim General Fund can be obtained by
calling Pilgrim Securities, Inc. at (800) 992-0180. Quotations of yield on the
Funds may also appear from time to time in the financial press and in
advertisements.
The current yields quoted will be the net average annualized yield for an
identified period, usually seven consecutive calendar days. Yield for a Fund
will be computed by assuming that an account was established with a single share
of such Fund (the "Single Share Account") on the first day of the period. To
arrive at the quoted yield, the net change in the value of that Single Share
Account for the period (which would include dividends accrued with respect to
the share, and dividends declared on shares purchased with dividends accrued and
paid, if any, but would not include realized gains and losses or unrealized
appreciation or depreciation) will be multiplied by 365 and then divided by the
number of days in the period, with the resulting figure carried to the nearest
hundredth of 1%. The Company may also furnish a quotation of effective yield for
each Fund that assumes the reinvestment of dividends for a 365 day year and a
return for the entire year equal to the average annualized yield for the period,
which will be computed by compounding the unannualized current yield for the
period by adding 1 to the unannualized current yield, raising the sum to a power
equal to 365 divided by the number of days in the period, and then subtracting 1
from the result. Historical yields are not necessarily indicative of future
yields. Rates of return will vary as interest rates and other conditions
affecting money market instruments change. Yields also depend on the quality,
length of maturity and type of instruments in each
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Fund's portfolio and each Fund's operating expenses. Quotations of yields will
be accompanied by information concerning the average weighted maturity of the
Funds. Comparison of the quoted yields of various investments is valid only if
yields are calculated in the same manner and for identical limited periods. When
comparing the yield for one of the Funds with yields quoted with respect to
other investments, shareholders should consider (a) possible differences in time
periods, (b) the effect of the methods used to calculate quoted yields, (c) the
quality and average-weighted maturity of portfolio investments, expenses,
convenience, liquidity and other important factors, and (d) the taxable or
tax-exempt character of all or part of dividends received.
PORTFOLIO TRANSACTIONS
The Manager is responsible for decisions to buy and sell securities for the
Company, broker-dealer selection and negotiation of commission rates. Since
purchases and sales of portfolio securities by the Company are usually principal
transactions, the Funds incur little or no brokerage commissions. Portfolio
securities are normally purchased directly from the issuer or from a market
maker for the securities. The purchase price paid to dealers serving as market
makers may include a spread between the bid and asked prices. The Company may
also purchase securities from underwriters at prices which include a commission
paid by the issuer to the underwriter.
The Company does not seek to profit from short-term trading, and will generally
(but not always) hold portfolio securities to maturity. However, the Manager may
seek to enhance the yield of the Funds by taking advantage of yield disparities
or other factors that occur in the money market. For example, market conditions
frequently result in similar securities trading at different prices. The Manager
may dispose of any portfolio security prior to its maturity if such disposition
and reinvestment of proceeds are expected to enhance yield consistent with the
Manager's judgment as to desirable portfolio maturity structure or if such
disposition is believed to be advisable due to other circumstances or
conditions. Each Fund is required to maintain an average weighted portfolio
maturity of 90 days or less and purchase only instruments having remaining
maturities of 13 months or less. Both may result in relatively high portfolio
turnover, but since brokerage commissions are not normally paid on U.S.
Government Obligations, Agencies, Money Market Obligations and Municipal
Securities, the high rate of portfolio turnover is not expected to have a
material effect on the Funds' net income or expenses.
Allocation of transactions, including their frequency, to various dealers is
determined by the Manager in its best judgment and in a manner deemed to be in
the best interest of shareholders of the Company rather than by any formula. The
primary consideration is prompt execution of orders in an effective manner at
the most favorable price.
The Manager and its affiliates manage several other investment accounts, some of
which may have objectives similar to the Funds'. It is possible that at times,
identical securities will be acceptable for one or more of such investment
accounts. However, the position of each account in the securities of the same
issue may vary and the length of time that each account may choose to hold its
investment in the securities of the same issue may likewise vary. The timing and
amount of purchase by each account will also be determined by its cash position.
If the purchase or sale of securities consistent with the investment policies of
the Funds and one or more of these accounts is considered at or about the same
time, transactions in such securities will be allocated in good faith among the
Funds and such accounts in a manner deemed equitable by the Manager. The Manager
may combine such transactions, in accordance with applicable laws and
regulations, in order to obtain the best net price and most favorable execution.
The allocation and combination of simultaneous securities purchases on behalf of
the three Funds will be made in the same way that such purchases are allocated
among or combined with those of other Reich & Tang accounts. Simultaneous
transactions could adversely affect the ability of a Fund to obtain or dispose
of the full amount of a security which it seeks to purchase or sell.
Provisions of the 1940 Act and rules and regulations thereunder have also been
construed to prohibit the Funds' purchasing securities or instruments from or
selling securities or instruments to, any holder of 5% or more of the voting
securities of any investment company managed by the Manager. The Funds have
obtained an order of exemption from the SEC which would permit the Funds to
engage in transactions with such a 5% holder, if the 5% holder is one of the 50
largest U.S. banks measured by deposits. Purchases from these 5% holders will be
subject to quarterly review by the Board of Directors including those directors
who are not "interested persons" of the Company. Additionally, such purchases
and sales will be subject to the following conditions: (1) the Company will
maintain and preserve a written copy of the internal control procedures for the
monitoring of such transactions, together with a written record of any such
transactions setting forth a description of the security purchased or sold, the
identity of the purchaser or seller, the terms of the purchase or sale
transaction and the information or materials upon which the determinations to
purchase or sell each security were made; (2) each security to be purchased or
sold by a Fund will be: (i) consistent with such Fund's investment policies and
objectives; (ii) consistent with the interests of shareholders of such Fund; and
(iii) comparable in terms of quality, yield, and maturity to similar securities
purchased or sold during a comparable period of
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time; (3) the terms of each transaction will be reasonable and fair to
shareholders of the Funds and will not involve overreaching on the part of any
person; and (4) each commission, fee, spread or other remuneration received by a
5% holder will be reasonable and fair compared to the commission, fee, spread or
other remuneration received by other brokers or dealers in connection with
comparable transactions involving similar securities purchased or sold during a
comparable period of time and will not exceed the limitations set forth in
Section 17(e)(2) of the 1940 Act.
THE COMPANY AND ITS SHARES
The shares of the Company are divided into three series constituting separate
portfolios of investments, with various investment objectives and policies (each
such series is referred to herein as a "Fund" and collectively as the "Funds"):
Cortland General Money Market Fund
U.S. Government Fund
Municipal Money Market Fund
The Cortland General Money Market Fund offers its shares, (the "Cortland General
Money Market Fund Shares") and the Pilgrim General Money Market Fund Shares (the
"Pilgrim General Fund"). Each Fund issues shares of common stock in the Company.
Shares of the Company have equal rights with respect to voting, except that the
holders of shares of a particular Fund will have the exclusive right to vote on
matters affecting only the rights of the holders of such Fund. Each share of a
Fund bears equally the expenses of such Fund.
As used in each Prospectus of the Company, the term "majority of the outstanding
shares" of the Company or of a particular Fund means, respectively, the vote of
the lesser of (i) 67% or more of the shares of the Company or such Fund present
at a meeting, if the holders of more than 50% of the outstanding shares of the
Company or such Fund are present or represented by proxy or (ii) more than 50%
of the outstanding shares of the Company or such Fund.
Shareholders of the Funds do not have cumulative voting rights, and therefore
the holders of more than 50% of the outstanding shares of the Company voting
together for the election of directors may elect all of the members of the Board
of Directors. In such event, the remaining holders cannot elect any members of
the Board of Directors.
The Board of Directors may classify or reclassify any unissued shares to create
a new class or classes in addition to those already authorized by setting or
changing in any one or more respects, from time to time, prior to the issuance
of such shares, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption, of such shares. Any such classification or
reclassification will comply with the provisions of the Investment Company Act
of 1940, as amended (the "1940 Act").
The Articles of Incorporation, as supplemented, permit the Directors to issue
the following number of full and fractional shares, par value $.001, of the
Portfolios: 2,000,000,000 shares of the Cortland General Money Market Fund (of
which 100,000,000 shares are classified as the Pilgrim General Fund 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 the Bradford U.S. Government Money Market 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 the Bradford Short-Term Municipal Money
Market Fund Shares). Each Fund share is entitled to participate pro rata in the
dividends and distributions from that Fund. Additional information concerning
the rights of share ownership is set forth in each Prospectus.
The assets received by the Company for the issue or sale of shares of each Fund
and all income, earnings, profits, losses and proceeds therefrom, subject only
to the rights of creditors, are allocated to that Fund, and constitute the
underlying assets of that Fund. The underlying assets of each Fund are
segregated and are charged with the expenses with respect to that Fund and with
a share of the general expenses of the Company as described below under
"Expenses." While the expenses of the Company are allocated to the separate
books of account of each Fund, certain expenses may be legally chargeable
against the assets of all three Funds. Also, certain expenses may be allocated
to a particular class of a Fund. See "Expenses."
The Articles of Incorporation provide that to the fullest extent that
limitations on the liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of the Company shall
have any liability to the Company or to its shareholders for damages.
The Articles of Incorporation further provide that the Company shall indemnify
and advance expenses to its currently acting and its former directors to the
fullest extent that indemnification of directors is permitted by the Maryland
General Corporation Law; that the Company shall indemnify and advance expenses
to its officers to the same extent as its directors and to such further extent
as is consistent with law and that the Board of Directors may through By-law,
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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.
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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 general referred to as "gilt edge."
Bonds rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger. Moody's applies numerical modifiers 1, 2
and 3 in the Aa rating category. The modifier 1 indicates a ranking for the
security in the higher end of this rating category, the modifier 2 indicates a
mid-range ranking, and the modifier 3 indicates a ranking in the lower end of
the rating category.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions and
are liable to but slight market fluctuation other than through changes in the
money rate. The prime feature of an AAA bond is a showing of earnings several
times or many times interest requirements, with such stability of applicable
earnings that safety is beyond reasonable question whatever changes occur in
conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety
virtually beyond question and are readily salable, whose merits are not unlike
those of the AAA class, but whose margin of safety is less strikingly broad. The
issue may be the obligation of a small company, strongly secured but influenced
as to rating by the lesser financial power of the enterprise and more local type
market.
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Bonds rated Duff-1 are judged by Duff to be of the highest credit quality with
negligible risk factors; only slightly more than U.S. Treasury debt. Bonds rated
Duff-2, 3 and 4 are judged by Duff to be of high credit quality with strong
protection factors. Risk is modest but may vary slightly from time to time
because of economic conditions.
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial, such
that adverse changes in business, economic or financial conditions are unlikely
to increase investment risk significantly. Obligations for which there is a very
low expectation of investment risk are rated AA by IBCA.
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.
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MOODY'S STATE AND MUNICIPAL SHORT-TERM RATINGS
Moody's assigns state and municipal notes, as well as other short-term
obligations, a Moody's Investment Grade ("MIG") rating. Factors affecting the
liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in evaluating bond
risk may be less important over the short run.
MIG 1
Notes bearing this designation are of the best quality. The notes enjoy strong
"protection" by established cash flows, superior liquidity support or a
demonstrated broad-based access to the market for refinancing.
MIG 2
Notes bearing this designation are of high quality. Margins of protection are
ample although not as large as in the preceding group.
MOODY'S TAX-EXEMPT DEMAND RATINGS
Moody's assigns issues which have demand features (i.e., variable rate demand
obligations) a VMIG symbol. This symbol reflects such characteristics as payment
upon periodic demand rather than fixed maturity, and payment relying on external
liquidity. The VMIG rating is modified by the numbers 1, 2 or 3. VMIG1
represents the best quality in the VMIG category and VMIG2 represents high
quality.
INTERNATIONAL AND U.S. BANK RATINGS
An IBCA bank rating represents IBCA's current assessment of the strength of the
bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent IBCA's assessment of a
bank's economic merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support from state
authorities or its owners.
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Live Oak 600 Fifth Avenue, New York, NY 10020
Shares (212) 830-5280
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
July 27, 1999
Relating to the Live Oak Shares Prospectus
dated July 27, 1999
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, Inc., 600 Fifth Avenue, New
York, New York 10020 or toll free at (800) 433-1918.
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C> <C>
General Information about the Company 2 Net Asset Value Determination 15
Investment Programs and Restrictions 2 Dividends and Tax Matters 16
Investment Programs 2 Dividends 16
When-Issued Securities 5 Tax Matters 16
Stand-by Commitments 5 Qualification as a Regulated
Municipal Participations 6 Investment Company 17
Investment Restrictions 6 Excise Tax on Regulated
Directors and Officers 7 Investment Companies 19
Compensation Table 8 Fund Distributions 19
Manager and Investment Advisor 8 Sale or Redemption of Shares 20
Expenses 11 Foreign Shareholders 20
Distributor and Plans of Distribution 12 Effect of Future Legislation and
Custodian 14 Local Tax Considerations 21
Transfer Agent 14 Yield Information 21
Sub-Accounting 14 Portfolio Transactions 21
Principal Holders of Securities 15 The Company and Its Shares 22
Reports 15 Investment Ratings 24
Financial Statements 15
Share Purchases and Redemptions 15
Purchases and Redemptions 15
</TABLE>
<PAGE>
GENERAL INFORMATION ABOUT THE COMPANY
The Company, Cortland Trust, Inc., is a money market mutual fund. 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.
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 caption
"Investment Objectives, Principal Investment Strategies and Related Risks". The
principal features of the investment programs and the primary risks associated
with those investment programs of the Company and the Portfolios are discussed
in the Prospectus under the aforementioned captions.
The following is a more detailed description of the portfolio instruments
eligible for purchase by the Portfolios which augments the summary of the
Company's and the Portfolios' investment programs which appears in the
Prospectus, under the aforementioned captions. The Company seeks to achieve its
objectives by investing in portfolios of short-term instruments rated high
quality by a major rating service or determined to be of high quality by the
Manager under the supervision of the Board of Directors.
Subsequent to its purchase by a Portfolio, a particular issue of Money Market
Obligations or Municipal Securities, as defined in the Prospectus under the
aforementioned captions may cease to be rated, or its rating may be reduced
below the minimum required for purchase by the Portfolios. Neither event
requires the elimination of such obligation from a Portfolio's portfolio, but
the Manager will consider such an event to be relevant in its determination of
whether the Portfolio should continue to hold such obligation in its portfolio.
To the extent that the ratings accorded by a nationally recognized statistical
rating organization ("NRSRO") for Money Market Obligations or Municipal
Securities may change as a result of changes in these rating systems, the
Company will attempt to use comparable ratings as standards for its investments
in Money Market Obligations and Municipal Securities in accordance with the
investment policies contained herein.
The Municipal Money Market Fund may, from time to time, on a temporary or
defensive basis, invest in U.S. Government Obligations, Money Market Obligations
and repurchase agreements. The Municipal Money Market Fund may invest in these
temporary investments, for example, due to market conditions or pending
investment of proceeds from sales of shares or proceeds from the sale of
portfolio securities or in anticipation of redemptions. Although interest earned
from such temporary investments will be taxable as ordinary income, the
Municipal Money Market Fund intends to minimize taxable income through
investment, when possible, in short-term tax-exempt securities, which may
include shares of investment companies whose dividends are tax-exempt. (See
"Investment Programs and Restrictions - Investment Restrictions" for limitations
on the Municipal Money Market Fund's investment in repurchase agreements and
shares of other investment companies.) It is a fundamental policy of the
Municipal Money Market Fund that the Municipal Money Market Fund's assets will
be invested so that at least 80% of the Municipal Money Market Fund's income
will be exempt from federal income taxes. However, there is no limitation on the
percentage of such income which may constitute an item of tax preference and
which may therefore give use to an alternative minimum tax liability for
individual shareholders. The Municipal Money Market Fund may hold cash reserves
pending the investment of such reserves in Municipal Securities or short-term
tax-exempt securities.
The investment objectives and policies of the Company are "fundamental" only
where noted. Fundamental policies may only be changed by a vote of the majority
of the outstanding shares of the affected Portfolios. (See "The Company and its
Shares".) There can be no assurance that the Portfolios' objectives will be
achieved.
The following is a more detailed description of the portfolio instruments
eligible for purchase by the Company's three Portfolios which augments the
summary of each Portfolio's investment program which appears in the Prospectus
under the caption "Investment Objectives, Principal Investment Strategies and
Related Risks". 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
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of U.S. Government agencies and instrumentalities ("Agencies") are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Certain Agencies are backed by the full faith and credit of the U.S.
Government, and others are not.
The Cortland General Money Market Fund's investments may include, in addition to
direct U.S. Government Obligations, the following investments:
Agencies that are not backed by the full faith and credit of the U.S.
Government, such as obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank.
Bank Instruments which consist mainly of certificates of deposit, bankers'
acceptances and time deposits. Certificates of deposit represent short-term
interest-bearing deposits of commercial banks and against which certificates
bearing fixed rates of interest are issued. Bankers' acceptances are short-term
negotiable drafts endorsed by commercial banks, which arise primarily from
international commercial transactions. Time deposits are non-negotiable deposits
maintained in a bank for a specified period of time at a stated interest rate.
The Cortland General Money Market Fund limits investments to bank instruments
described in each Prospectus under the caption "Investment Objectives, Principal
Investment Strategies and Related Risks".
Corporate Commercial Instruments which consist of short-term unsecured
promissory notes issued by corporations to finance short-term credit needs. (See
"Investment Program and Restrictions - Investment Ratings" herein for
information with respect to commercial paper ratings.) Among the instruments
that the Cortland General Money Market Fund may purchase are variable amount
master demand notes, which are unsecured demand notes that permit investment of
fluctuating amounts of money at variable rates of interest pursuant to
arrangements between the issuer and the payee or its agent whereby the
indebtedness on the notes may vary and the interest rate is periodically
redetermined.
In addition, the Cortland General Money Market Fund may purchase loan
participation certificates, which consist of interests in loans made by banks to
corporations, where both the bank and the corporation meet the Company's credit
standards. The Cortland General Money Market Portfolio generally purchases loan
participation certificates maturing in seven days or less.
The Municipal Money Market Fund endeavors to achieve its objective by investing
in the following securities. Municipal Securities in which the Municipal Money
Market Fund may invest include debt obligations issued to obtain funds for
various public purposes, including the construction of a wide range of public
facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Securities may be issued include the refunding of
outstanding obligations, obtaining funds for general operating expenses and
lending such funds to other public institutions and facilities. In addition,
certain types of industrial development bonds are issued by or on behalf of
public authorities to obtain funds to provide for the construction, equipment,
repair or improvement of privately operated housing facilities, airport, mass
transit, industrial, port or parking facilities, air or water pollution control
facilities and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. The interest paid on such bonds may be exempt
from federal income tax, although current federal tax laws place substantial
limitations on the purposes and size of such issues. Such obligations are
considered to be Municipal Securities, provided that the interest paid thereon
qualifies as exempt from federal income tax in the opinion of bond counsel.
However, interest on Municipal Securities may give rise to a federal alternative
minimum tax liability and may have other collateral federal income tax
consequences. (See "Dividends and Tax Matters - Tax Matters" herein.)
The two major classifications of Municipal Securities are bonds and notes. Bonds
may be further categorized as "general obligation" or "revenue" issues. General
obligation bonds are secured by the issuer's pledge of its faith, credit, and
taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Tax-exempt
industrial development bonds are in most cases revenue bonds and do not
generally carry the pledge of the credit of the issuing municipality. Notes are
short-term instruments which usually mature in less than two years. Most notes
are general obligations of the issuing municipalities or agencies and are sold
in anticipation of a bond sale, collection of taxes or receipt of other
revenues. There are, of course, variations in the risks associated with
Municipal Securities, both within a particular classification and between
classifications. The Municipal Money Market Fund's assets may consist of any
combination of general obligation bonds, revenue bonds, industrial revenue bonds
and notes. The percentage of such securities in the Municipal Money Market
Fund's portfolio will vary from time to time.
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For the purpose of diversification, the identification of the issuer of
Municipal Securities depends on the terms and conditions of the security. When
the assets and revenues of an agency, authority, instrumentality or other
political subdivision are separate from those of the government creating the
subdivision and the security is backed only by the assets and revenues of the
subdivision, such subdivision would be deemed to be the sole issuer. Similarly,
in the case of an industrial development bond, if that bond is backed only by
the assets and revenues of the non-governmental user, then such non-governmental
user would be deemed to be the sole issuer. If, however, in either case, the
creating government or some other entity guarantees a security, such a guarantee
would be considered a separate security and will be treated as an issue of such
government or other agency. Certain Municipal Securities may be secured by the
guarantee or irrevocable letter of credit of a major banking institution. In
such case, the Municipal Money Market Fund reserves the right to invest up to
10% of its total assets in Municipal Securities guaranteed or secured by the
credit of a single bank. Furthermore, if the primary issuer of a Municipal
Security or some other non-governmental user which guarantees the payment of
interest on and principal of a Municipal Security possesses credit
characteristics which qualify an issue of Municipal Securities for a high
quality rating from a major rating service (or a determination of high quality
by the Manager and the Board of Directors of the Company) without reference to
the guarantee or letter of credit of a banking institution, the banking
institution will not be deemed to be an issuer for the purpose of applying the
foregoing 10% limitation.
From time to time, various proposals to restrict or eliminate the federal income
tax exemption for interest on Municipal Securities have been introduced before
Congress. Similar proposals may be introduced in the future, and, if enacted,
the availability of Municipal Securities for investment by the Municipal Money
Market Fund could be adversely affected. In such event, the Board of Directors
would reevaluate the investment objective and policies and submit possible
changes in the structure of the Municipal Money Market Fund for the
consideration of shareholders.
The Company may enter into the following arrangements with respect to all three
Portfolios:
1) Repurchase Agreements under which the purchaser (for example, one of the
Portfolios) acquires ownership of an obligation (e.g., a debt instrument or
time deposit) and the seller agrees, at the time of the sale, to repurchase
the obligation at a mutually agreed upon time and price, thereby
determining the yield during the purchaser's holding period. This
arrangement results in a fixed rate of return insulated from market
fluctuations during such period. Although the underlying collateral for
repurchase agreements may have maturities exceeding one year, a Portfolio
will not enter into a repurchase agreement if as a result of such
transaction more than 10% of a Portfolio's total assets would be invested
in illiquid securities, including repurchase agreements expiring in more
than seven days. A Portfolio may, however, enter into a "continuing
contract" or "open" repurchase agreement under which the seller is under a
continuing obligation to repurchase the underlying obligation from the
Portfolio on demand and the effective interest rate is negotiated on a
daily basis. In general, the Portfolios will enter into repurchase
agreements only with domestic banks with total assets of at least $1.5
billion or with primary dealers in U.S. Government securities, but total
assets will not be the sole determinative factor, and the Portfolios may
enter into repurchase agreements with other institutions which the Board of
Directors believes present minimal credit risks. Nevertheless, if the
seller of a repurchase agreement fails to repurchase the debt instrument in
accordance with the terms of the agreement, the Portfolio which entered
into the repurchase agreement may incur a loss to the extent that the
proceeds it realizes on the sale of the underlying obligation are less than
the repurchase price. Repurchase agreements are considered to be loans by
the Company under the 1940 Act.
2) Reverse Repurchase Agreements involving the sale of money market
instruments held by a Portfolio, with an agreement that the Portfolio will
repurchase the instruments at an agreed upon price and date. A Portfolio
will employ reverse repurchase agreements when necessary to meet
unanticipated net redemptions so as to avoid liquidating other money market
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
4
<PAGE>
the Portfolio. To assure that a Portfolio will be as fully invested as
possible in instruments meeting that Portfolio's investment objective, a
Portfolio may enter into delayed delivery agreements, but only to the
extent of anticipated funds available for investment during a period of not
more than five business days. Until the settlement date, that Portfolio
will set aside in a segregated account high-quality debt securities of a
dollar value sufficient at all times to make payment for the delayed
delivery securities. Not more than 25% of a Portfolio's total assets will
be committed to delayed delivery agreements and when-issued securities, as
described below. The delayed delivery securities, which will not begin to
accrue interest until the settlement date, will be recorded as an asset of
the Portfolio and will be subject to the risks of market fluctuation. The
purchase price of the delayed delivery securities is a liability of the
Portfolio until settlement. Absent extraordinary circumstances, the
Portfolio will not sell or otherwise transfer the delayed delivery
securities prior to settlement. If cash is not available to the Portfolio
at the time of settlement, the Portfolio may be required to dispose of
portfolio securities that it would otherwise hold to maturity in order to
meet its obligation to accept delivery under a delayed delivery agreement.
The Board of Directors has determined that entering into delayed delivery
agreements does not present a materially increased risk of loss to
shareholders, but the Board of Directors may restrict the use of delayed
delivery agreements if the risk of loss is determined to be material or if
it affects the constant net asset value of any of the Portfolios.
WHEN-ISSUED SECURITIES
Many new issues of Money Market Obligations and Municipal Securities are offered
on a "when-issued" basis, that is, the date for delivery of and payment for the
securities is not fixed at the date of purchase, but is set after the securities
are issued (normally within forty-five days after the date of the transaction).
The payment obligation and the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A
Portfolio will only make commitments to purchase such Money Market Obligations
and Municipal Securities with the intention of actually acquiring such
securities, but such Portfolio may sell these securities before the settlement
date if it is deemed advisable. No additional when-issued commitments will be
made if as a result more than 25% of such Portfolio's net assets would become
committed to purchases of when-issued securities and delayed delivery
agreements.
If one of the Portfolios purchases a when-issued security, it will direct its
custodian bank to collateralize the when-issued commitment by establishing a
segregated account in the same fashion as required for a Delayed Delivery
Agreement. The special custody account will likewise be marked-to-market, and
the amount in the special custody account will be increased if necessary to
maintain adequate coverage of the when-issued commitments.
Securities purchased on a when-issued basis and the securities held in a
Portfolio's portfolio are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and changes in the
level of interest rates (which will generally result in all of those securities
changing in value in the same way, i.e., all those securities experiencing
appreciation when interest rates rise). Therefore, if, in order to achieve
higher interest income, a Portfolio is to remain substantially fully invested at
the same time that it has purchased securities on a when-issued basis, there
will be a possibility that the market value of such Portfolio's assets will
fluctuate to a greater degree. Furthermore, when the time comes for such
Portfolio to meet its obligations under when-issued commitments, the Portfolio
will do so by using then-available cash flow, by sale of the securities held in
the separate account, by sale of other securities or, although it would not
normally expect to do so, by directing the sale of the when-issued securities
themselves (which may have a market value greater or less than the Portfolio's
payment obligation).
A sale of securities to meet such obligations carries with it a greater
potential for the realization of net short-term capital gains, which are not
exempt from federal income taxes. The value of when-issued securities on the
settlement date may be more or less than the purchase price.
STAND-BY COMMITMENTS
The Municipal Money Market Fund may attempt to improve its portfolio liquidity
by assuring same-day settlements on portfolio sales (and thus facilitate the
same-day payment of redemption proceeds) through the acquisition of "Stand-by
Commitments." A Stand-by Commitment is a right of the Municipal Money Market
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.
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The Stand-by Commitments acquired by the Municipal Money Market Fund will
generally have the following features: (1) they will be in writing and will be
physically held by the Municipal Money Market Fund's custodian; (2) they may be
exercised by the Municipal Money Market Fund at any time prior to the underlying
security's maturity; (3) they will be entered into only with dealers, banks and
broker-dealers who in the Manager's opinion present a minimal risk of default;
(4) the Municipal Money Market Fund's right to exercise them will be
unconditional and unqualified; (5) although the Stand-by Commitments will not be
transferable, Municipal Securities purchased subject to such commitments could
be sold to a third party at any time, even though the commitment was
outstanding; and (6) their exercise price will be (i) the Municipal Money Market
Fund's acquisition cost of the Municipal Securities which are subject to the
commitment (excluding any accrued interest which the Municipal Money Market Fund
paid on their acquisition), less any amortized market premium or plus amortized
market or original issue discount during the period the securities were owned by
the Municipal Money Market Fund, plus (ii) all interest accrued on the
securities since the last interest payment date. Since the Municipal Money
Market Fund values its portfolio securities on the amortized cost basis, the
amount payable under a Stand-by Commitment will be substantially the same as the
value of the underlying security.
The Company expects that Stand-by Commitments generally will be available
without the payment of any direct or indirect compensation. However, if
necessary and advisable, the Municipal Money Market Fund will pay for Stand-by
Commitments, either separately in cash or by paying higher prices for portfolio
securities which are acquired subject to the commitments. As a matter of policy,
the total amount "paid" in either manner for outstanding Stand-by Commitments
held by the Municipal Money Market Fund will not exceed 1/2 of 1% of the value
of its total assets calculated immediately after any Stand-by Commitment is
acquired. The Municipal Money Market Fund expects to refrain from exercising
Stand-by Commitments to avoid imposing a loss on a dealer and jeopardizing the
Company's business relationship with that dealer, except when necessary to
provide liquidity. The Municipal Money Market Fund will not acquire a Stand-by
Commitment unless immediately after the acquisition, with respect to 75% of the
total amortized cost value of its assets, not more than 5% of such Portfolio's
total amortized cost value of its assets will be invested in Stand-by
Commitments with the same institution.
The acquisition of a Stand-by Commitment would not affect the valuation or
assumed maturity of the underlying Municipal Securities which, as noted, would
continue to be valued in accordance with the amortized cost method. Stand-by
Commitments acquired by the Municipal Money Market Fund would be valued at zero
in determining net asset value. Where the Municipal Money Market Fund paid any
consideration directly or indirectly for a Stand-by Commitment, its cost would
be reflected as unrealized depreciation for the period during which the Stand-by
Commitment was held by such Fund.
MUNICIPAL PARTICIPATIONS
The Municipal Money Market Fund may invest in participation agreements with
respect to Municipal Securities under which the Municipal Money Market Fund
acquires an undivided interest in the Municipal Security and pays a bank which
sells the participation a servicing fee. The participation agreement will have a
variable rate of interest and may be terminated by the Municipal Money Market
Fund on seven days' notice, in which event such Fund receives from the issuer of
the participation the par value of the participation plus accrued interest as of
the date of termination. Before entering into purchases of participation the
Company will obtain an opinion of counsel (generally, counsel to the issuer of
the participation) or a letter ruling from the Internal Revenue Service to the
effect that interest earned with respect to municipal participation qualifies as
exempt-interest income under the Code. The Company has been advised that it is
the present policy of the Internal Revenue Service not to issue private letter
rulings relating to municipal participation. In the absence of an opinion of
counsel or a letter ruling from the Internal Revenue Service, the Municipal
Money Market Fund will refrain from investing in participation agreements.
INVESTMENT RESTRICTIONS
In addition to the Portfolios' investment objectives, the following investment
restrictions have been adopted by the Portfolios as fundamental policies, which
means they can be changed only by a majority shareholder vote. A "majority vote
of shareholders" means the affirmative vote of the holders of the lesser of (1)
more then 50% of the outstanding shares of the Portfolio or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares of
the Portfolio are represented at the meeting in person or by proxy. Therefore,
none of the Portfolios will:
1) purchase any Money Market Obligation or Municipal Security, if, as a result
of such purchase, more than 5% of a Portfolio's total assets would be
invested in securities of issuers, which, with their predecessors, have
been in business for less than three years;
2) invest in shares of any other investment company, other than in connection
with a merger, consolidation, reorganization or acquisition of assets;
except that the Municipal Money Market Fund may invest up to 10% of its
assets in securities of other investment companies (which also charge
investment advisory fees) and then only for temporary purposes in
6
<PAGE>
investment companies whose dividends are tax-exempt, provided that the
Municipal Money Market Fund will not invest more than 5% of its assets in
securities of any one investment company nor purchase more than 3% of the
outstanding voting stock of any investment company;
3) invest more than 10% of the value of a Portfolio's total assets in illiquid
securities, including variable amount master demand notes (if such notes
provide for prepayment penalties) and repurchase agreements with remaining
maturities in excess of seven days;
4) invest in companies for the purpose of exercising control;
5) underwrite any issue of securities, except to the extent that the purchase
of securities, either directly from the issuer or from an underwriter for
an issuer, and the later disposition of such securities in accordance with
the Portfolios' investment programs, may be deemed an underwriting;
6) purchase or sell real estate, but this shall not prevent investments in
securities secured by real estate or interests therein;
7) sell securities short or purchase any securities on margin, except for such
short-term credits as are necessary for the clearance of transactions;
8) purchase or retain securities of an issuer if, to the knowledge of the
Company, the directors and officers of the Company and the Manager, each of
whom owns more than 1/2 of 1% of such securities, together own more than 5%
of the securities of such issuer;
9) mortgage, pledge or hypothecate any assets except to secure permitted
borrowings and reverse repurchase agreements and then only in an amount up
to 15% of the value of any Portfolio's total assets at the time of
borrowing or entering into a reverse repurchase agreement; or
10) purchase or sell commodities or commodity futures contracts or interests in
oil, gas or other mineral exploration or development program (a Portfolio
may, however, purchase and sell securities of companies engaged in the
exploration, development, production, refining, transporting and marketing
of oil, gas or minerals).
In order to permit the sale of the Portfolios' shares in certain states, the
Company may make commitments more restrictive than the restrictions described
above. Should the Company determine that any such commitment is no longer in the
best interest of the Portfolios and their shareholders it will revoke the
commitment by terminating sales of its shares in the state(s) involved. Pursuant
to one such commitment, the Company has agreed that the Cortland General Money
Market Fund will not invest in: (i) warrants; (ii) real estate limited
partnerships; or (iii) oil, gas or mineral leases.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values or assets
will not constitute a violation of such restriction.
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, 45 - President and Director of the Company, has been President
of the Mutual Funds Division of the Manager since September 1994. Mr. Duff was
formerly Director of Mutual Fund Administration at NationsBank with which he was
associated from June 1981 to August 1994. Mr. Duff is President and a
Director/Trustee of 13 other funds in the Reich & Tang Fund Complex, President
of Back Bay Funds, Inc., Director of Pax World Money Market Fund, Inc.,
Executive Vice President of Delafield Fund, Inc. and Reich & Tang Equity Fund,
Inc., and President and Chief Executive Officer of Tax Exempt Proceeds Fund,
Inc.
OWEN DALY II, 74 - 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, 57 - Director of the Company, Volvo North America Corporation,
535 Madison Avenue, New York, NY 10022. President of Volvo North America
Corporation.
CARL FRISCHLING, 62 - Director of the Company, 919 Third Avenue, New York, NY
10022. Partner, Kramer Levin Naftalis & Frankel LLP (law firm). Director, ERD
Waste, Inc. (waste management company), Aegis Consumer Finance
(auto leasing company) and Lazard Funds, Inc. (investment companies). Formerly,
Partner, Reid & Priest (law firm); and, prior thereto, Partner, Spengler Carlson
Gubar Brodsky & Frischling (law firm).
7
<PAGE>
JAMES L. SCHULTZ, 62 - 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 DESANCTIS, 42 - Vice President and Treasurer of the Company, has been
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. Mr. De Sanctis is Treasurer of 18 funds in the Reich & Tang Fund Complex.
MOLLY FLEWHARTY, 48 - Vice President of the Company, has been Vice President of
the Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. with which she was associated from
December 1977 to September 1993. Ms. Flewharty is also Vice President of 18
other funds in the Reich & Tang Fund Complex.
DANA E. MESSINA, 42 - Vice President of the Company, has been 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. with which she was associated from December
1980 to September 1993. Ms. Messina is also Vice President of 15 other funds in
the Reich & Tang Fund Complex.
RUBEN TORRES, 50 - Vice President of the Company, has been Vice President of
Operations of Reich & Tang Services, Inc. since January 1991. Mr. Torres was
formerly Vice President and Assistant Treasurer of Cortland Financial Group,
Inc.
BERNADETTE N. FINN, 51 - Vice President and Secretary of the Company, has been
Vice President of the Mutual Funds Division of the Manager since September 1993.
Ms. Finn was formerly Vice President and Assistant Secretary of Reich & Tang,
Inc. with which she was associated from September 1970 to September 1993. Ms.
Finn is also Secretary of 13 other funds in the Reich & Tang Fund Complex, and a
Vice President and Secretary of 5 funds in the Reich & Tang Fund Complex.
ROSANNE HOLTZER, 34 - Assistant Treasurer of the Company, has been Vice
President of the Mutual Funds division of the Manager since December 1997. Ms.
Holtzer was formerly Manager of Fund Accounting for the Manager with which she
was associated from June 1986. Ms. Holtzer is also Assistant Treasurer of 18
other funds in the Reich & Tang Fund Complex.
Each director who is not an "interested person" receives an annual fee from the
Company of $10,000 for his services as a director and a fee of $1,250 for each
Board meeting attended, and all directors are reimbursed by the Company for
expenses incurred in connection with attendance at meetings of the Board of
Directors.
<TABLE>
<CAPTION>
Compensation Table
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Name of Person, Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation from
Position from Registrant for Fiscal Benefits Accrued as Part Benefits upon Retirement Fund and Fund Complex
Year of Fund Expenses 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, $11,250 0 0 $11,250 (1 Fund)
Director
James L. Schultz $15,000 0 0 $15,000 (1 Fund)
Director
</TABLE>
* The total compensation paid to such persons by the Fund and Fund Complex for
the fiscal year ended March 31, 1999 and, with respect to certain of the funds
in the Fund Complex, estimated to be paid during the fiscal year ended March 31,
1999. The parenthetical number represents the number of investment companies
(including the Fund) from which such person receives compensation that are
considered part of the same Fund complex as the Fund, because, among other
things, they have a common investment advisor.
MANAGER AND INVESTMENT ADVISOR
Reich & Tang Asset Management L.P., a Delaware limited partnership, with its
principal offices at 600 Fifth Avenue, New York, New York 10020, serves as the
manager and investment advisor of the Company and its three Funds pursuant to
agreements with the Funds dated August 30, 1996 (the "Management/Investment
Advisory Agreements"). Under the Management/Investment Advisory Agreements,
Reich & Tang Asset Management L.P. (the "Manager") provides, either
8
<PAGE>
directly or indirectly through contracts with others, all services required for
the management of the Company. The Manager bears all ordinary operating expenses
associated with the Company's operation except: (a) the fees of the Directors
who are not "interested persons" of the Company, as defined by the 1940 Act, and
the travel and related expenses of the Directors incident to their attending
shareholders', directors' and committee meetings, (b) interest, taxes and
brokerage commissions (which are expected to be insignificant), (c)
extraordinary expenses, if any, including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto, (d)
shareholder service or distribution fees payable by the Company under the plans
of distribution described under the heading "Distributor" below, and (e)
membership dues of any industry association. Additionally, the Manager has
assumed all expenses associated with organizing the Company and all expenses of
registering or qualifying the Company's shares under federal and state
securities laws.
The Manager was, at June 30, 1999, investment manager, advisor or supervisor
with respect to assets aggregating in excess of $13.6 billion. The Manager
currently acts as investment manager or administrator of eighteen other
investment companies and also advises pension trusts, profit sharing trusts and
endowments.
Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") was the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager, due to a restructuring by New England
Investment Companies, Inc. ("NEIC"). Subsequently, effective March 31, 1998,
Nvest Companies, L.P. ("Nvest Companies") due to a change in name of NEICOP,
replaced NEICOP as the limited partner and owner of a 99.5% interest in the
Manager.
Reich & Tang Asset Management, Inc. (an indirect wholly-owned subsidiary of
Nvest Companies) is the sole general partner and owner of the remaining 0.5%
interest of the Manager. Nvest Corporation, a Massachusetts Corporation
(formerly known as New England Investment Companies, Inc.), serves as the
managing general partner of Nvest Companies.
Reich & Tang Asset Management, Inc. is an indirect subsidiary of Metropolitan
Life Insurance Company ("MetLife"). Also, MetLife directly and indirectly owns
approximately 47% of the outstanding partnership interests of Nvest Companies
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc.
owns, directly and indirectly, approximately 13% of the outstanding partnership
interests of Nvest Companies.
Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through seventeen subsidiaries,
divisions and affiliates offering a wide array of investment styles and products
to institutional clients. Its business units, in addition to the Manager,
include AEW Capital Management, L.P., Back Bay Advisors, L.P., Capital Growth
Management, L.P., Greystone Partners, L.P., Harris Associates, L.P., Jurika &
Voyles, L.P., Kobrick Funds, LLC, Loomis, Sayles & Company, L.P., New England
Funds, L.P., Nvest Advisor Services, L.P., Nvest Associates, Inc., Nvest
Retirement Services, Nvest Services Company, Snyder Capital Management, L.P.,
Vaughan, Nelson, Scarborough & McCullough, L.P., and Westpeak Investment
Advisors, L.P. These affiliates in the aggregate are investment advisors or
managers of more than 80 other registered investment companies.
The name change did not result in a change in control of the Manager and has no
impact upon the Manager's performance of its responsibilities and obligations.
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 for an
initial period extending to June 30, 1998. By their terms, the
Management/Investment Advisory Agreements may be continued from year to year
thereafter. The Management/Investment Advisory Agreements were most recently
approved for continuance by the Board of Directors of the Fund on June 10, 1999,
and will remain in effect from year to year as long as their continuation is
approved at least annually by (i) the Board of Directors or the vote of a
majority of the outstanding voting securities of the Fund, and (ii) a majority
of the Directors of the Fund who are not interested persons of any party to the
Management/Investment Advisory Agreements, cast in person at a meeting called
for the purpose of voting on such approval.
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
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<PAGE>
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, 1999, March 31, 1998 and March 31, 1997 the Company paid to the
Manager the management fees set forth in the table below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Year Management Fees
1999 Payable Waived Paid
---- ------- ------ ----
Cortland General $9,651,092 $0 $9,651,092
U.S. Government 1,371,830 0 1,371,830
Municipal 2,252,782 0 2,252,782
1998
Cortland General $10,788,822 $428,000 $10,360,822
U.S. Government 1,493,237 361,000 1,132,237
Municipal 1,853,830 0 1,853,830
1997
Cortland General $10,885,158 $0 $10,885,158
U.S. Government 1,851,957 50,000 1,801,957
Municipal 1,698,486 0 1,698,486
</TABLE>
The Management/Investment Advisory Agreements were approved by the Board of
Directors, including a majority of directors who are not interested persons (as
defined in the 1940 Act), of the Portfolios or the Manager, effective August 30,
1996 for a two-year period. The Management/Investment Advisory Agreements will
continue from year-to-year thereafter if they are specifically approved at least
annually by the Board of Directors and by the affirmative vote of a majority of
the directors who are not parties to such Management/Investment Advisory
Agreements or "interested persons" of any such party by votes cast in person at
a meeting called for such purpose. The Portfolios or the Manager may terminate
the Management/Investment Advisory Agreements on 60 days' written notice without
penalty. Each Management/Investment Advisory Agreement terminates automatically
in the event of its "assignment," as defined in the 1940 Act. The Manager shall
not be liable to the Portfolios or to their shareholders for any act or omission
by the Manager or for any loss sustained by a Fund or its shareholders except in
the case of the Manager's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty. The Company's (Portfolios') right to use the name
"Cortland" in its name in any form or combination may terminate upon termination
of the Manager as the Company's (Portfolios') investment manager.
Pursuant to the terms of the Management/Investment Advisory Agreements, the
Manager: (a) provides the Company with certain executive, administrative and
clerical services as are deemed advisable by the Board of Directors; (b)
arranges, but does not pay for, the periodic updating of prospectuses and
statements of additional information and supplements thereto,
10
<PAGE>
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, Inc. (the "Distributor"), pays out of the management fees
from each of the Funds and payments under a Plan of Distribution (see
"Distributor and Plans of Distribution") the expenses of printing and
distributing prospectuses and statements of additional information and any other
promotional or sales literature used by the Distributor or furnished by the
Distributor to purchasers or dealers in connection with the public offering of
the Portfolios' shares, the expenses of advertising in connection with such
public offering and all legal expenses in connection with the foregoing.
Except as set forth below, the Manager pays all expenses of the Portfolios,
including, without limitation: the charges and expenses of any registrar, any
custodian or depository appointed by the Company for the safekeeping of its
cash, portfolio securities and other property, and any stock transfer, dividend
or accounting agent or agents appointed by the Company; all fees payable by the
Company to federal, state or other governmental agencies; the costs and expenses
of engraving or printing certificates representing shares of the Company (the
Company does not issue share certificates at the present time); all costs and
expenses in connection with the registration and maintenance of registration of
the Portfolios and their shares with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting, and distributing
prospectuses and statements of additional information of the Company and
supplements thereto to the Company's shareholders and to potential shareholders
of the Portfolios; all expenses of shareholders' meetings and of preparing,
printing and mailing of proxy statements and reports to shareholders; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Portfolios' shares; routine fees and expenses of
legal counsel and of independent accountants, in connection with any matter
relating to the Company; postage; insurance premiums on property or personnel
(including officers and directors) of the Company which inure to its benefit;
and all other charges and costs of the Portfolios' operations unless otherwise
explicitly assumed by the Company. The Company is responsible for payment of the
following expenses not borne by the Manager: (a) the fees of the directors who
are not "interested persons" of the Company, as defined by the 1940 Act, and
travel and related expenses of the directors for attendance at meetings, (b)
interest, taxes and brokerage commissions (which can be expected to be
insignificant), (c) extraordinary expenses, if any, including, but not limited
to, legal claims and liabilities and litigation costs and any indemnification
related thereto, (d) any shareholder service or distribution fee payable by the
Company under the plan of distribution described below, and (e) membership dues
of any industry association.
Expenses which are attributable to any of the Company's Portfolios are charged
against the income of such Portfolio in determining net income for dividend
purposes. Expenses of the Company which are not directly attributable to the
operations of any single Portfolio are allocated among the Portfolios based upon
the relative net assets of each Portfolio.
The Manager has agreed to reduce its aggregate fees for any fiscal year, or to
reimburse each Portfolio, to the extent required so that the amount of the
ordinary expenses of each Portfolio (excluding brokerage commissions, interest,
taxes
11
<PAGE>
and extraordinary expenses such as litigation costs) paid or incurred by any of
the Portfolios do not exceed the expense limitations applicable to the
Portfolios imposed by the securities laws or regulations of those states or
jurisdictions in which such Portfolio's shares are registered or qualified for
sale.
DISTRIBUTOR AND PLANS OF DISTRIBUTION
The Distributor serves as the principal underwriter of the Company's shares
pursuant to Distribution Agreements dated September 15, 1993. The Distributor
has an office located at 600 Fifth Avenue, New York, New York 10020.
Pursuant to the Distribution Agreements, the Distributor: (a) solicits and
receives orders for the purchase of shares of the Portfolios, accepts or rejects
such orders on behalf of the Company in accordance with the Company's currently
effective Prospectuses and transmits such orders as are accepted to the Company
as promptly as possible; (b) receives requests for redemptions and transmits
such redemption requests to the Company as promptly as possible; (c) responds to
inquiries from shareholders concerning the status of their accounts and the
operation of the Company; and (d) provides daily information concerning yields
and dividend rates to shareholders. The Distributor shall not be liable to the
Company or to its shareholders for any act or omission or any loss sustained by
the Company or its shareholders except in the case of the Distributor's willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Distributor receives no compensation from the Company for its services.
On November 9, 1995, the Distributor entered into a Primary Dealer Agreement
with Interstate Johnson/ Lane in order to provide for the offer and sale of the
Funds.
Each Portfolio has adopted a plan of distribution under Rule 12b-1 of the 1940
Act (the "Plans") with respect to the Funds. Pursuant to the Funds' Plans, the
Distributor may pay certain promotional and advertising expenses and may
compensate certain registered securities dealers (including Interstate
Johnson/Lane) and financial institutions for services provided in connection
with the processing of orders for purchase or redemption of the shares of the
Company and furnishing other shareholder services. Payments by the Distributor
are paid out of the management fees and distribution plan payments received by
the Manager and/or its affiliates from each of the Funds, out of past profits or
from any other source available to the Distributor. Interstate Johnson/Lane may
enter into shareholder processing and service agreements (the "Shareholder
Service Agreements") with any securities dealer who is registered under the
Securities Exchange Act of 1934 and a member in good standing of the National
Association of Securities Dealers, Inc., and with banks and other financial
institutions which may wish to establish accounts or sub-accounts on behalf of
their customers ("Shareholder Service Agents"). For processing investor purchase
and redemption orders, responding to inquiries from Fund shareholders concerning
the status of their accounts and operations of the Funds and communicating with
Interstate Johnson/Lane and the Distributor, the Company may pay each such
Shareholder Service Agent (or if no Shareholder Service Agent provides services,
the Distributor, to cover expenditures for advertising, sales literature and
other promotional materials on behalf of the Company) an amount not to exceed on
an annual basis 0.20% of the aggregate average daily net assets that such
Shareholder Service Agent's customers maintain with the Funds during the term of
any Shareholder Service Agreement. During the fiscal year ended March 31, 1999,
the Company paid $1,378,999, $143,685 and $129,679 for expenses incurred
pursuant to the Live Oak distribution plans for the Cortland General Money
Market Fund Class, the U.S. Government Fund Class and the Municipal Money Market
Fund Class, respectively, of this amount $3,853, $54,177 and $19,860 was
voluntarily waived for the Cortland General Money Market Fund Class, the U.S.
Government Fund Class, and the Municipal Money Market Fund Class, respectively,
all of which amounts were spent in payment to financial intermediaries in
connection with the distribution of such portfolios' shares. During the fiscal
year ended March 31, 1998, the Company paid $997,083, $118,605 and $114,160 for
expenses incurred pursuant to the Live Oak distribution plans for the Cortland
General Money Market Fund Class, the U.S. Government Fund Class and the
Municipal Money Market Fund Class, respectively, of this amount $108,646,
$54,822 and $40,155 was voluntarily waived for the Cortland General Money Market
Fund Class, the U.S. Government Fund Class, and the Municipal Money Market Fund
Class, respectively, all of which amounts were spent in payment to financial
intermediaries in connection with the distribution of such portfolios'
shares. During the fiscal year ended March 31, 1997, the amount payable to the
Company was $751,269, $100,680 and $108,270 for expenses incurred pursuant to
the Live Oak distribution plans for the Cortland General Money Market Fund
Class, the U.S. Government Fund Class and the Municipal Money Market Fund Class,
respectively, of this amount $57,065, $52,784 and $19,127 was voluntarily waived
for the Cortland General Money Market Fund Class, the U.S. Government Fund
Class, and the Municipal Money Market Fund Class, respectively, all of which
amounts were spent in payment to financial intermediaries in connection with the
distribution of such portfolios' shares. The Company also offers other classes
of shares of the Portfolios with different distribution arrangements designed
for institutional and other categories of investors.
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The Distributor, under the Plans, may also make payments to Interstate
Johnson/Lane and/or Shareholder Service Agents out of the investment management
fees received by the Manager from each of the Funds, out of its past profits or
from any other source available to the Distributor. During the fiscal year ended
March 31, 1999, the Distributor paid Shareholder Service Agents $3,591,327,
$767,722 and $796,365, on behalf of the Cortland General Money Market Fund, the
U.S. Government Fund and the Municipal Money Market Fund, respectively, under
the Plans. During the fiscal year ended March 31, 1998, the Distributor paid
Shareholder Service Agents $2,939,468, $352,631 and $338,823, on behalf of the
Cortland General Money Market Fund, the U.S. Government Fund and the Municipal
Money Market Fund, respectively, under the Plans. During the fiscal year ended
March 31, 1997, the Distributor paid Shareholder Service Agents $3,677,791,
$500,420 and $541,388, on behalf of the Cortland General Money Market Fund, the
U.S. Government Fund and the Municipal Money Market Fund, respectively, under
the Plans. The fees payable to Shareholder Service Agents under Shareholder
Service Agreements are negotiated by the Distributor. The Distributor will
report quarterly to the Board of Directors on the rate to be paid under each
such agreement and the amounts paid or payable under such agreements. The rate
of payment will be based upon the Distributor's analysis of: (1) the
contribution that the Shareholder Service Agent makes to each of the 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 10, 1999, to provide for the distribution of the
shares of each of the Funds. The Distribution Agreements will continue in effect
from year to year if specifically approved at least annually by the Board of
Directors and the affirmative vote of a majority of the directors who are not
parties to the Distribution Agreements or any Shareholder Service Agreement or
"interested persons" of any such party by votes cast in person at a meeting
called for such purpose. In approving the Plans, the directors determined, in
the exercise of their business judgment and in light of their fiduciary duties
as directors of the Company, that there was a reasonable likelihood that the
Plans would benefit the Funds and their shareholders. The Plans may only be
renewed if the directors make a similar determination for each subsequent year.
The Plans may not be amended to increase the maximum amount of payments by the
Company or the Manager to its Shareholder Service Agents without shareholder
approval, and all material amendments to the provisions of the Plans must be
approved by the Board of Directors and by the directors who have no direct or
indirect financial interest in the Plans, by votes cast in person at a meeting
called for the purpose of such vote. Each Fund or the Distributor may terminate
the Distribution Agreements on 60 days' written notice without penalty. The
Distribution Agreements terminate automatically in the event of their
"assignment," as defined in the 1940 Act. The services of the Distributor to the
Funds are not exclusive, and it is free to render similar services to others.
The Plans may also be terminated by each of the Funds or by the Manager or in
the event of their "assignment," as defined in the 1940 Act, on the same basis
as the Distribution Agreements.
Although it is a primary objective of the Plans to reduce expenses of the
Portfolios by fostering growth in the Portfolios' net assets, there can be no
assurance that this objective of the Plans will be achieved; however, based on
the data and information presented to the Board of Directors by the Manager and
the Distributor, the Board of Directors determined that there is a reasonable
likelihood that the benefits of growth in the size of the Portfolios can be
accomplished under the Plans.
When the Board of Directors approved the Distribution Agreements, the Primary
Dealer Agreement, the forms of Shareholder Service Agreement and the Plans, the
Board of Directors requested and evaluated such information as they deemed
reasonably necessary to make an informed determination that the Distribution
Agreements, Plans and related agreements should be approved. They considered and
gave appropriate weight to all pertinent factors necessary to reach the good
faith judgment that the Distribution Agreements, Plans and related agreements
would benefit the Portfolios and their respective shareholders.
The Board of Directors reviewed, among other things, (1) the nature and extent
of the services to be provided by the Manager, the Distributor, Interstate
Johnson/Lane and the Shareholder Service Agents, (2) the value of all benefits
received by the Manager, (3) the overhead expenses incurred by the Manager
attributable to services provided to the Company's shareholders, and (4)
expenses of the Company being assumed by the Manager.
In connection with the approval of the Plans, the Board of Directors also
determined that the Portfolios would be expected to receive at least the
following benefits:
1) The Distributor and Shareholder Service Agents will furnish rapid access by
a shareholder to his Portfolio account for the purpose of effecting
executions of purchase and redemption orders.
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2) The Distributor and Shareholder Service Agents will provide prompt,
efficient and reliable responses to inquiries of a shareholder concerning
his account status.
3) The Company's ability to sustain a relatively predictable flow of cash for
investment purposes and to meet redemptions facilitates more successful,
efficient portfolio management and the achievement of each of the
Portfolios' fundamental policies and objectives of providing stability of
principal, liquidity, and, consistent with the foregoing, the highest
possible current income, is enhanced by a stable network of distribution.
4) A successful distribution effort will assist the Manager in maintaining and
increasing the organizational strength needed to serve the Company.
5) The establishment of an orderly system for processing sales and redemptions
is also important to the Company's goal of maintaining the constant net
asset value of each Portfolio's shares, which most shareholders depend
upon. By identifying potential investors whose needs are served by the
objectives of the Portfolio, a well-developed, dependable network of
Shareholder Service Agents may help to curb sharp fluctuations in rates of
redemptions and sales, thereby reducing the chance that an unanticipated
increase in net redemptions could adversely affect the ability of the
Portfolios to stabilize their net asset values per share.
6) The Company expects to share in the benefits of growth in the Portfolios'
net assets by achieving certain economies of scale based on a reduction in
the management fees, although the Manager will receive a larger fee if net
assets grow.
The Plans will only make payments for expenses actually incurred by the
Distributor. The Plans will not carry over expenses from year to year and if a
Plan is terminated in accordance with its terms, the obligations of a Portfolio
to make payments to the Distributor pursuant to the Plan will cease and the
Portfolio will not be required to make any payments past the date the Plan
terminates.
The Glass-Steagall Act and other applicable laws, among other things, generally
prohibit federally chartered or supervised banks from engaging in the business
of underwriting, selling or distributing securities. Accordingly, the
Distributor will engage banks as shareholder service agents only to perform
administrative and shareholder servicing functions. While the matter is not free
from doubt, the management of the Company believes that such laws should not
preclude a bank from acting as a shareholder service agent. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the 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 801 Pennsylvania Avenue, Kansas
City, Missouri 64105.
TRANSFER AGENT
Reich & Tang Services, Inc., 600 Fifth Avenue, New York, New York 10020, 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.
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PRINCIPAL HOLDERS OF SECURITIES
On June 30, 1999 there were 953,460,417 total shares of the Company outstanding.
On June 30, 1999 there were 827,575,728 outstanding shares of the Cortland
General Money Market Fund, 68,538,208 outstanding shares of the U.S. Government
Fund and 57,346,481 outstanding shares of the Municipal Money Market Fund. As of
June 30, 1999 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.
FINANCIAL STATEMENTS
The audited financial statements for the Fund and the report of Ernst & Young
LLP thereon for the fiscal year ended March 31, 1999 are herein incorporated by
reference to the Fund's Annual Report. The Annual Report is available upon
request and without charge.
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 Shareholder Information section
of the Prospectus under the captions "How to Purchase Shares," "How to Redeem
Shares," and "Exchange Privilege."
The possibility that shareholders who maintain accounts of less than $500 in
value will be subject to mandatory redemption is also described under the
caption "How to Redeem Shares." If the Board of Directors authorizes mandatory
redemption of such small accounts, the holders of shares with a value of less
than $500 will be notified that they must increase their investment to $500 or
their shares will be redeemed on or after the 60th day following such notice or
pay a fee. Involuntary redemptions will not be made if the decline in value of
the account results from a decline in the net asset value of a share of any of
the Portfolios. The Company does not presently redeem such small accounts and
does not currently intend to do so.
The right of redemption may be suspended or the date of payment postponed when
(a) trading on the New York Stock Exchange is restricted, as determined by
applicable rules and regulations of the SEC, (b) the New York Stock Exchange is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposal of portfolio securities or the valuation of the net
assets of a Portfolio not reasonably practicable.
NET ASSET VALUE DETERMINATION
The net asset values of the Portfolios are determined daily as of 12 noon
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
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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 Programs and
Restrictions - Stand-by Commitments," such commitments will be considered to
have no value, regardless of whether any direct or indirect consideration is
paid for such commitments. Where the Municipal Money Market Portfolio has paid
for a Stand-by Commitment, its cost will be reflected as unrealized depreciation
for the period during which the commitment is held.
The valuation of the portfolio instruments based upon their amortized cost, the
calculation of each Portfolio's per share net asset value to the nearest whole
cent and the concomitant maintenance of the net asset value per share of $1.00
for each of the Portfolios is permitted in accordance with applicable rules and
regulations of the SEC, which require the Portfolios to adhere to certain
conditions. Each Portfolio maintains a dollar-weighted average portfolio
maturity of 90 days or less, purchases only instruments having remaining
maturities of thirteen months or less and invests only in securities determined
by the Manager to be of high quality with minimal credit risk. The Board of
Directors is required to establish procedures designed to stabilize, to the
extent reasonably possible, each Portfolio's price per share at $1.00 as
computed for the purpose of sales and redemptions. Such procedures include
review of a Portfolio's portfolio holdings by the Board of Directors, at such
intervals as they may deem appropriate, to determine whether the net asset value
calculated by using available market quotations or other reputable sources for a
Portfolio deviates from $1.00 per share and, if so, whether such deviation may
result in material dilution or is otherwise unfair to existing holders of the
shares of the Portfolio. In the event the Board of Directors determines that
such a deviation exists for a Portfolio, it will take such corrective action as
the Board of Directors deems necessary and appropriate, including the sale of
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten the average portfolio maturity; the withholding of dividends; redemption
of shares in kind; or the establishment of a net asset value per share by using
available market quotations.
DIVIDENDS AND TAX MATTERS
DIVIDENDS
All of the net income earned by each Portfolio is declared daily as dividends to
the respective holders of record of each Portfolio. Net income for each of the
Portfolios for dividend purposes (from the time of the immediately preceding
determination thereof) consists of (a) interest accrued and discount earned, if
any, on the assets of each Portfolio and any general income of the Company
prorated to such Portfolio based on the relative net assets of such Portfolio,
less (b) amortization of premium and accrued expenses for the applicable
dividend period attributable directly to such Portfolio and general expenses of
the Company prorated to such Portfolio based on the relative net assets of such
Portfolio. The amount of discount or premium on instruments in each Portfolio's
portfolio is fixed at the time of purchase of the instruments. See "Net Asset
Value Determination" above. Realized gains and losses on portfolio securities
held by each Portfolio will be reflected in the net asset value of such
Portfolio. Each Portfolio expects to distribute any net realized short-term
gains of such Portfolio at least once each year, although it may distribute them
more frequently if necessary in order to maintain such Portfolio's net asset
value at $1.00 per share. The Portfolios do not expect to realize net long-term
capital gains.
Should any of the Portfolios incur or anticipate any unusual expense, loss or
depreciation which would adversely affect the net asset value per share or net
income per share of a Portfolio for a particular period, the Board of Directors
would at that time consider whether to adhere to the present dividend policy
described above or to revise it in light of then prevailing circumstances. For
example, if the net asset value per share of a Portfolio were reduced, or was
anticipated to be reduced, below $1.00, the Board of Directors may suspend
further dividend payments with respect to that Portfolio until the net asset
value per share returns to $1.00. Thus, such expense or loss or depreciation
might result in a shareholder receiving no dividends for the period during which
he held shares of the Portfolio and/or in his receiving upon redemption a price
per share lower than the price which he paid.
Dividends on a Portfolio's shares are normally payable on the first day
following the date that a share purchase or exchange order is effective and on
the date that a redemption order is effective. The net income of a Portfolio for
dividend purposes is determined as of 12:00 noon Eastern time on each "business
day" of the Company, as defined in the Prospectus and immediately prior to the
determination of each Portfolio's net asset value on that day. Dividends are
declared daily and reinvested in additional full and fractional shares of each
Portfolio at net asset value. A shareholder may elect to have the declared
dividends paid monthly to him by check.
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TAX MATTERS
The following is only a summary of certain additional federal income tax
considerations generally affecting the Funds and their shareholders that are not
described in their Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussions here and in the Prospectuses are not intended as substitutes for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund has elected to be taxed as a regulated investment company for federal
income tax purposes under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, a Fund is not subject
to federal income tax on the portion of its net investment income (i.e., taxable
interest, dividends and other taxable ordinary income, net of expenses) and
capital gain net income (i.e., the excess of capital gains over capital losses)
that it distributes to shareholders, provided that it distributes at least 90%
of its investment company taxable income (i.e., net investment income and the
excess of net short-term capital gain over net long-term capital loss) and, with
respect to the Municipal Money Market Fund (the "Municipal Fund"), at least 90%
of its tax-exempt income (net of expenses allocable thereto) for the taxable
year (the "Distribution Requirement"), and satisfies certain other requirements
of the Code that are described below. Distributions by a Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and will therefore count toward satisfaction of the
Distribution Requirement.
If a Fund has a net capital loss (i.e., the excess of capital losses over
capital gains) for any year, the amount thereof may be carried forward up to
eight years and treated as a short-term capital loss which can be used to offset
capital gains in such years. As of March 31, 1999, the Cortland General Fund,
U.S. Government Fund, and Municipal Fund have capital loss carryforwards of
$1,848,708, $686,669, and $28,940, respectively, expiring, with respect to the
Cortland General Fund, $243,842 in the year 2003 and $1,604,866 in the year
2004; with respect to the U.S. Government Fund, $235,428 in the year 2003 and
$451,241 in the year 2004; and, with respect to the Municipal Fund, $13,541 in
the year 2001, $3,530 in the year 2002, and $11,869 in the year 2003. Under Code
Section 382, if a Fund has an "ownership change," the Fund's use of its capital
loss carryforwards in any year following the ownership change will be limited to
an amount equal to the net asset value of the Fund immediately prior to the
ownership change multiplied by the highest adjusted long-term tax-exempt rate
(which is published monthly by the Internal Revenue Service (the "IRS")) in
effect for any month in the 3-calendar-month period ending with the calendar
month in which the ownership change occurs (the rate for June 1999 is 4.85%).
Each Fund will use its best efforts to avoid having an ownership change.
However, because of circumstances which may be beyond the control of a Fund,
there can be no assurance that the Fund will not have, or has not already had,
an ownership change. If a Fund has or has had an ownership change, any capital
gain net income for any year following the ownership change in excess of the
annual limitation on the capital loss carryforwards will have to be distributed
by the Fund and will be taxable to shareholders as described under "Fund
Distributions" below.
In addition to satisfying the Distribution Requirement, a regulated investment
company must 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").
In general, gain or loss recognized by a Fund on the disposition of an asset
will be a capital gain or loss. In addition, gain will be recognized as a result
of certain constructive sales, including short sales "against the box." However,
gain recognized on the disposition of a debt obligation (including municipal
obligations) purchased by a Fund at a market discount (generally, at a price
less than its principal amount) will be treated as ordinary income to the extent
of the portion of the market discount which accrued during the period of time
the Fund held the debt obligation.
Further, the Code also treats as ordinary income a portion of the capital gain
attributable to a transaction where substantially all of the return realized is
attributable to the time value of a Fund's net investment in the transaction
and: (1) the transaction consists of the acquisition of property by the Fund and
a contemporaneous contract to sell substantially identical property in the
future; (2) the transaction is a straddle within the meaning of section 1092 of
the Code; (3) the transaction is one that was marketed or sold to the Fund on
the basis that it would have the economic characteristics of a loan but the
interest-like return would be taxed as capital gain; or (4) the transaction is
described as a conversion transaction in the Treasury Regulations. The amount of
the gain recharacterized generally will not exceed the amount of the interest
that would have accrued on the net investment for the relevant period at a yield
equal to 120% of the federal long-term, mid-term, or short-term rate,
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depending upon the type of instrument at issue, reduced by an amount equal to:
(1) prior inclusions of ordinary income items from the conversion transaction
and (2) the capital interest on acquisition indebtedness under Code section
263(g). Built-in losses will be preserved where the Fund has a built-in loss
with respect to property that becomes a part of a conversion transaction. No
authority exists that indicates that the converted character of the income will
not be passed through to the Fund's shareholders.
In general, for purposes of determining whether capital gain or loss recognized
by a Fund on the disposition of an asset is long-term or short-term, the holding
period of the asset may be affected if (1) the asset is used to close a "short
sale" (which includes for certain purposes the acquisition of a put option) or
is substantially identical to another asset so used, (2) the asset is otherwise
held by the Fund as part of a "straddle" (which term generally excludes a
situation where the asset is stock and the Fund grants a qualified covered call
option (which, among other things, must not be deep-in-the-money) with respect
thereto) or (3) the asset is stock and the Fund grants an in-the-money qualified
covered call option with respect thereto. In addition, a Fund may be required to
defer the recognition of a loss on the disposition of an asset held as part of a
straddle to the extent of any unrecognized gain on the offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or loss recognized by
a Fund from a closing transaction with respect to, an option written by the Fund
will be treated as a short-term capital gain or loss.
Certain transactions that may be engaged in by a Fund (such as regulated futures
contracts and options on futures contracts) will be subject to special tax
treatment as "Section 1256 contracts." Section 1256 contracts are treated as if
they are sold for their fair market value on the last business day of the
taxable year, even though a taxpayer's obligations (or rights) under such
contracts have not terminated (by delivery, exercise, entering into a closing
transaction or otherwise) as of such date. Any gain or loss recognized as a
consequence of the year-end deemed disposition of Section 1256 contracts is
taken into account for the taxable year together with any other gain or loss
that previously was recognized upon the termination of Section 1256 contracts
during that taxable year. Any capital gain or loss for the taxable year with
respect to Section 1256 contracts (including any capital gain or loss arising as
a consequence of the year-end deemed sale of such contracts) is generally
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. A Fund, however, may elect not to have this special tax treatment apply to
Section 1256 contracts that are part of a "mixed straddle" with other
investments of the Fund that are not Section 1256 contracts.
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 made a taxable year election for excise tax purposes as
discussed below) to treat all or any part of any net capital loss, any net
long-term capital loss or any net foreign currency loss incurred after October
31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, each Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to each of which the
Fund has not invested more than 5% of the value of the Fund's total assets in
securities of such issuer and does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security, not the issuer of the option. For purposes of asset diversification
testing, obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government such as the Federal Agricultural Mortgage Corporation, the
Farm Credit System Financial Assistance Corporation, a Federal Home Loan Bank,
the Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association, the Government National Mortgage Corporation, and the Student Loan
Marketing Association are treated as U.S. Government securities.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
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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 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 Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that a Fund may in certain circumstances be required to liquidate portfolio
investments to make sufficient distributions to avoid excise tax liability.
FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment company
taxable income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes, but they will not qualify for the 70% dividends-received deduction for
corporate shareholders.
Each Fund may either retain or distribute to shareholders its net capital gain
for each taxable year. Each Fund currently intends to distribute any such
amounts. Net capital gain that is distributed and designated as a capital gain
dividend will be taxable to shareholders as long-term capital gain, regardless
of the length of time the shareholder has held his shares or whether such gain
was recognized by the Fund prior to the date on which the shareholder acquired
his shares.
Conversely, if a Fund elects to retain its net capital gain, the Fund will be
taxed thereon (except to the extent of any available capital loss carryovers) at
the 35% corporate tax rate. If a Fund elects to retain its net capital gain, it
is expected that the Fund also will elect to have shareholders of record on the
last day of its taxable year treated as if each received a distribution of his
pro rata share of such gain, with the result that each shareholder will be
required to report his pro rata share of such gain on his tax return as
long-term capital gain, will receive a refundable tax credit for his pro rata
share of tax paid by the Fund on the gain, and will increase the tax basis for
his shares by an amount equal to the deemed distribution less the tax credit.
The Muncipal Fund intends to qualify to pay exempt-interest dividends by
satisfying the requirement that at the close of each quarter of the its taxable
year at least 50% of the Municipal Fund's total assets consists of tax-exempt
municipal obligations. Distributions from the Municipal Fund will constitute
exempt-interest dividends to the extent of such Fund's tax-exempt interest
income (net of expenses and amortized bond premium). Exempt-interest dividends
distributed to shareholders of the Municipal Fund are excluded from gross income
for federal income tax purposes. However, shareholders required to file a
federal income tax return will be required to report the receipt of
exempt-interest dividends on their returns. Moreover, while exempt-interest
dividends are excluded from gross income for federal income tax purposes, they
may be subject to alternative minimum tax ("AMT") in certain circumstances and
may have other collateral tax consequences as discussed below. Distributions by
a Fund of any investment company taxable income or of any net capital gain will
be taxable to shareholders as discussed above.
AMT is imposed in addition to, but only to the extent it exceeds, the regular
tax and is computed at a maximum marginal rate of 28% for non-corporate
taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's
alternative minimum taxable income ("AMTI") over an exemption amount.
Exempt-interest dividends derived from certain "private activity" municipal
obligations issued after August 7, 1986 will generally constitute an item of tax
preference includable in AMTI for both corporate and non-corporate 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.
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Further, a shareholder of the Municipal Fund is denied a deduction for interest
on indebtedness incurred or continued to purchase or carry shares of the Fund.
Moreover, a shareholder who is (or is related to) a "substantial user" of a
facility financed by industrial development bonds held by the Municipal Fund
will likely be subject to tax on dividends paid by the Fund which are derived
from interest on such bonds. Receipt of exempt-interest dividends may result in
other collateral federal income tax consequences to certain taxpayers, including
financial institutions, property and casualty insurance companies, and foreign
corporations engaged in a trade or business in the United States. Prospective
investors should consult their own advisers as to such consequences.
Distributions by a Fund that do not constitute ordinary income dividends,
exempt-interest dividends, or capital gain dividends will be treated as a return
of capital to the extent of (and in reduction of) the shareholder's tax basis in
his shares; any excess will be treated as gain realized from a sale of the
shares, as discussed below.
Distributions by a Fund will be treated in the manner described above regardless
of whether such distributions are paid in cash or reinvested in additional
shares of the Fund (or of another fund). Shareholders receiving a distribution
in the form of additional shares will be treated as receiving a distribution in
an amount equal to the fair market value of the shares received, determined as
of the reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of a Fund reflects realized but undistributed
income or gain, or unrealized appreciation in the value of the assets held by
the Fund, distributions of such amounts will be taxable to the shareholder in
the manner described above, although such distributions economically constitute
a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which they 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 U.S. Government Series) on December 31 of such
calendar year provided 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) to them during
the year.
Each Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has failed to
provide a correct taxpayer identification number, (2) who is subject to backup
withholding for failure properly to report the receipt of interest or dividend
income, or (3) who has failed to certify to the Fund that it is not subject to
backup withholding or that it is an "exempt recipient" (such as a corporation).
SALE OR REDEMPTION OF SHARES
Each Fund seeks to maintain a stable net asset value of $1.00 per share;
however, there can be no assurance that the Funds will be able to maintain such
value. If the net asset value deviates from $1.00 per share, a shareholder will
recognize gain or loss on the sale or redemption of shares of a Fund in an
amount equal to the difference between the proceeds of the sale or redemption
and the shareholder's adjusted tax basis in the shares. All or a portion of any
loss so recognized may be disallowed if the shareholder purchases other shares
of a Fund within 30 days before or after the sale or redemption. In general, any
gain or loss arising from (or treated as arising from) the sale or redemption of
shares of a Fund will be considered capital gain or loss and will be long-term
capital gain or loss if the shares were held for longer than one year. However,
any capital loss arising from the sale or redemption of shares held for six
months or less will be disallowed to the extent of the amount of exempt-interest
dividends received with respect to 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. Capital losses in any year
are deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from a Fund is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends paid to
the shareholder will be subject to U.S. withholding tax at the rate of 30% (or
lower applicable treaty rate) on 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 or redemption of shares of a Fund, capital gain
dividends, exempt-interest dividends, and amounts retained by a Fund that are
designated as undistributed capital gains.
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If the income from a Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then ordinary income and capital gain
dividends received in respect of, and any gains realized upon the sale of,
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S.
taxpayers.
In the case of a noncorporate foreign shareholder, a Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or subject to withholding at a reduced treaty
rate), unless the shareholder furnishes the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund, including the
applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION AND LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and 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.
Rules of state and local taxation of ordinary income dividends, exempt-interest
dividends and capital gain dividends from regulated investment companies may
differ from the rules for U.S. federal income taxation described above.
Shareholders are urged to consult their tax advisers as to the consequences of
these and other state and local tax rules affecting investment in a Fund.
YIELD INFORMATION
The yield for each Portfolio can be obtained by calling your securities dealer
or the Distributor at (212) 830-5280 if calling from New Jersey, Alaska or
Hawaii, or by calling toll free at (800) 433-1918 if calling from elsewhere in
the continental U.S. Quotations of yield on the Portfolios may also appear from
time to time in the financial press and in advertisements.
The current yields quoted will be the net average annualized yield for an
identified period, usually seven consecutive calendar days. Yield for a
Portfolio will be computed by assuming that an account was established with a
single share of such Portfolio (the "Single Share Account") on the first day of
the period. To arrive at the quoted yield, the net change in the value of that
Single Share Account for the period (which would include dividends accrued with
respect to the share, and dividends declared on shares purchased with dividends
accrued and paid, if any, but would not include realized gains and losses or
unrealized appreciation or depreciation) will be multiplied by 365 and then
divided by the number of days in the period, with the resulting figure carried
to the nearest hundredth of 1%. The Company may also furnish a quotation of
effective yield for each Portfolio that assumes the reinvestment of dividends
for a 365 day year and a return for the entire year equal to the average
annualized yield for the period, which will be computed by compounding the
unannualized current yield for the period by adding 1 to the unannualized
current yield, raising the sum to a power equal to 365 divided by the number of
days in the period, and then subtracting 1 from the result. Historical yields
are not necessarily indicative of future yields. Rates of return will vary as
interest rates and other conditions affecting money market instruments change.
Yields also depend on the quality, length of maturity and type of instruments in
each Portfolio's portfolio and each Portfolio's operating expenses. Quotations
of yields will be accompanied by information concerning the average weighted
maturity of the Portfolios. Comparison of the quoted yields of various
investments is valid only if yields are calculated in the same manner and for
identical limited periods. When comparing the yield for one of the Portfolios
with yields quoted with respect to other investments, shareholders should
consider (a) possible differences in time periods, (b) the effect of the methods
used to calculate quoted yields, (c) the quality and average-weighted maturity
of portfolio investments, expenses, convenience, liquidity and other important
factors, and (d) the taxable or tax-exempt character of all or part of dividends
received.
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.
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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.
THE COMPANY AND ITS SHARES
The shares of the Company are divided into three portfolios constituting
separate portfolios of investments, with various investment objectives and
policies (the "Portfolios") and, in turn, each Portfolio is divided into classes
(each such class is referred to herein as a "Fund" and collectively as the
"Funds"):
Live Oak General Money Market Fund
Live Oak U.S. Government Fund
Live Oak Municipal Money Market Fund
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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 the Bradford U.S. Government Money Market 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 the Bradford Short-Term Municipal Money
Market Fund Shares). Each Fund share is entitled to participate pro rata in the
dividends and distributions from that Fund. Additional information concerning
the rights of share ownership is set forth in each Prospectus.
The assets received by the Company for the issue or sale of shares of each
Portfolio and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of creditors, are allocated to that Portfolio, and
constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio are segregated and are charged with the expenses with respect to
that Portfolio and with a share of the general expenses of the Company as
described below under "Expenses." While the expenses of the Company are
allocated to the separate books of account of each 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.
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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 general referred to as "gilt edge."
Bonds rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger. Moody's applies numerical modifiers 1, 2
and 3 in the Aa rating category. The modifier 1 indicates a ranking for the
security in the higher end of this rating category, the modifier 2 indicates a
mid-range ranking, and the modifier 3 indicates a ranking in the lower end of
the rating category.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions and
are liable to but slight market fluctuation other than through changes in the
money rate. The prime feature of an AAA bond is a showing of earnings several
times or many times interest requirements, with such stability of applicable
earnings that safety is beyond reasonable question whatever changes occur in
conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety
virtually beyond question and are readily salable, whose merits are not unlike
those of the AAA class, but whose margin of safety is less strikingly broad. The
issue may be the obligation of a small company, strongly secured but influenced
as to rating by the lesser financial power of the enterprise and more local type
market.
Bonds rated Duff-1 are judged by Duff to be of the highest credit quality with
negligible risk factors; only slightly more than U.S. Treasury debt. Bonds rated
Duff-2, 3 and 4 are judged by Duff to be of high credit quality with strong
protection factors. Risk is modest but may vary slightly from time to time
because of economic conditions.
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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.
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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.
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BRADFORD 600 Fifth Avenue, New York, NY 10020
SHARES (212) 830-5280
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
July 27, 1999
Relating to the Bradford Shares Prospectus
dated July 27, 1999
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, Inc., 600 Fifth Avenue, New
York, New York 10020 or toll free at (800) 433-1918.
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C> <C>
General Information about the Company 2 Net Asset Value Determination 15
Investment Programs and Restrictions 2 Dividends and Tax Matters 15
Investment Programs 2 Dividends 15
When-Issued Securities 4 Tax Matters 16
Stand-by Commitments 5 Qualification as a Regulated
Municipal Participations 6 Investment Company 16
Investment Restrictions 6 Excise Tax on Regulated
Directors and Officers 7 Investment Companies 18
Compensation Table 8 Fund Distributions 18
Manager and Investment Advisor 8 Sale or Redemption of Shares 19
Expenses 10 Foreign Shareholders 20
Distributor and Plans of Distribution 11 Effect of Future Legislation and
Custodian 14 Local Tax Considerations 20
Transfer Agent 14 Yield Information 20
Sub-Accounting 14 Portfolio Transactions 21
Principal Holders of Securities 14 The Company and Its Shares 22
Reports 14 Investment Ratings 24
Financial Statements 14
Share Purchases and Redemptions 14
Purchases and Redemptions 14
</TABLE>
<PAGE>
GENERAL INFORMATION ABOUT THE COMPANY
The Company, Cortland Trust, Inc., is a money market mutual fund. 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.
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 caption
"Investment Objectives, Principal Investment Strategies and Related Risks". 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 "The Company and its
Share".) 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 the
caption "Investment Objectives, Principal Investment Strategies and Related
Risks". 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
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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:
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
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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.
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If one of the Portfolios purchases a when-issued security, it will direct its
custodian bank to collateralize the when-issued commitment by establishing a
segregated account in the same fashion as required for a Delayed Delivery
Agreement. The special custody account will likewise be marked-to-market, and
the amount in the special custody account will be increased if necessary to
maintain adequate coverage of the when-issued commitments.
Securities purchased on a when-issued basis and the securities held in a
Portfolio's portfolio are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and changes in the
level of interest rates (which will generally result in all of those securities
changing in value in the same way, i.e., all those securities experiencing
appreciation when interest rates rise). Therefore, if, in order to achieve
higher interest income, a Portfolio is to remain substantially fully invested at
the same time that it has purchased securities on a when-issued basis, there
will be a possibility that the market value of such Portfolio's assets will
fluctuate to a greater degree. Furthermore, when the time comes for such
Portfolio to meet its obligations under when-issued commitments, the Portfolio
will do so by using then-available cash flow, by sale of the securities held in
the separate account, by sale of other securities or, although it would not
normally expect to do so, by directing the sale of the when-issued securities
themselves (which may have a market value greater or less than the Portfolio's
payment obligation).
A sale of securities to meet such obligations carries with it a greater
potential for the realization of net short-term capital gains, which are not
exempt from federal income taxes. The value of when-issued securities on the
settlement date may be more or less than the purchase price.
STAND-BY COMMITMENTS
The Municipal Money Market Fund may attempt to improve its portfolio liquidity
by assuring same-day settlements on portfolio sales (and thus facilitate the
same-day payment of redemption proceeds) through the acquisition of "Stand-by
Commitments." A Stand-by Commitment is a right of the Municipal Money Market
Fund, when it purchases Municipal Securities for its portfolio from a broker,
dealer or other financial institution, to sell the same principal amount of such
securities back to the seller, at the Municipal Money Market Fund's option, at a
specified price. The Municipal Money Market Fund will acquire Stand-by
Commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes, and the acquisition or
exercisability of a Stand-by Commitment will not affect the valuation of its
underlying portfolio securities, which will continue to be valued in accordance
with the method described under "Share Purchases and Redemptions - Net Asset
Value Determination." The weighted average maturity of the Municipal Money
Market Fund's portfolio will not be affected by the acquisition of a Stand-by
Commitment.
The Stand-by Commitments acquired by the Municipal Money Market Fund will
generally have the following features: (1) they will be in writing and will be
physically held by the Municipal Money Market Fund's custodian; (2) they may be
exercised by the Municipal Money Market Fund at any time prior to the underlying
security's maturity; (3) they will be entered into only with dealers, banks and
broker-dealers who in the Manager's opinion present a minimal risk of default;
(4) the Municipal Money Market Fund's right to exercise them will be
unconditional and unqualified; (5) although the Stand-by Commitments will not be
transferable, Municipal Securities purchased subject to such commitments could
be sold to a third party at any time, even though the commitment was
outstanding; and (6) their exercise price will be (i) the Municipal Money Market
Fund's acquisition cost of the Municipal Securities which are subject to the
commitment (excluding any accrued interest which the Municipal Money Market Fund
paid on their acquisition), less any amortized market premium or plus amortized
market or original issue discount during the period the securities were owned by
the Municipal Money Market Fund, plus (ii) all interest accrued on the
securities since the last interest payment date. Since the Municipal Money
Market Fund values its portfolio securities on the amortized cost basis, the
amount payable under a Stand-by Commitment will be substantially the same as the
value of the underlying security.
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.
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The acquisition of a Stand-by Commitment would not affect the valuation or
assumed maturity of the underlying Municipal Securities which, as noted, would
continue to be valued in accordance with the amortized cost method. Stand-by
Commitments acquired by the Municipal Money Market Fund would be valued at zero
in determining net asset value. Where the Municipal Money Market Fund paid any
consideration directly or indirectly for a Stand-by Commitment, its cost would
be reflected as unrealized depreciation for the period during which the Stand-by
Commitment was held by such Fund.
MUNICIPAL PARTICIPATIONS
The Municipal Money Market Fund may invest in participation agreements with
respect to Municipal Securities under which the Municipal Money Market Fund
acquires an undivided interest in the Municipal Security and pays a bank which
sells the participation a servicing fee. The participation agreement will have a
variable rate of interest and may be terminated by the Municipal Money Market
Fund on seven days' notice, in which event such Fund receives from the issuer of
the participation the par value of the participation plus accrued interest as of
the date of termination. Before entering into purchases of participation the
Company will obtain an opinion of counsel (generally, counsel to the issuer of
the participation) or a letter ruling from the Internal Revenue Service to the
effect that interest earned with respect to municipal participation qualifies as
exempt-interest income under the Code. The Company has been advised that it is
the present policy of the Internal Revenue Service not to issue private letter
rulings relating to municipal participation. In the absence of an opinion of
counsel or a letter ruling from the Internal Revenue Service, the Municipal
Money Market Fund will refrain from investing in participation agreements.
INVESTMENT RESTRICTIONS
In addition to the Portfolios' investment objectives, the following investment
restrictions have been adopted by the Portfolios as fundamental policies, which
means they can be changed only by a majority shareholder vote. A "majority vote
of shareholders" means the affirmative vote of the holders of the lesser of (1)
more then 50% of the outstanding shares of the Portfolio or (2) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares of
the Portfolio are represented at the meeting in person or by proxy. Therefore,
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
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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.
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, 45 - President and Director of the Company, has been President
of the Mutual Funds Division of the Manager since September 1994. Mr. Duff was
formerly Director of Mutual Fund Administration at NationsBank with which he was
associated from June 1981 to August 1994. Mr. Duff is President and a
Director/Trustee of 13 other funds in the Reich & Tang Fund Complex, President
of Back Bay Funds, Inc., Director of Pax World Money Market Fund, Inc.,
Executive Vice President of Delafield Fund, Inc. and Reich & Tang Equity Fund,
Inc., and President and Chief Executive Officer of Tax Exempt Proceeds Fund,
Inc.
OWEN DALY II, 74 - 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, 57 - Director of the Company, Volvo North America Corporation,
535 Madison Avenue, New York, NY 10022. President of Volvo North America
Corporation.
CARL FRISCHLING, 62 - Director of the Company, 919 Third Avenue, New York, NY
10022. Partner, Kramer Levin Naftalis & Frankel LLP (law firm). Director, ERD
Waste, Inc. (waste management company), Aegis Consumer Finance (auto leasing
company) and Lazard Funds, Inc. (investment companies). Formerly, Partner, Reid
& Priest (law firm); and, prior thereto, Partner, Spengler Carlson Gubar Brodsky
& Frischling (law firm).
JAMES L. SCHULTZ, 62 - 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 DESANCTIS, 42 - Vice President and Treasurer of the Company, has been
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. Mr. De Sanctis is Treasurer of 18 funds in the Reich & Tang Fund Complex.
MOLLY FLEWHARTY, 48 - Vice President of the Company, has been Vice President of
the Mutual Funds Division of the Manager since September 1993. Ms. Flewharty was
formerly Vice President of Reich & Tang, Inc. with which she was associated from
December 1977 to September 1993. Ms. Flewharty is also Vice President of 18
other funds in the Reich & Tang Fund Complex.
DANA E. MESSINA, 42 - Vice President of the Company, has been 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. with which she was associated from December
1980 to September 1993. Ms. Messina is also Vice President of 15 other funds in
the Reich & Tang Fund Complex.
RUBEN TORRES, 50 - Vice President of the Company, has been Vice President of
Operations of Reich & Tang Services, Inc. since January 1991. Mr. Torres was
formerly Vice President and Assistant Treasurer of Cortland Financial Group,
Inc.
BERNADETTE N. FINN, 51 - Vice President and Secretary of the Company, has been
Vice President of the Mutual Funds Division of the Manager since September 1993.
Ms. Finn was formerly Vice President and Assistant Secretary of Reich & Tang,
Inc. with which she was associated from September 1970 to September 1993. Ms.
Finn is also Secretary of 13 other funds in the Reich & Tang Fund Complex, and a
Vice President and Secretary of 5 funds in the Reich & Tang Fund Complex.
7
<PAGE>
ROSANNE HOLTZER, 34 - Assistant Treasurer of the Company, has been Vice
President of the Mutual Funds division of the Manager since December 1997. Ms.
Holtzer was formerly Manager of Fund Accounting for the Manager with which she
was associated from June 1986. Ms. Holtzer is also Assistant Treasurer of 18
other funds in the Reich & Tang Fund Complex.
Each director who is not an "interested person" receives an annual fee from the
Company of $10,000 for his services as a director and a fee of $1,250 for each
Board meeting attended, and all directors are reimbursed by the Company for
expenses incurred in connection with attendance at meetings of the Board of
Directors.
<TABLE>
<CAPTION>
Compensation Table
<S> <C> <C> <C> <C>
(1) (2) (3) (4) (5)
Name of Person, Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation from
Position from Registrant for Fiscal Benefits Accrued as Part Benefits upon Retirement Fund and Fund Complex
Year of Fund Expenses 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, $11,250 0 0 $11,250 (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, 1999 and, with respect to certain of
the funds in the Fund Complex, estimated to be paid during the fiscal year
ending March 31, 1999. The parenthetical number represents the number of
investment companies (including the Fund) from which such person receives
compensation that are considered part of the same Fund complex as the Fund,
because, among other things, they have a common investment advisor.
MANAGER AND INVESTMENT ADVISOR
Reich & Tang Asset Management L.P., a Delaware limited partnership, with its
principal offices at 600 Fifth Avenue, New York, New York 10020, serves as the
manager and investment advisor of the Company and its three Funds pursuant to
agreements with the Funds dated August 30, 1996 (the "Management/Investment
Advisory Agreements"). Under the Management/Investment Advisory Agreements,
Reich & Tang Asset Management L.P. (the "Manager") provides, either directly or
indirectly through contracts with others, all services required for the
management of the Company. The Manager bears all ordinary operating expenses
associated with the Company's operation except: (a) the fees of the Directors
who are not "interested persons" of the Company, as defined by the 1940 Act, and
the travel and related expenses of the Directors incident to their attending
shareholders', directors' and committee meetings; (b) interest, taxes and
brokerage commissions (which are expected to be insignificant); (c)
extraordinary expenses, if any, including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto; (d)
shareholder service or distribution fees payable by the Company under the plans
of distribution described under the heading "Distributor" below; and (e)
membership dues of any industry association. Additionally, the Manager has
assumed all expenses associated with organizing the Company and all expenses of
registering or qualifying the Company's shares under federal and state
securities laws.
The Manager was at June 30, 1999 investment manager, advisor or supervisor with
respect to assets aggregating in excess of $13.6 billion. The Manager currently
acts as investment manager or administrator of eighteen other investment
companies and also advises pension trusts, profit sharing trusts and endowments.
Effective January 1, 1998, NEIC Operating Partnership, L.P. ("NEICOP") was the
limited partner and owner of a 99.5% interest in the Manager replacing New
England Investment Companies, L.P. ("NEICLP") as the limited partner and owner
of such interest in the Manager, due to a restructuring by New England
Investment Companies, Inc. ("NEIC"). Subsequently, effective March 31, 1998,
Nvest Companies, L.P. ("Nvest Companies") due to a change in name of NEICOP,
replaced NEICOP as the limited partner and owner of a 99.5% interest in the
Manager.
8
<PAGE>
Reich & Tang Asset Management, Inc. (an indirect wholly-owned subsidiary of
Nvest Companies) is the sole general partner and owner of the remaining 0.5%
interest of the Manager. Nvest Corporation, a Massachusetts Corporation
(formerly known as New England Investment Companies, Inc.), serves as the
managing general partner of Nvest Companies.
Reich & Tang Asset Management, Inc. is an indirect subsidiary of Metropolitan
Life Insurance Company ("MetLife"). Also, MetLife directly and indirectly owns
approximately 47% of the outstanding partnership interests of Nvest Companies
and may be deemed a "controlling person" of the Manager. Reich & Tang, Inc.
owns, directly and indirectly, approximately 13% of the outstanding partnership
interests of Nvest Companies.
Nvest Companies is a holding company offering a broad array of investment styles
across a wide range of asset categories through seventeen subsidiaries,
divisions and affiliates offering a wide array of investment styles and products
to institutional clients. Its business units, in addition to the Manager,
include AEW Capital Management, L.P., Back Bay Advisors, L.P., Capital Growth
Management, L.P., Greystone Partners, L.P., Harris Associates, L.P., Jurika &
Voyles, L.P., Kobrick Funds, LLC, Loomis, Sayles & Company, L.P., New England
Funds, L.P., Nvest Advisor Services, L.P., Nvest Associates, Inc., Nvest
Retirement Services, Nvest Services Company, Snyder Capital Management, L.P.,
Vaughan, Nelson, Scarborough & McCullough, L.P., and Westpeak Investment
Advisors, L.P. These affiliates in the aggregate are investment advisors or
managers of more than 80 other registered investment companies.
The name change did not result in a change in control of the Manager and has no
impact upon the Manager's performance of its responsibilities and obligations.
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 for an
initial period extending to June 30, 1998. By their terms, the
Management/Investment Advisory Agreements may be continued from year to year
thereafter. The Management/Investment Advisory Agreements were most recently
approved for continuance by the Board of Directors of the Fund on June 10, 1999,
and will remain in effect from year to year as long as their continuation is
approved at least annually by (i) the Board of Directors or the vote of a
majority of the outstanding voting securities of the Fund, and (ii) a majority
of the Directors of the Fund who are not interested persons of any party to the
Management/Investment Advisory Agreements, cast in person at a meeting called
for the purpose of voting on such approval.
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
9
<PAGE>
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, 1999, March 31, 1998 and March 31, 1997 the Company paid to the
Manager the management fees set forth in the table below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Year Management Fees
1999 Payable Waived Paid
---- ------- ------ ----
U.S. Government 1,371,830 0 1,371,830
Municipal 2,252,782 0 2,252,782
1998
U.S. Government 1,493,237 361,000 1,132,237
Municipal 1,853,830 0 1,853,830
1997
U.S. Government 1,851,957 50,000 1,801,957
Municipal 1,698,486 0 1,698,486
</TABLE>
The Management/Investment Advisory Agreements were approved by the Board of
Directors, including a majority of directors who are not interested persons (as
defined in the 1940 Act), of the Portfolios or the Manager, effective August 30,
1996 for a two-year period. The new Management/Investment Advisory Agreements
will continue year to year thereafter if they are specifically approved at least
annually by the Board of Directors and by the affirmative vote of a majority of
the directors who are not parties to such Management/Investment Advisory
Agreements or "interested persons" of any such party by votes cast in person at
a meeting called for such purpose. The Portfolios or the Manager may terminate
the Management/Investment Advisory Agreements on 60 days' written notice without
penalty. Each Management/Investment Advisory Agreement terminates automatically
in the event of its "assignment," as defined in the 1940 Act. The Manager shall
not be liable to the Portfolios or to their shareholders for any act or omission
by the Manager or for any loss sustained by a Fund or its shareholders except in
the case of the Manager's willful misfeasance, bad faith, gross negligence or
reckless disregard of duty. The Company's (Portfolios') right to use the name
"Cortland" in its name in any form or combination may terminate upon termination
of the Manager as the Company's (Portfolios') investment manager.
Pursuant to the terms of the Management/Investment Advisory Agreements, the
Manager: (a) provides the Company with certain executive, administrative and
clerical services as are deemed advisable by the Board of Directors; (b)
arranges, but does not pay for, the periodic updating of prospectuses and
statements of additional information and supplements thereto, proxy materials,
tax returns, reports to each Portfolio's shareholders and reports to and filings
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,
10
<PAGE>
Reich & Tang Distributors, Inc. (the "Distributor"), pays out of the management
fees from each of the Funds and payments under a Plan of Distribution (see
"Distributor and Plans of Distribution") the expenses of printing and
distributing prospectuses and statements of additional information and any other
promotional or sales literature used by the Distributor or furnished by the
Distributor to purchasers or dealers in connection with the public offering of
the Portfolios' shares, the expenses of advertising in connection with such
public offering and all legal expenses in connection with the foregoing.
Except as set forth below, the Manager pays all expenses of the Portfolios,
including, without limitation: the charges and expenses of any registrar, any
custodian or depository appointed by the Company for the safekeeping of its
cash, portfolio securities and other property, and any stock transfer, dividend
or accounting agent or agents appointed by the Company; all fees payable by the
Company to federal, state or other governmental agencies; the costs and expenses
of engraving or printing certificates representing shares of the Company (the
Company does not issue share certificates at the present time); all costs and
expenses in connection with the registration and maintenance of registration of
the Portfolios and their shares with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting, and distributing
prospectuses and statements of additional information of the Company and
supplements thereto to the Company's shareholders and to potential shareholders
of the Portfolios; all expenses of shareholders' meetings and of preparing,
printing and mailing of proxy statements and reports to shareholders; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Portfolios' shares; routine fees and expenses of
legal counsel and of independent accountants, in connection with any matter
relating to the Company; postage; insurance premiums on property or personnel
(including officers and directors) of the Company which inure to its benefit;
and all other charges and costs of the Portfolios' operations unless otherwise
explicitly assumed by the Company. The Company is responsible for payment of the
following expenses not borne by the Manager: (a) the fees of the directors who
are not "interested persons" of the Company, as defined by the 1940 Act, and
travel and related expenses of the directors for attendance at meetings; (b)
interest, taxes and brokerage commissions (which can be expected to be
insignificant); (c) extraordinary expenses, if any, including, but not limited
to, legal claims and liabilities and litigation costs and any indemnification
related thereto; (d) any shareholder service or distribution fee payable by the
Company under the plan of distribution described below; and (e) membership dues
of any industry association.
Expenses which are attributable to any of the Company's Portfolios are charged
against the income of such Portfolio in determining net income for dividend
purposes. Expenses of the Company which are not directly attributable to the
operations of any single Portfolio are allocated among the Portfolios based upon
the relative net assets of each Portfolio.
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, under an arrangement where J.C. Bradford automatically
"sweeps" free credit balances into a Fund at the end of each day, allowing the
J.C. Bradford account holder to earn dividends otherwise unavailable in his
brokerage account.
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.
11
<PAGE>
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. During the fiscal year ended
March 31, 1999, the Company paid $133,429 and $451,854 for expenses incurred
pursuant to the J.C. Bradford distribution plans for the Cortland U.S.
Government Fund Class and the Municipal Money Market Fund Class, respectively,
of this amount $100,029 and $334,281 respectively, was voluntarily waived for
the Cortland U.S. Government Fund Class and Municipal Money Market Fund Class,
all of which amounts were spent in payment to financial intermediaries in
connection with the distribution of such portfolio's shares. During the fiscal
year ended March 31, 1998, the Company paid $60,597 and $215,184 for expenses
incurred pursuant to the J.C. Bradford distribution plans for the Cortland U.S.
Government Fund Class and the Municipal Money Market Fund Class, respectively,
of this amount $43,630 and $146,325 was voluntarily waived for the Cortland U.S.
Government Fund Class and Municipal Money Market Fund Class, respectively, all
of which amounts were spent in payment to financial intermediaries in connection
with the distribution of such portfolio's shares. The Company also offers other
classes of shares of the Portfolios with different distribution arrangements
designed for institutional and other categories of investors.
The Distributor, under the Plans, may also make payments to 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. During the fiscal year ended March 31, 1999, the
Distributor paid Shareholder Service Agents $320,189 and $1,083,073 on behalf of
the Cortland U.S. Government Fund and the Municipal Money Market Fund,
respectively, under the Plans. During the fiscal year ended March 31, 1998, the
Distributor paid Shareholder Service Agents $122,304 and $427,787 on behalf of
the Cortland U.S. Government Fund and the Municipal Money Market Fund,
respectively, under the Plans. The fees payable to Shareholder Service Agents
under Shareholder Service Agreements are negotiated by the Distributor. The
Distributor will report quarterly to the Board of Directors on the rate to be
paid under each such agreement and the amounts paid or payable under such
agreements. The rate of payment will be based upon the Distributor's analysis
of: (1) the contribution that the Shareholder Service Agent makes to each of the
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 10, 1999, to provide for the distribution of the
shares of each of the Funds. The Distribution Agreements will continue in effect
from year to year if specifically approved at least annually by the Board of
Directors and the affirmative vote of a majority of the directors who are not
parties to the Distribution Agreements or any Shareholder Service Agreement or
"interested persons" of any such party by votes cast in person at a meeting
called for such purpose. In approving the Plans, the directors determined, in
the exercise of their business judgment and in light of their fiduciary duties
as directors of the Company, that there was a reasonable likelihood that the
Plans would benefit the Funds and their shareholders. The Plans may only be
renewed if the directors make a similar determination for each subsequent year.
The Plans may not be amended to increase the maximum amount of payments by the
Company or the Manager to its Shareholder Service Agents without shareholder
approval, and all material amendments to the provisions of the Plans must be
approved by the Board of Directors and by the directors who have no direct or
indirect financial interest in the Plans, by votes cast in person at a meeting
called for the purpose of such vote. Each Fund or the Distributor may terminate
the Distribution Agreements on 60 days' written notice without penalty. The
Distribution Agreements terminate automatically in the event of their
"assignment," as defined in the 1940 Act. The services of the Distributor to the
Funds are not exclusive, and it is free to render similar services to others.
The Plans may also be terminated by each of the Funds or by the Manager or in
the event of their "assignment," as defined in the 1940 Act, on the same basis
as the Distribution Agreements.
12
<PAGE>
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
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
13
<PAGE>
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 801 Pennsylvania, Kansas City,
Missouri 64105.
TRANSFER AGENT
Reich & Tang Services, Inc., 600 Fifth Avenue, New York, New York 10020, 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 June 30, 1999 there were 218,672,902 total shares of the Company outstanding.
On June 30, 1999 there were 55,279,260 outstanding shares of the U.S. Government
Fund and 163,393,642 outstanding shares of the Municipal Money Market Fund. As
of June 30, 1999 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.
FINANCIAL STATEMENTS
The audited financial statements for the Fund and the report of Ernst & Young
LLP, thereon for the fiscal year ended March 31, 1999 are herein incorporated by
reference to the Fund's Annual Report. The Annual Report is available upon
request and without charge.
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 Shareholder Account Information
section of the Prospectus under the captions "Buying Fund Shares," and "Selling
Fund Shares".
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 "Redemption Procedures." If the Board of Directors authorizes mandatory
redemption of such small accounts, the holders of shares with a value of less
than $250 will be notified that they must increase their investment to $250 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
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closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposal of portfolio securities or the valuation of the net
assets of a Portfolio not reasonably practicable.
NET ASSET VALUE DETERMINATION
The net asset values of the Portfolios are determined twice daily as of 12 noon
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 Programs and
Restrictions - 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
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general expenses of the Company prorated to such Portfolio based on the relative
net assets of such Portfolio. The amount of discount or premium on instruments
in each Portfolio's portfolio is fixed at the time of purchase of the
instruments. See "Net Asset Value Determination" above. Realized gains and
losses on portfolio securities held by each Portfolio will be reflected in the
net asset value of such Portfolio. Each Portfolio expects to distribute any net
realized short-term gains of such Portfolio at least once each year, although it
may distribute them more frequently if necessary in order to maintain such
Portfolio's net asset value at $1.00 per share. The Portfolios do not expect to
realize net long-term capital gains.
Should any of the Portfolios incur or anticipate any unusual expense, loss or
depreciation which would adversely affect the net asset value per share or net
income per share of a Portfolio for a particular period, the Board of Directors
would at that time consider whether to adhere to the present dividend policy
described above or to revise it in light of then prevailing circumstances. For
example, if the net asset value per share of a Portfolio were reduced, or was
anticipated to be reduced, below $1.00, the Board of Directors may suspend
further dividend payments with respect to that Portfolio until the net asset
value per share returns to $1.00. Thus, such expense or loss or depreciation
might result in a shareholder receiving no dividends for the period during which
he held shares of the Portfolio and/or in his receiving upon redemption a price
per share lower than the price which he paid.
Dividends on a Portfolio's shares are normally payable on the first day
following the date that a share purchase or exchange order is effective and on
the date that a redemption order is effective. The net income of a Portfolio for
dividend purposes is determined as of 12:00 noon Eastern time on each "business
day" of the Company, as defined in the Prospectus and immediately prior to the
determination of each Portfolio's net asset value on that day. Dividends are
declared daily and reinvested in 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 federal income tax
considerations generally affecting the Funds and their shareholders that are not
described in their Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussions here and in the Prospectuses are not intended as substitutes for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund has elected to be taxed as a regulated investment company for federal
income tax purposes under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, a Fund is not subject
to federal income tax on the portion of its net investment income (i.e., taxable
interest, dividends and other taxable ordinary income, net of expenses) and
capital gain net income (i.e., the excess of capital gains over capital losses)
that it distributes to shareholders, provided that it distributes at least 90%
of its investment company taxable income (i.e., net investment income and the
excess of net short-term capital gain over net long-term capital loss) and, with
respect to the Municipal Money Market Fund (the "Municipal Fund"), at least 90%
of its tax-exempt income (net of expenses allocable thereto) for the taxable
year (the "Distribution Requirement"), and satisfies certain other requirements
of the Code that are described below. Distributions by a Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and will therefore count toward satisfaction of the
Distribution Requirement.
If a Fund has a net capital loss (i.e., the excess of capital losses over
capital gains) for any year, the amount thereof may be carried forward up to
eight years and treated as a short-term capital loss which can be used to offset
capital gains in such years. As of March 31, 1999, the U.S. Government Fund and
Municipal Fund have capital loss carryforwards of $686,669 and $28,940,
respectively, expiring, with respect to the U.S. Government Fund, $235,428 in
the year 2003 and $451,241 in the year 2004; and, with respect to the Municipal
Fund, $13,541 in the year 2001, $3,530 in the year 2002, and $11,869 in the year
2003. Under Code Section 382, if a Fund has an "ownership change," the Fund's
use of its capital loss carryforwards in any year following the ownership change
will be limited to an amount equal to the net asset value of the Fund
immediately prior to the ownership change multiplied by the highest adjusted
long-term tax-exempt rate (which is published monthly by the Internal Revenue
Service (the "IRS")) in effect for any month in the 3-calendar-month period
ending with the calendar month in which the ownership change occurs (the rate
for June 1999 is 4.85%). Each Fund will use its best efforts to avoid having an
ownership change. However, because of circumstances which may be beyond the
control of a Fund, there can be no assurance that the Fund will not have, or has
not already had, an ownership change. If a Fund has or has had an ownership
change, any capital gain net income for any year following the ownership change
in
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excess of the annual limitation on the capital loss carryforwards will have to
be distributed by the Fund and will be taxable to shareholders as described
under "Fund Distributions" below.
In addition to satisfying the Distribution Requirement, a regulated investment
company must 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").
In general, gain or loss recognized by a Fund on the disposition of an asset
will be a capital gain or loss. In addition, gain will be recognized as a result
of certain constructive sales, including short sales "against the box." However,
gain recognized on the disposition of a debt obligation (including municipal
obligations) purchased by a Fund at a market discount (generally, at a price
less than its principal amount) will be treated as ordinary income to the extent
of the portion of the market discount which accrued during the period of time
the Fund held the debt obligation.
Further, the Code also treats as ordinary income a portion of the capital gain
attributable to a transaction where substantially all of the return realized is
attributable to the time value of a Fund's net investment in the transaction
and: (1) the transaction consists of the acquisition of property by the Fund and
a contemporaneous contract to sell substantially identical property in the
future; (2) the transaction is a straddle within the meaning of section 1092 of
the Code; (3) the transaction is one that was marketed or sold to the Fund on
the basis that it would have the economic characteristics of a loan but the
interest-like return would be taxed as capital gain; or (4) the transaction is
described as a conversion transaction in the Treasury Regulations. The amount of
the gain recharacterized generally will not exceed the amount of the interest
that would have accrued on the net investment for the relevant period at a yield
equal to 120% of the federal long-term, mid-term, or short-term rate, depending
upon the type of instrument at issue, reduced by an amount equal to: (1) prior
inclusions of ordinary income items from the conversion transaction and (2) the
capital interest on acquisition indebtedness under Code section 263(g). Built-in
losses will be preserved where the Fund has a built-in loss with respect to
property that becomes a part of a conversion transaction. No authority exists
that indicates that the converted character of the income will not be passed
through to the Fund's shareholders.
In general, for purposes of determining whether capital gain or loss recognized
by a Fund on the disposition of an asset is long-term or short-term, the holding
period of the asset may be affected if (1) the asset is used to close a "short
sale" (which includes for certain purposes the acquisition of a put option) or
is substantially identical to another asset so used, (2) the asset is otherwise
held by the Fund as part of a "straddle" (which term generally excludes a
situation where the asset is stock and the Fund grants a qualified covered call
option (which, among other things, must not be deep-in-the-money) with respect
thereto) or (3) the asset is stock and the Fund grants an in-the-money qualified
covered call option with respect thereto. In addition, a Fund may be required to
defer the recognition of a loss on the disposition of an asset held as part of a
straddle to the extent of any unrecognized gain on the offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or loss recognized by
a Fund from a closing transaction with respect to, an option written by the Fund
will be treated as a short-term capital gain or loss.
Certain transactions that may be engaged in by a Fund (such as regulated futures
contracts and options on futures contracts) will be subject to special tax
treatment as "Section 1256 contracts." Section 1256 contracts are treated as if
they are sold for their fair market value on the last business day of the
taxable year, even though a taxpayer's obligations (or rights) under such
contracts have not terminated (by delivery, exercise, entering into a closing
transaction or otherwise) as of such date. Any gain or loss recognized as a
consequence of the year-end deemed disposition of Section 1256 contracts is
taken into account for the taxable year together with any other gain or loss
that previously was recognized upon the termination of Section 1256 contracts
during that taxable year. Any capital gain or loss for the taxable year with
respect to Section 1256 contracts (including any capital gain or loss arising as
a consequence of the year-end deemed sale of such contracts) is generally
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. A Fund, however, may elect not to have this special tax treatment apply to
Section 1256 contracts that are part of a "mixed straddle" with other
investments of the Fund that are not Section 1256 contracts.
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 made a taxable year election for excise tax purposes as
discussed below) to treat all or any part of any net capital loss, any net
long-term capital loss or any net foreign currency loss incurred after October
31 as if it had been incurred in the succeeding year.
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In addition to satisfying the requirements described above, each Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to each of which the
Fund has not invested more than 5% of the value of the Fund's total assets in
securities of such issuer and does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security, not the issuer of the option. For purposes of asset diversification
testing, obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government such as the Federal Agricultural Mortgage Corporation, the
Farm Credit System Financial Assistance Corporation, a Federal Home Loan Bank,
the Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association, the Government National Mortgage Corporation, and the Student Loan
Marketing Association are treated as U.S. Government securities.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to 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 Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that a Fund may in certain circumstances be required to liquidate portfolio
investments to make sufficient distributions to avoid excise tax liability.
FUND DISTRIBUTIONS
Each Fund anticipates distributing substantially all of its investment company
taxable income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes, but they will not qualify for the 70% dividends-received deduction for
corporate shareholders.
Each Fund may either retain or distribute to shareholders its net capital gain
for each taxable year. Each Fund currently intends to distribute any such
amounts. Net capital gain that is distributed and designated as a capital gain
dividend will be taxable to shareholders as long-term capital gain, regardless
of the length of time the shareholder has held his shares or whether such gain
was recognized by the Fund prior to the date on which the shareholder acquired
his shares.
Conversely, if a Fund elects to retain its net capital gain, the Fund will be
taxed thereon (except to the extent of any available capital loss carryovers) at
the 35% corporate tax rate. If a Fund elects to retain its net capital gain, it
is expected that the Fund also will elect to have shareholders of record on the
last day of its taxable year treated as if each received a distribution of his
pro rata share of such gain, with the result that each shareholder will be
required to report his pro rata share of such gain on his tax return as
long-term capital gain, will receive a refundable tax credit for his pro rata
share of tax paid by the Fund on the gain, and will increase the tax basis for
his shares by an amount equal to the deemed distribution less the tax credit.
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The Municipal Fund intends to qualify to pay exempt-interest dividends by
satisfying the requirement that at the close of each quarter of the its taxable
year at least 50% of the Municipal Fund's total assets consists of tax-exempt
municipal obligations. Distributions from the Municipal Fund will constitute
exempt-interest dividends to the extent of such Fund's tax-exempt interest
income (net of expenses and amortized bond premium). Exempt-interest dividends
distributed to shareholders of the Municipal Fund are excluded from gross income
for federal income tax purposes. However, shareholders required to file a
federal income tax return will be required to report the receipt of
exempt-interest dividends on their returns. Moreover, while exempt-interest
dividends are excluded from gross income for federal income tax purposes, they
may be subject to alternative minimum tax ("AMT") in certain circumstances and
may have other collateral tax consequences as discussed below. Distributions by
a Fund of any investment company taxable income or of any net capital gain will
be taxable to shareholders as discussed above.
AMT is imposed in addition to, but only to the extent it exceeds, the regular
tax and is computed at a maximum marginal rate of 28% for non-corporate
taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's
alternative minimum taxable income ("AMTI") over an exemption amount.
Exempt-interest dividends derived from certain "private activity" municipal
obligations issued after August 7, 1986 will generally constitute an item of tax
preference includable in AMTI for both corporate and non-corporate 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 Fund is denied a deduction for interest
on indebtedness incurred or continued to purchase or carry shares of the Fund.
Moreover, a shareholder who is (or is related to) a "substantial user" of a
facility financed by industrial development bonds held by the Municipal Fund
will likely be subject to tax on dividends paid by the Fund which are derived
from interest on such bonds. Receipt of exempt-interest dividends may result in
other collateral federal income tax consequences to certain taxpayers, including
financial institutions, property and casualty insurance companies, and foreign
corporations engaged in a trade or business in the United States. Prospective
investors should consult their own advisers as to such consequences.
Distributions by a Fund that do not constitute ordinary income dividends,
exempt-interest dividends, or capital gain dividends will be treated as a return
of capital to the extent of (and in reduction of) the shareholder's tax basis in
his shares; any excess will be treated as gain realized from a sale of the
shares, as discussed below.
Distributions by a Fund will be treated in the manner described above regardless
of whether such distributions are paid in cash or reinvested in additional
shares of the Fund (or of another fund). Shareholders receiving a distribution
in the form of additional shares will be treated as receiving a distribution in
an amount equal to the fair market value of the shares received, determined as
of the reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of a Fund reflects realized but undistributed
income or gain, or unrealized appreciation in the value of the assets held by
the Fund, distributions of such amounts will be taxable to the shareholder in
the manner described above, although such distributions economically constitute
a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which they 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 U.S. Government Series) on December 31 of such
calendar year provided 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) to them during
the year.
Each Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has failed to
provide a correct taxpayer identification number, (2) who is subject to backup
withholding for failure properly to report the receipt of interest or dividend
income, or (3) who has failed to certify to the Fund that it is not subject to
backup withholding or that it is an "exempt recipient" (such as a corporation).
SALE OR REDEMPTION OF SHARES
Each Fund seeks to maintain a stable net asset value of $1.00 per share;
however, there can be no assurance that the Funds will be able to maintain such
value. If the net asset value deviates from $1.00 per share, a shareholder will
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recognize gain or loss on the sale or redemption of shares of a Fund in an
amount equal to the difference between the proceeds of the sale or redemption
and the shareholder's adjusted tax basis in the shares. All or a portion of any
loss so recognized may be disallowed if the shareholder purchases other shares
of a Fund within 30 days before or after the sale or redemption. In general, any
gain or loss arising from (or treated as arising from) the sale or redemption of
shares of a Fund will be considered capital gain or loss and will be long-term
capital gain or loss if the shares were held for longer than one year. However,
any capital loss arising from the sale or redemption of shares held for six
months or less will be disallowed to the extent of the amount of exempt-interest
dividends received with respect to 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. Capital losses in any year
are deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from a Fund is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends paid to
the shareholder will be subject to U.S. withholding tax at the rate of 30% (or
lower applicable treaty rate) on 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 or redemption of shares of a Fund, capital gain
dividends, exempt-interest dividends, and amounts retained by a Fund that are
designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then ordinary income and capital gain
dividends received in respect of, and any gains realized upon the sale of,
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. taxpayers.
In the case of a noncorporate foreign shareholder, a Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or subject to withholding at a reduced treaty
rate), unless the shareholder furnishes the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund, including the
applicability of foreign taxes.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and 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.
Rules of state and local taxation of ordinary income dividends, exempt-interest
dividends and capital gain dividends from regulated investment companies may
differ from the rules for U.S. federal income taxation described above.
Shareholders are urged to consult their tax advisers as to the consequences of
these and other state and local tax rules affecting investment in a Fund.
YIELD INFORMATION
The yield for each Portfolio can be obtained by calling your securities dealer
or the Distributor at (212) 830-5280 if calling from New Jersey, Alaska or
Hawaii, or by calling toll free at (800) 433-1918 if calling from elsewhere in
the continental U.S. Quotations of yield on the Portfolios may also appear from
time to time in the financial press and in advertisements.
The current yields quoted will be the net average annualized yield for an
identified period, usually seven consecutive calendar days. Yield for a
Portfolio will be computed by assuming that an account was established with a
single share of such Portfolio (the "Single Share Account") on the first day of
the period. To arrive at the quoted yield, the net change in the value of that
Single Share Account for the period (which would include dividends accrued with
respect to the share, and dividends declared on shares purchased with dividends
accrued and paid, if any, but would not include realized gains and losses or
unrealized appreciation or depreciation) will be multiplied by 365 and then
divided by the number of days in the period, with the resulting figure carried
to the nearest hundredth of 1%. The Company may also furnish a quotation of
effective yield for each Portfolio that assumes the reinvestment of dividends
for a 365 day year and a return for the entire
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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.
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
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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.
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 Money Market Fund
Bradford Short-Term 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 Money Market 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 Short-Term Municipal Money Market
Fund Shares). Each Fund share is entitled to participate pro rata in the
dividends and distributions from that Fund. Additional information concerning
the rights of share ownership is set forth in each Prospectus.
The assets received by the Company for the issue or sale of shares of each
Portfolio and all income, earnings, profits, losses and proceeds therefrom,
subject only to the rights of creditors, are allocated to that Portfolio, and
constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio are segregated and are charged with the expenses with respect to
that Portfolio and with a share of the general expenses of the Company as
described below under "Expenses". While the expenses of the Company are
allocated to the separate books of account of each 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".
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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.
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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 general referred to as "gilt edge."
Bonds rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger. Moody's applies numerical modifiers 1, 2
and 3 in the Aa rating category. The modifier 1 indicates a ranking for the
security in the higher end of this rating category, the modifier 2 indicates a
mid-range ranking, and the modifier 3 indicates a ranking in the lower end of
the rating category.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly
marketable, suitable for investment by trustees and fiduciary institutions and
are liable to but slight market fluctuation other than through changes in the
money rate. The prime feature of an AAA bond is a showing of earnings several
times or many times interest requirements, with such stability of applicable
earnings that safety is beyond reasonable question whatever changes occur in
conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety
virtually beyond question and are readily salable, whose merits are not unlike
those of the AAA class, but whose margin of safety is less strikingly broad. The
issue may be the obligation
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of a small company, strongly secured but influenced as to rating by the lesser
financial power of the enterprise and more local type market.
Bonds rated Duff-1 are judged by Duff to be of the highest credit quality with
negligible risk factors; only slightly more than U.S. Treasury debt. Bonds rated
Duff-2, 3 and 4 are judged by Duff to be of high credit quality with strong
protection factors. Risk is modest but may vary slightly from time to time
because of economic conditions.Obligations rated AAA by IBCA have the lowest
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial, such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk significantly.
Obligations for which there is a very low expectation of investment risk are
rated AA by IBCA.
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,
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and principal is secure. While the various protective elements are likely to
change, such changes as can be anticipated are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as "high
grade" bonds. They are rated lower than the Aaa bonds because margins of
protection may not be as large as the Aaa securities or the fluctuation of
protective elements may be of greater amplitude, or other elements may be
present which make the long-term risks appear somewhat larger than in Aaa
securities.
MOODY'S STATE AND MUNICIPAL SHORT-TERM RATINGS
Moody's assigns state and municipal notes, as well as other short-term
obligations, a Moody's Investment Grade ("MIG") rating. Factors affecting the
liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in evaluating bond
risk may be less important over the short run.
MIG 1
Notes bearing this designation are of the best quality. The notes enjoy strong
"protection" by established cash flows, superior liquidity support or a
demonstrated broad-based access to the market for refinancing.
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.
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