<PAGE>
As filed with the Securities and Exchange Commission on December 2, 1998
Registration Nos. 2-53808 and 811-2573
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 46
on
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
------------------
TRUST FOR FEDERAL SECURITIES
(Exact Name of Registrant as Specified in Charter)
Bellevue Park Corporate Center
400 Bellevue Parkway
Wilmington, Delaware 19809
(Address of Principal Executive Offices)
Registrant's Telephone Number:
(302) 791-3329
LISA M. BUONO
Bellevue Park Corporate Center
400 Bellevue Parkway
Wilmington, Delaware 19809
(Name and Address of
Agent for Service)
Copy to:
W. BRUCE McCONNEL, III
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on February 28, 1996 pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest
==============================================================================
<PAGE>
[FRONT COVER]
FEDFUND
AN INVESTMENT PORTFOLIO OFFERED BY
PROVIDENT INSTITUTIONAL FUNDS
PROSPECTUS
January 31, 1999
Bellevue Park Corporate Center For purchase and redemption orders only
400 Bellevue Parkway call: 800-441-7450 (in Delaware:
Wilmington, DE 19809 302-791-5350). For yield information
call: 800-821-6006 (FedFund Shares
code: 30; FedFund Dollar Shares code:
31). For other information call:
800-821-7432 or visit our web site at
www.pif.com.
INVESTMENT ADVISER
BLACKROCK INSTITUTIONAL MANAGEMENT CORPORATION
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
FUND'S SHARES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A
CRIMINAL OFFENSE TO STATE OTHERWISE.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk/Return Summary......................................................
Investment Objective................................................
Investment Policies.................................................
Principal Risk of Investing.........................................
Who May Want to Invest in the Fund..................................
Performance Information.............................................
Fees and Expenses...................................................
Investment Strategies and Risk Disclosure................................
Management of the Fund...................................................
Shareholder Information..................................................
Price of Fund Shares................................................
Purchase of Shares.................................................
Redemption of Shares................................................
Shareholder Service Plan............................................
Dividends and Distributions.........................................
Taxes...............................................................
Financial Highlights.....................................................
</TABLE>
-2-
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE: The Fund seeks current income with liquidity and
security of principal.
INVESTMENT POLICIES: We are a money market fund which invests in a
portfolio consisting of U.S. Treasury bills, notes
and other obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities
and repurchase agreements relating to such
obligations.
PRINCIPAL RISK OF INVESTING: Securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities
have historically involved little risk of loss of
principal if held to maturity. However, due to
fluctuations in interest rates, the market value
of such securities may vary during the period a
shareholder owns shares of the Fund. While the
Fund seeks to maintain a constant net asset value
of $1.00 per share, the Fund is subject to risks
related to changes in prevailing interest rates,
since generally, a fixed-income security will
increase in value when interest rates fall and
decrease in value when interest rates rise.
An investment in the Fund is not a deposit in PNC
Bank, N.A. and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other
government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing
in the Fund.
-3-
<PAGE>
WHO MAY WANT TO INVEST The Fund is designed for institutional investors
IN THE FUND: seeking current income with liquidity and security
of principal. The Fund is particularly suitable
for banks, corporations and other financial
institutions that seek investment of short-term
funds for their own accounts or for the accounts
of their customers.
PERFORMANCE INFORMATION
The Bar Chart and the Table below show the Fund's annual return and its
long-term performance. The Bar Chart shows how the performance of the Fund has
varied from year to year. The Table shows how the Fund's average annual return
for one, five and ten years compares to that of a selected market index. The
Bar Chart and the Table assume reinvestment of dividends and distributions. The
Fund's past performance does not necessarily indicate how it will perform in the
future.
[PLEASE PROVIDE BAR CHART FOR FUND SHOWING CALENDAR
YEAR-BY-YEAR TOTAL RETURN FOR THE FUND FOR THE LAST 10
CALENDAR YEARS. THE BAR ON THE LEFT WILL COVER THE
EARLIEST YEAR (OR PERIOD), AND THE BARS TO THE RIGHT
WILL REPRESENT SUBSEQUENT CALENDAR YEARS, ENDING WITH
1998. THE NUMERICAL RETURN MUST BE ADJACENT TO EACH
BAR. THE BAR CHART CAN ONLY BE FOR ONE OF THE CLASSES
(E.G., EITHER FEDFUND SHARES OR FEDFUND DOLLAR
SHARES).]
During the ten-year period shown in the bar chart, the highest quarterly
return was ____% (for the quarter ended ______) and the lowest quarterly return
was ______% (for the quarter ended _______).
-4-
<PAGE>
THE FUND'S AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 1998
- -----------------------------------------------
. IBC FINANCIAL DATA'S GOVERNMENT
INSTITUTIONS - ONLY MONEY FUND AVERAGE
IS COMPRISED OF MONEY FUNDS INVESTING IN
U.S. T-BILLS, REPURCHASE AGREEMENTS AND/OR
GOVERNMENT AGENCIES.
- -----------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
TEMPFUND SHARES
- --------------------------------------------------------------------------------
TEMPFUND DOLLAR SHARES
- --------------------------------------------------------------------------------
IBC FINANCIAL DATA'S
GOVERNMENT INSTITUTIONS -
ONLY MONEY FUND AVERAGE
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
7 DAY YIELD
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<S> <C>
TEMPFUND SHARES __________%
- --------------------------------------------------------------------------------
TEMPFUND DOLLAR SHARES __________%
- --------------------------------------------------------------------------------
IBC FINANCIAL GOVERNMENT __________%
INSTITUTIONS - ONLY MONEY FUND AVERAGE
- --------------------------------------------------------------------------------
</TABLE>
CURRENT YIELD: You may obtain the Fund's current 7-day yield by calling 1-800-
821-7432 or by visiting its web site at www.pif.com.
-5-
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund
<TABLE>
<CAPTION>
FEDFUND
- --------------------------------------------------------------------------------
FEDFUND FEDFUND DOLLAR
SHARES SHARES
-------------- ------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted
from Fund assets)
Management Fees ___% ___%
Other Expenses ___% ___%
Administration Fees ___% ___%
Shareholder Servicing Fees ___% ___%
Miscellaneous ___% ___%
Total Annual Fund
Operating Expenses(1) % %
==== ====
- --------------------------------------------------------------------------------
</TABLE>
(1) Total Annual Fund Operating Expenses for FedFund Shares and FedFund Dollar
Shares for the fiscal year ended October 31, 1998, with fee waivers, would have
been .20% and .45%, respectively, of the Fund's average net assets. BlackRock
Institutional Management Corporation ("BIMC," or the "Adviser") and PFPC Inc.,
the Fund's co-administrator, may from time to time waive the investment advisory
and administration fees otherwise payable to them or may reimburse the Fund for
its operating expenses. The Adviser and PFPC expect to continue such fee
waivers, but can terminate the waivers upon 120 days prior written notice to the
Fund. The foregoing table has not been audited by the Fund's independent
accountants.
-6-
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes 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. The
Example also assumes 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:
<TABLE>
<CAPTION>
FEDFUND
- ---------------------------------------------------------------
FEDFUND FEDFUND
SHARES DOLLAR SHARES
- ---------------------------------------------------------------
<S> <C> <C>
One Year $____ $____
Three years $____ $____
Five Years $____ $____
Ten Years $____ $____
- ---------------------------------------------------------------
</TABLE>
-7-
<PAGE>
INVESTMENT STRATEGIES AND RISK DISCLOSURE
The Fund is a money market fund. The investment objective of the Fund is
to seek current income with liquidity and security of principal. The Fund's
investment objective may be changed by the Board of Trustees without shareholder
approval. The Fund invests in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (in addition to direct Treasury
obligations) and repurchase agreements relating to such obligations.
The Fund will invest in securities maturing within 13 months or less from
the date of purchase, with certain exceptions. For example, certain government
securities held by the Fund may have remaining maturities exceeding 13 months if
such securities provide for adjustments in their interest rates not less
frequently than every 13 months. The securities purchased by the Fund are also
subject to the quality, diversification, and other requirements of Rule 2a-7
under the Investment Company Act of 1940, as amended, and other rules of the
Securities and Exchange Commission.
INVESTMENTS. The following are some of the types of investments and
investment strategies used by the Fund.
U.S. Government Obligations. The Fund may purchase obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities and
related custodial receipts.
Investment Company Securities. The Fund may invest in securities issued by
other open-end investment companies that invest in the type of obligations in
which the Fund may invest and that determine their net asset value per share
based upon the amortized cost or penny rounding method.
Repurchase Agreements. The Fund may enter into repurchase agreements.
Reverse Repurchase Agreements and Securities Lending. The Fund may enter
into reverse repurchase agreements. The Fund is permitted to invest up to one-
third of its total assets in reverse repurchase agreements. The Fund may also
lend its securities with a value of up to one-third of its total assets
(including the value of the collateral for the loan) to qualified brokers,
dealers, banks and other financial institutions for the purpose of realizing
additional net investment income through the receipt of interest on the loan.
Investments in reverse repurchase agreements and securities lending transaction
will be aggregated for purposes of this investment limitation.
When-Issued and Delayed Settlement Transactions. The Fund may purchase
securities on a "when-issued" or "delayed settlement" basis. The Fund expects
that commitments to purchase when-issued or delayed settlement securities will
not exceed 25% of the value of its total assets absent unusual market
conditions. The Fund does not intend to purchase when-issued or delayed
settlement securities for speculative purposes but only in furtherance of its
investment objective.
-8-
<PAGE>
Other Types of Investments. This Prospectus describes the Fund's
principal investment strategies, and the particular types of securities in which
the Fund principally invests. The Fund may, from time to time, make other types
of investments and pursue other investment strategies in support of its overall
investment goal. These supplemental investment strategies are described in
detail in the Statement of Additional Information, which is referred to on the
back cover of this Prospectus.
RISK FACTORS. The principal risks of investing in the Fund are also
described above in the Risk/Return Summary. The following supplements that
description.
Interest Rate Risk. Generally, a fixed-income security will increase in
value when interest rates fall and decrease in value when interest rates rise.
As a result, if interest rates were to change rapidly, there is a risk that the
change in market value of the Fund's assets may not enable the Fund to maintain
a stable net asset value of $1.00 per share.
Credit Risk. The risk that an issuer will be unable to make principal and
interest payments when due is known as "credit risk." U.S. Government
securities are generally considered to be the safest type of investment in terms
of credit risk. Not all U.S. Government Securities are backed by the full faith
and credit of the United States. Obligations of certain agencies and
instrumentalities of the U.S. Government are backed by the full faith and credit
of the United States. Others are backed by the right of the issuer to borrow
from the U.S. Treasury or are backed only by the credit of the agency or
instrumentality issuing the obligation.
Other Risks. Certain investment strategies employed by the Fund may
involve additional investment risk. For example, reverse repurchase agreements,
securities lending transactions and when-issued or delayed settlement
transactions may involve leverage risk. Leverage risk is associated with
securities or practices that multiply small market movements into larger changes
in the value of the Fund's investment portfolio.
Year 2000. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and the Fund's other service providers, or
persons with whom they deal, do not properly process and calculate date-related
information and data from and after January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." The Fund has been advised by the
Adviser, the Administrators and the Custodian that they are actively taking
steps to address the Year 2000 Problem with respect to the computer systems that
they use and to obtain assurances that comparable steps are being taken by the
Fund's other major service providers. While there can be no assurance that the
Fund's service providers will be Year 2000 compliant, the Fund's service
providers expect that their plans to be compliant will be achieved.
-9-
<PAGE>
MANAGEMENT OF THE FUND
INVESTMENT ADVISER
The Adviser, a wholly-owned indirect subsidiary of PNC Bank, serves as the
Fund's investment adviser. The Adviser and its affiliates are one of the
largest U.S. bank managers of mutual funds, with assets currently under
management in excess of $__ billion. BIMC (formerly known as PNC Institutional
Management Corporation or "PIMC") was organized in 1977 by PNC Bank to perform
advisory services for investment companies and has its principal offices at
Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809.
As investment adviser, BIMC manages the Fund and is responsible for all
purchases and sales of the Fund's securities. For the investment advisory
services provided and expenses assumed by it, BIMC is entitled to receive a fee,
computed daily and payable monthly, based on the Fund's average net assets.
BIMC and PFPC, the co-administrator, may from time to time reduce the investment
advisory and administration fees otherwise payable to them or may reimburse the
Fund for its operating expenses. Any fees waived and any expenses reimbursed by
BIMC and PFPC with respect to a particular fiscal year are not recoverable. For
the fiscal year ended October 31, 1998, the Fund paid investment advisory fees
and administration fees each aggregating .___% of its average net assets. The
services provided by BIMC and the fees payable by the Fund for these services
are described further in the Statement of Additional Information under
"Management of the Funds."
SHAREHOLDER INFORMATION
PRICE OF FUND SHARES
The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by PFPC Inc. ("PFPC"), the Funds co-
administrator, as of 12:00 noon and 4:00 P.M., Eastern time, on each day on
which both the New York Stock Exchange and the Federal Reserve Bank of
Philadelphia are open for business (a "Business Day"). The net asset value per
share of each class of the Fund's shares is calculated by adding the value of
all securities and other assets of the Fund that are allocable to a particular
class, subtracting liabilities charged to such class, and dividing the result by
the total number of outstanding shares of such class. In computing net asset
value, the Fund uses the amortized cost method of valuation as described in the
Statement of Additional Information under "Additional Purchase and Redemption
Information." Under the 1940 Act, the Fund may postpone the date of payment of
any redeemable security for up to seven days.
-10-
<PAGE>
PURCHASE OF SHARES
Fund shares are sold at the net asset value per share next determined after
acceptance of a purchase order by PFPC, which also serves as the Fund's transfer
agent. Purchase orders for shares are accepted only on Business Days and must
be transmitted to PFPC in Wilmington, Delaware by telephone (800-441-7450; in
Delaware: 302-791-5350) or through the Fund's computer access program. Orders
accepted before 12:00 noon, Eastern time, for which payment has been received by
PNC Bank, N.A. ("PNC Bank"), the Fund's custodian, will be executed at 12:00
noon. Orders accepted after 12:00 noon and before 3:00 P.M., Eastern time (or
orders accepted earlier in the same day for which payment has not been received
by 12:00 noon), will be executed at 4:00 P.M., Eastern time, if payment has been
received by PNC Bank by that time. Orders received at other times, and orders
for which payment has not been received by 4:00 P.M., Eastern time, will not be
accepted, and notice thereof will be given to the institution placing the order.
(Payment for orders which are not received or accepted will be returned after
prompt inquiry to the sending institution.) The Fund may in its discretion
reject any order for shares.
-11-
<PAGE>
Payment for Fund shares may be made only in federal funds or other funds
immediately available to PNC Bank. The minimum initial investment by an
institution is $3 million for FedFund Shares and $5,000 for FedFund Dollar
Shares; however, broker-dealers and other institutional investors may set a
higher minimum for their customers. There is no minimum subsequent investment.
The Fund, at its discretion, may reduce the minimum initial investment for
FedFund Shares for specific institutions whose aggregate relationship with the
Provident Institutional Funds is substantially equivalent to this $3 million
minimum and warrants this reduction.
Fund shares are sold and redeemed without charge by the Fund.
Institutional investors purchasing or holding Fund shares for their customer
accounts may charge customer fees for cash management and other services
provided in connection with their accounts. A customer should, therefore,
consider the terms of its account with an institution before purchasing Fund
shares. An institution purchasing or redeeming Fund shares on behalf of its
customers is responsible for transmitting orders to the Fund in accordance with
its customer agreements.
Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in FedFund Dollar Shares. (See also "Management of the Fund -- Service
Organizations," as described in the Statement of Additional Information.)
Institutions, including banks regulated by the Comptroller of the Currency and
investment advisers and other money managers subject to the jurisdiction of the
SEC, the Department of Labor or state securities commissions, are urged to
consult their legal advisors before investing fiduciary funds in FedFund Dollar
Shares. (See also "Management of the Fund -- Banking Laws," as described in the
Statement of Additional Information.)
REDEMPTION OF SHARES
Redemption orders must be transmitted to PFPC in Wilmington, Delaware in
the manner described under "Purchase of Shares." Shares are redeemed at the net
asset value per share next determined after PFPC's receipt of the redemption
order. While the Fund intends to use its best efforts to maintain its net asset
value per share at $1.00, the proceeds paid to a shareholder upon redemption may
be more or less than the amount invested depending upon a share's net asset
value at the time of redemption. Call 1-800-441-7450 (in Delaware: 302-791-
5350) to place redemption orders.
Payment for redeemed shares for which a redemption order is received by
PFPC by 3:00 P.M., Eastern time, on a Business Day is normally made in federal
funds wired to the redeeming shareholder on the same day. Payment for
redemption orders which are received between 3:00 P.M. and 4:00 P.M., Eastern
time, or on a day when PNC Bank is closed is normally wired in federal funds on
the next day following redemption that PNC Bank is open for business.
-12-
<PAGE>
The Fund shall have the right to redeem shares in any account if the value
of the account is less than $1,000, after sixty-days' prior written notice to
the shareholder. Any such redemption shall be effected at the net asset value
next determined after the redemption order is entered. If during the sixty-day
period the shareholder increases the value of its account to $1,000 or more, no
such redemption shall take place. Moreover, if a shareholder's FedFund Shares
account falls below an average of $100,000 in any particular calendar month, the
account may be charged an account maintenance fee with respect to that month.
In addition, the Fund may also redeem shares involuntarily under certain special
circumstances described in the Statement of Additional Information under
"Additional Purchase and Redemption Information."
SHAREHOLDER SERVICE PLAN
Institutional investors, such as banks, savings and loan associations and
other financial institutions, including affiliates of PNC Bank Corp. ("Service
Organizations"), may purchase Dollar Shares. FedFund Dollar Shares are
identical in all respects to FedFund Shares except that they bear the service
fees described below and enjoy certain exclusive voting rights on matters
relating to these fees. The Fund will enter into an agreement with each Service
Organization which purchases Dollar Shares requiring it to provide support
services to its customers who are the beneficial owners of such shares in
consideration of the Fund's payment of .25% (on an annualized basis) of the
average daily net asset value of the Dollar Shares held by the Service
Organization for the benefit of customers. Such services, which are described
more fully in the Statement of Additional Information under "Management of the
Fund - Service Organizations," include aggregating and processing purchase and
redemption requests from customers and placing net purchase and redemption
orders with PFPC; processing dividend payments from the Fund on behalf of
customers; providing information periodically to customers showing their
positions in Dollar Shares; and providing sub-accounting or the information
necessary for sub-accounting with respect to Dollar Shares beneficially owned by
customers. Under the terms of the agreements, Service Organizations are
required to provide to their customers a schedule of any fees that they may
charge customers in connection with their investments in Dollar Shares. FedFund
Shares are sold to institutions that have not entered into servicing agreements
with the Fund in connection with their investments.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends daily and distributes substantially all of its
net investment income to shareholders monthly. Shares begin accruing dividends
on the day the purchase order for the shares is effected and continue to accrue
dividends through the day before such shares are redeemed. Dividends are paid
monthly by check, or by wire transfer if requested in writing by the
shareholder, within five business days after the end of the month or within five
business days after a redemption of all of a shareholder's shares of a
particular class.
Dividends are determined in the same manner for each class of shares of the
Fund. FedFund Dollar Shares bear all the expense of fees paid to Service
Organizations, and as a result, at any given time, the dividend on FedFund
Dollar Shares will be approximately .25% lower than the dividend on FedFund
Shares.
-13-
<PAGE>
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same class of shares with respect
to which such dividends are declared at the net asset value of such shares on
the payment date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Reinvestment elections, and any revocations thereof,
must be made in writing to PFPC, the Fund's transfer agent, at P.O. Box 8950,
Wilmington, Delaware 19885-9628 and will become effective after its receipt by
PFPC with respect to dividends paid.
TAXES
GENERAL. As long as the Fund meets the requirements for being a regulated
investment company, it pays no federal income tax on the earnings it distributes
to shareholders. The Fund qualified as a regulated investment company in its
last taxable year, and intends to qualify in future years.
Dividends you receive from the Fund, whether reinvested or taken as cash,
are generally taxable. Dividends from the Fund's long-term capital gains are
taxable as capital gains; dividends from other sources are generally taxable as
ordinary income. It is anticipated that substantially all of the dividends from
the Fund will be taxable as ordinary income.
PFPC, as transfer agent, will send each Fund shareholder or its authorized
representative an annual statement designating the amount, if any, of any
dividends and distributions made during each year and their federal tax
qualification.
MISCELLANEOUS. Dividends declared in December of any year, and payable to
shareholders of record on a specified date in December, will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during January of the
following year.
The foregoing discussion is only a brief summary of some of the federal tax
considerations generally affecting the Fund and its shareholders. No attempt is
made to present a detailed explanation of the federal, state or local income tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential investors in
the Fund should consult their tax advisors with specific reference to their own
tax situation.
-14-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are 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 PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, are incorporated by reference into the
Statement of Additional Information and included in the Annual Report, each of
which is available upon request.
FEDFUND SHARES
The table below sets forth selected financial data for a FedFund Share
outstanding throughout each year presented.
YEAR ENDED OCTOBER 31,
----------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ----------
Income from Investment Operations
Net Investment Income _____ .0530 .0529 .0571 .0377
Net Gains or Losses on
Securities
(both realized and -- -- -- --
unrealized) ----- ---------- ---------- ---------- ----------
Total From Investment Operations .0530 .0529 .0571 .0377
----- ---------- ---------- ---------- ----------
Less Distribution
Dividends (from net investment
income (_____) (.0530) (.0529) (.0571) (.0377)
Distributions (from capital gains)(_____) -- -- -- --
---------- ---------- ---------- ----------
Total Distributions (.0530) (.0529) (.0571) (.0377)
---------- ---------- ---------- ----------
Net Asset Value End of Period $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===== ========== ========== ========== ==========
Total Return _____% 5.43% 5.41% 5.86% 3.84%
Ratios/Supplement Data
Net Assets, End of Year (000's) $ $1,220,857 $1,407,529 $1,377,175 $1,557,562
Ratio of Expenses to Average
Daily
Net Assets _____%/1/ .20%/1/ .19%/1/ .18%/1/ .18%/1/
Ratio of Net Investment Income
to Average Daily Net Assets _____% 5.30% 5.29% 5.71% 3.76%
</TABLE>
_________________
/1/ Without the waiver of advisory and administration fees, the ratio of
expenses to average daily net assets for FedFund Shares would have been __% for
the year ended October 31, 1998, .29% for the year ended October 31, 1997, .30%
for the year ended October 31, 1996, .29% for the year ended October 31, 1995
and .30% for the year ended October 31, 1994.
-15-
<PAGE>
FEDFUND DOLLAR SHARES
The table below sets forth selected financial data for a FedFund Dollar Share
outstanding throughout each year presented.
YEAR ENDED OCTOBER 31,
----------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- ---------- ---------- ---------- ----------
Income from Investment
Operations
Net Investment Income ----- .0505 .0504 .0546 .0352
Net Gains or Losses on
Securities
(both realized and -- -- -- --
unrealized) ----- ---------- ---------- ---------- ----------
Total From Investment Operations .0505 .0504 .0546 .0352
----- ---------- ---------- ---------- ----------
Less Distribution
Dividends (from net investment
income (_____) (.0505) (.0504) (.0546) (.0352)
Distributions (from capital gains) ----- -- -- -- --
---------- ---------- ---------- ----------
Total Distributions (_____) (.0505) (.0504) (.0546) (.0352)
---------- ---------- ---------- ----------
Net Asset Value End of Period $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===== ========== ========== ========== ==========
Total Return 5.18% 5.16% 5.61% 3.59%
Ratios/Supplement Data
Net Assets, End of Year (000's) $_____ $ 116,316 $ 113,747 $ 213,177 $ 135,769
Ratio of Expenses to Average
Daily
Net Assets ______%/1/ .45%/1/ .44%/1/ .43%/1/ .43%/1/
Ratio of Net Investment Income
to Average Daily Net Assets ______% 5.05% 5.04% 5.46% 3.51%
</TABLE>
- -----------------------
/1/ Without the waiver of advisory and administration fees, the ratio of
expenses to average to daily net assets for FedFund Dollar Shares would have
been __% for the year ended October 31, 1998, .54% for the year ended October
31, 1997, .55% for the year ended October 31, 1996, .54% for the year ended
October 31, 1995 and .55% for the year ended October 31, 1994.
-16-
<PAGE>
[BACK COVER]
WHERE TO FIND MORE INFORMATION
The Statement of Additional Information (the "SAI") includes additional
information about the Fund's investment policies, organization and management.
It is legally part of this prospectus (it is incorporated by reference). The
Annual and Semi-Annual Reports provide additional information about the Fund's
investments, performance and portfolio holdings.
Investors can get free copies of the above named documents, and make shareholder
inquiries, by calling 1-800-821-7432. Other information is available on the
Fund's web site at www.pif.com.
Information about the Fund (including the Fund's SAI) can be reviewed and copied
at the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. Information about the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. Reports and other information
about the Fund are available on the SEC's Internet site at http://www.sec.gov.
Copies of this information may be obtained, upon payment of a duplicating fee,
by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
The Trust for Federal Securities File No. is 811-2573
-17-
<PAGE>
[FRONT COVER]
T-FUND
AN INVESTMENT PORTFOLIO OFFERED BY
PROVIDENT INSTITUTIONAL FUNDS
PROSPECTUS
January 31, 1999
<TABLE>
<S> <C>
Bellevue Park Corporate Center For purchase and redemption orders only
400 Bellevue Parkway call: 800-441-7450 (in Delaware:
Wilmington, DE 19809 302-791-5350). For yield information
call: 800-821-6006 (T-Fund Shares
code: 60; T-Fund Dollar Shares code:
61). For other information call:
800-821-7432 or visit our web site at
www.pif.com.
</TABLE>
INVESTMENT ADVISER
BLACK ROCK INSTITUTIONAL MANAGEMENT CORPORATION
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
FUND'S SHARES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A
CRIMINAL OFFENSE TO STATE OTHERWISE.
<PAGE>
TABLE OF CONTENTS PAGE
----------------- ----
Risk/Return Summary............................................
Investment Objective......................................
Investment Policies.......................................
Principal Risk of Investing...............................
Who May Want to Invest in the Fund........................
Performance Information...................................
Fees and Expenses.........................................
Investment Strategies and Risk Disclosure......................
Management of the Fund.........................................
Shareholder Information........................................
Price of Fund Shares......................................
Purchase of Shares.......................................
Redemption of Shares......................................
Distribution and Shareholder Service Plans................
Dividends and Distributions...............................
Taxes.....................................................
Financial Highlights...........................................
-2-
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE: The Fund seeks current income with liquidity
and security of principal.
INVESTMENT POLICIES: We are a money market fund which invests in
U.S. Treasury bills, notes and direct
obligations of the U.S. Treasury and
repurchase agreements relating to direct
Treasury obligations.
PRINCIPAL RISK OF INVESTING: Securities issued or guaranteed by the U.S.
Government have historically involved little
risk of loss of principal if held to
maturity. However, due to fluctuations in
interest rates, the market value of such
securities may vary during the period a
shareholder owns shares of the Fund. While
the Fund seeks to maintain a constant net
asset value of $1.00 per share, the Fund is
subject to risks related to changes in
prevailing interest rates, since generally, a
fixed-income security will increase in value
when interest rates fall and decrease in
value when interest rates rise.
An investment in the Fund is not a deposit in
PNC Bank, N.A. and is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Fund seeks to preserve the value
of your investment at $1.00 per share, it is
possible to lose money by investing in the
Fund.
-3-
<PAGE>
WHO MAY WANT TO INVEST IN The Fund is designed for institutional
THE FUND: investors seeking current income with
liquidity and security of principal. The Fund
is particularly suitable for banks,
corporations and other financial institutions
that seek investment of short-term funds for
their own accounts or for the accounts of
their customers.
PERFORMANCE INFORMATION
The Bar Chart and the Table below show the Fund's annual return and its
long-term performance. The Bar Chart shows how the performance of the Fund has
varied from year to year. The Table shows how the Fund's average annual return
for one, five and ten years compares to that of a selected market index. The Bar
Chart and the Table assume reinvestment of dividends and distributions. The
Fund's past performance does not necessarily indicate how it will perform in the
future.
[PLEASE PROVIDE BAR CHART FOR FUND SHOWING CALENDAR YEAR-BY-
YEAR TOTAL RETURN FOR THE FUND FOR THE LAST 10 CALENDAR
YEARS. THE BAR ON THE LEFT WILL COVER THE EARLIEST YEAR (OR
PERIOD), AND THE BARS TO THE RIGHT WILL REPRESENT SUBSEQUENT
CALENDAR YEARS, ENDING WITH 1998. THE NUMERICAL RETURN MUST
BE ADJACENT TO EACH BAR. THE BAR CHART CAN ONLY BE FOR ONE
OF THE CLASSES.]
During the ten-year period shown in the bar chart, the highest quarterly
return was ____% (for the quarter ended ______) and the lowest quarterly return
was ______% (for the quarter ended _______).
-4-
<PAGE>
THE FUND'S AVERAGE ANNUAL TOTAL RETURN
FOR PERIODS ENDED DECEMBER 31, 1998
- ----------------------------------------------
. IBC FINANCIAL DATA'S
GOVERNMENT INSTITUTIONS - ONLY MONEY
FUND AVERAGE IS COMPRISED OF MONEY
FUNDS INVESTING IN U.S. T-BILLS,
REPURCHASE AGREEMENTS AND/OR
GOVERNMENT AGENCIES.
- ----------------------------------------------
- ----------------------------------------------------------------
1 Year 5 Years 10 Years
- ----------------------------------------------------------------
T-FUND SHARES
- ----------------------------------------------------------------
T-FUND DOLLAR SHARES
- ----------------------------------------------------------------
IBC FINANCIAL DATA'S
GOVERNMENT INSTITUTIONS -
ONLY MONEY FUND AVERAGE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
7 DAY YIELD
AS OF DECEMBER 31, 1998
- ----------------------------------------------------------------
T-FUND SHARES __________%
- ----------------------------------------------------------------
T-FUND DOLLAR SHARES __________%
- ----------------------------------------------------------------
IBC FINANCIAL DATA'S GOVERNMENT
INSTITUTIONS - ONLY MONEY FUND
AVERAGE __________%
- ----------------------------------------------------------------
T-Fund Administration Shares, T-Fund Plus Shares, T-Fund Cash Reserve Shares and
T-Fund Cash Management Shares have not yet commenced operations, therefore no
performance information has been provided for these classes.
CURRENT YIELD: You may obtain the Fund's current 7-day yield by calling 1-800-
821-7432 or by visiting its web site at www.pif.com.
-5-
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
T-FUND
- ------------------------------------------------------------------------------------------------------------------------------------
T-FUND T-FUND T-FUND DOLLAR T-FUND PLUS T-FUND CASH T-FUND CASH
SHARES ADMINISTRATION SHARES SHARES SHARES RESERVES SHARES MANAGEMENT SHARES
--------- ----------------------- --------------- ------------- ---------------- -----------------
(estimated) (estimated) (estimated) (estimated)
<S> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted
from Fund assets)
Management Fees ___% ___% ___% ___% ___% ___%
Rule 12b-1 Fees ___% ___% ___% ___% ___% ___%
Other Expenses ___% ___% ___% ___% ___% ___%
Administration Fees ___% ___% ___% ___% ___% ___%
Shareholder Servicing Fees ___% ___% ___% ___% ___% ___%
Miscellaneous ___% ___% ___% ___% ___% ___%
Total Annual Fund
Operating Expenses(1) % % % % % %
=== === === === === ===
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total Annual Fund Operating Expenses for T-Fund Shares, T-Fund
Administration Shares, T-Fund Dollar Shares, T-Fund Plus Shares, T-Fund Cash
Reserve Shares and T-Fund Cash Management Shares for the fiscal year ended
October 31, 1998, with fee waivers, would have been .20%, .30% (estimated),
.45%, .45% (estimated), .60% (estimated), and .70% (estimated), respectively, of
the Fund's average net assets. BlackRock Institutional Management Corporation
("BIMC," or the "Adviser") and PFPC Inc., the Fund's co-administrator, may from
time to time waive the investment advisory and administration fees otherwise
payable to them or may reimburse the Fund for its operating expenses. The
Adviser and PFPC expect to continue such fee waivers, but can terminate the
waivers upon 120 days prior written notice to the Fund. The foregoing table has
not been audited by the Fund's independent accountants.
-6-
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes 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. The
Example also assumes 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:
<TABLE>
<CAPTION>
T-FUND
- ----------------------------------------------------------------------------------------------------------------------------------
T-FUND T-FUND T-FUND T-FUND PLUS T-FUND CASH T-FUND CASH
SHARES ADMINISTRATION SHARES DOLLAR SHARES SHARES RESERVES SHARES MANAGEMENT SHARES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
One Year $____ $____ $____ $____ $____ $____
Three years $____ $____ $____ $____ $____ $____
Five Years $____ $____ $____ $____ $____ $____
Ten Years $____ $____ $____ $____ $____ $____
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
INVESTMENT STRATEGIES AND RISK DISCLOSURE
The Fund is a money market fund. The investment objective of the Fund is
to seek current income with liquidity and security of principal. The Fund's
investment objective may be changed by the Board of Trustees without shareholder
approval. The Fund invests solely in direct obligations of the U.S. Treasury,
such as Treasury bills and notes and repurchase agreements relating to direct
Treasury obligations.
The Fund will invest in securities maturing within 13 months or less from
the date of purchase, with certain exceptions. For example, certain government
securities held by the Fund may have remaining maturities exceeding 13 months if
such securities provide for adjustments in their interest rates not less
frequently than every 13 months. The securities purchased by the Fund are also
subject to the quality, diversification, and other requirements of Rule 2a-7
under the Investment Company Act of 1940, as amended, and other rules of the
Securities and Exchange Commission.
INVESTMENTS. The following are some of the types of investments and
investment strategies used by the Fund.
U.S. Government Obligations. The Fund may purchase obligations issued or
guaranteed by the U.S. Government or its agencies and instrumentalities and
related custodial receipts.
Investment Company Securities. The Fund may invest in securities issued by
other open-end investment companies that invest in the type of obligations in
which the Fund may invest and that determine their net asset value per share
based upon the amortized cost or penny rounding method.
Repurchase Agreements. The Fund may enter into repurchase agreements.
Reverse Repurchase Agreements and Securities Lending. The Fund may enter
into reverse repurchase agreements. The Fund is permitted to invest up to one-
third of its total assets in reverse repurchase agreements. The Fund may also
lend its securities with a value of up to one-third of its total assets
(including the value of the collateral for the loan) to qualified brokers,
dealers, banks and other financial institutions for the purpose of realizing
additional net investment income through the receipt of interest on the loan.
Investments in reverse repurchase agreements and securities lending transaction
will be aggregated for purposes of this investment limitation.
When-Issued and Delayed Settlement Transactions. The Fund may purchase
securities on a "when-issued" or "delayed settlement" basis. The Fund expects
that commitments to purchase when-issued or delayed settlement securities will
not exceed 25% of the value of its total assets absent unusual market
conditions. The Fund does not intend to purchase when-issued or delayed
settlement securities for speculative purposes but only in furtherance of its
investment objective.
Other Types of Investments. This Prospectus describes the Fund's
principal investment strategies, and the particular types of securities in which
the Fund principally invests. The Fund may, from time to time, make other types
of investments and pursue other investment strategies
-8-
<PAGE>
in support of its overall investment goal. These supplemental investment
strategies are described in detail in the Statement of Additional Information,
which is referred to on the back cover of this Prospectus.
RISK FACTORS. The principal risks of investing in the Fund are also
described above in the Risk/Return Summary. The following supplements that
description.
Interest Rate Risk. Generally, a fixed-income security will increase in
value when interest rates fall and decrease in value when interest rates rise.
As a result, if interest rates were to change rapidly, there is a risk that the
change in market value of the Fund's assets may not enable the Fund to maintain
a stable net asset value of $1.00 per share.
Credit Risk. The risk that an issuer will be unable to make principal and
interest payments when due is known as "credit risk." U.S. government
securities are generally considered to be the safest type of investment in terms
of credit risk.
Other Risks. Certain investment strategies employed by the Fund may
involve additional investment risk. For example, reverse repurchase agreements,
securities lending transactions and when-issued or delayed settlement
transactions may involve leverage risk. Leverage risk is associated with
securities or practices that multiply small market movements into larger changes
in the value of the Fund's investment portfolio.
Year 2000. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and the Fund's other service providers, or
persons with whom they deal, do not properly process and calculate date-related
information and data from and after January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." The Fund has been advised by the
Adviser, the Administrators and the Custodian that they are actively taking
steps to address the Year 2000 Problem with respect to the computer systems that
they use and to obtain assurances that comparable steps are being taken by the
Fund's other major service providers. While there can be no assurance that the
Fund's service providers will be Year 2000 compliant, the Fund's service
providers expect that their plans to be compliant will be achieved.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER
The Adviser, a wholly-owned indirect subsidiary of PNC Bank, serves as the
Fund's investment adviser. The Adviser and its affiliates are one of the
largest U.S. bank managers of mutual funds, with assets currently under
management in excess of $__ billion. BIMC (formerly known as PNC Institutional
Management Corporation or "PIMC") was organized in 1977 by PNC Bank to perform
advisory services for investment companies and has its principal offices at
Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809.
-9-
<PAGE>
As investment adviser, BIMC manages the Fund and is responsible for all
purchases and sales of the Fund's securities. For the investment advisory
services provided and expenses assumed by it, BIMC is entitled to receive a fee,
computed daily and payable monthly, based on the Fund's average net assets. BIMC
and PFPC, the co-administrator, may from time to time reduce the investment
advisory and administration fees otherwise payable to them or may reimburse the
Fund for its operating expenses. Any fees waived and any expenses reimbursed by
BIMC and PFPC with respect to a particular fiscal year are not recoverable. For
the fiscal year ended October 31, 1998, the Fund paid investment advisory fees
and administration fees each aggregating .___% of its average net assets. The
services provided by BIMC and the fees payable by the Fund for these services
are described further in the Statement of Additional Information under
"Management of the Funds."
SHAREHOLDER INFORMATION
PRICE OF FUND SHARES
The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by PFPC Inc. ("PFPC"), the Funds co-
administrator, as of 12:00 noon and 5:30 P.M., Eastern time, on each day on
which both the New York Stock Exchange and the Federal Reserve Bank of
Philadelphia are open for business (a "Business Day"). The net asset value per
share of each class of the Fund's shares is calculated by adding the value of
all securities and other assets of the Fund that are allocable to a particular
class, subtracting liabilities charged to such class, and dividing the result by
the total number of outstanding shares of such class. In computing net asset
value, the Fund uses the amortized cost method of valuation as described in the
Statement of Additional Information under "Additional Purchase and Redemption
Information." Under the 1940 Act, the Fund may postpone the date of payment of
any redeemable security for up to seven days.
PURCHASE OF SHARES
Fund shares are sold at the net asset value per share next determined after
acceptance of a purchase order by PFPC, which also serves as the Fund's transfer
agent. Purchase orders for shares are accepted only on Business Days and must
be transmitted to PFPC in Wilmington, Delaware by telephone (800-441-7450; in
Delaware: 302-791-5350) or through the Fund's computer access program. Orders
accepted before 12:00 noon, Eastern time, for which payment has been received by
PNC Bank, N.A. ("PNC Bank"), the Fund's custodian, will be executed at 12:00
noon. Orders accepted after 12:00 noon and before 5:30 P.M., Eastern time (or
orders accepted earlier in the same day for which payment has not been received
by 12:00 noon), will be executed at 5:30 P.M., Eastern time, if payment has been
received by PNC Bank by that time. Orders received at other times, and orders
for which payment has not been received by 5:30 P.M., Eastern time, will not be
accepted, and notice thereof will be given to the institution placing the order.
(Payment for orders which are not received or accepted will be returned after
prompt inquiry to the sending institution.) Between 3:00 P.M. and 5:30 P.M.,
Eastern time, purchase orders may only be transmitted by telephone, and the Fund
reserves the right to limit the amount of such orders. The Fund may in its
discretion reject any order for shares.
-10-
<PAGE>
Payment for Fund shares may be made only in federal funds or other funds
immediately available to PNC Bank. The minimum initial investment by an
institution is $3 million for T-Fund Shares; there is no minimum initial
investment for T-Fund Administration Shares, T-Fund Dollar Shares, T-Fund Plus
Shares, T-Fund Cash Reserve Shares or T-Fund Cash Management Shares, however,
broker-dealers and other institutional investors may set a minimum for their
customers. There is no minimum subsequent investment. The Fund, at its
discretion, may reduce the minimum initial investment for T-Fund Shares for
specific institutions whose aggregate relationship with the Provident
Institutional Funds is substantially equivalent to this $3 million minimum and
warrants this reduction.
Fund shares are sold and redeemed without charge by the Fund.
Institutional investors purchasing or holding Fund shares for their customer
accounts may charge customer fees for cash management and other services
provided in connection with their accounts. A customer should, therefore,
consider the terms of its account with an institution before purchasing Fund
shares. An institution purchasing or redeeming Fund shares on behalf of its
customers is responsible for transmitting orders to the Fund in accordance with
its customer agreements.
Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in T-Fund Administration Shares, T-Fund Dollar Shares, T-Fund Plus Shares,
T-Fund Cash Reserve Shares and T-Fund Cash Management Shares. (See also
"Management of the Fund - Organizations," as described in the Statement of
Additional Information.) Institutions, including banks regulated by the
Comptroller of the Currency and investment advisers and other money managers
subject to the jurisdiction of the SEC, the Department of Labor or state
securities commissions, are urged to consult their legal advisors before
investing fiduciary funds in T-Fund Administration Shares, T-Fund Dollar Shares,
T-Fund Plus Shares, T-Fund Cash Reserve Shares and T-Fund Cash Management
Shares. (See also "Management of the Fund -- Banking Laws," as described in the
Statement of Additional Information.)
REDEMPTION OF SHARES
Redemption orders must be transmitted to PFPC in Wilmington, Delaware in
the manner described under "Purchase of Shares." Shares are redeemed at the net
asset value per share next determined after PFPC's receipt of the redemption
order. Telephone instructions for redemptions received between 3:00 P.M. and
5:30 P.M., Eastern time, on a Business Day are received for execution on that
same day, however, the Fund reserves the right to make payment for such
redemptions the next Business Day. While the Fund intends to use its best
efforts to maintain its net asset value per share at $1.00, the proceeds paid to
a shareholder upon redemption may be more or less than the amount invested
depending upon a share's net asset value at the time of redemption. Call 1-800-
441-7450 (in Delaware: 302-791-5350) to place redemption orders.
Payment for redeemed shares for which a redemption order is received by
PFPC by 5:30 P.M., Eastern time, on a Business Day is normally made in federal
funds wired to the redeeming shareholder on the same day. Payment for
redemption orders which are received on a day when PNC Bank is closed is
normally wired in federal funds on the next day following redemption that PNC
Bank is open for business.
The Fund shall have the right to redeem shares in any account if the value
of the account is less than $1,000 after sixty-days' prior written notice to
the shareholder. Any such redemption shall be effected at the net asset value
next determined after the redemption order is entered. If during the sixty-day
period the shareholder increases the value of its account to $1,000 or more, no
such redemption shall take place. Moreover, if a shareholder's T-Fund Shares
account falls
-11-
<PAGE>
below an average of $100,000 in any particular calendar month, the account may
be charged an account maintenance fee with respect to that month. In addition,
the Fund may also redeem shares involuntarily under certain special
circumstances described in the Statement of Additional Information under
"Additional Purchase and Redemption Information."
DISTRIBUTION AND SHAREHOLDER SERVICE PLANS
The Fund offers six classes of shares. The difference between the classes
of shares is the fees borne by a class of shares pursuant to separate fee plans
adopted by each class. T-Fund Shares do not bear any fees for distribution,
servicing, shareholder servicing, sweep fees or cash sweep marketing services.
The fees borne by the other classes are as follows:
- --------------------------------------------------------------------------------
CASH
SHAREHOLDER CASH SWEEP
SERVICE SERVICE 12B-1 SWEEP MARKETING TOTAL
CLASS FEE FEE FEE FEE FEE FEES
----- --- --- --- --- --- ----
- --------------------------------------------------------------------------------
Administration
Shares .10% -- -- -- -- .10%
- --------------------------------------------------------------------------------
Dollar Shares -- .25% -- -- -- .25%
- --------------------------------------------------------------------------------
Plus Shares -- -- .25% -- -- .25%
- --------------------------------------------------------------------------------
Cash Reserve
Shares .10% .25% -- .05% -- .40%
- --------------------------------------------------------------------------------
Cash
Management
Shares .10% .25% -- .05% .10% .50%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Service Fees are paid for general shareholder liaison services. Shareholder
Service Fees are paid for services relating to the processing and administration
of shareholder accounts. 12b-1 Fees are paid for distribution and sales support,
and shareholder services. Cash Sweep Fees are paid for providing a sweep service
into the Fund. Cash Sweep Marketing Fees are paid for providing marketing
administrative activities in connection with the sweep program.
Shares of the Fund are not sold to individuals, but may be sold to the
following entities, which hold the shares for the accounts of their customers.
Administration Shares, Dollar Shares, Cash Reserve Shares and Cash Management
Shares are sold to institutional investors such as banks, saving and loan
associations, and other financial institutions, including affiliates of PNC Bank
Corp. ("Service Organizations"). Plus Shares are sold to broker-dealers. Because
fees associated with the distribution and/or shareholder service plans are paid
out of the Fund's assets on an ongoing basis, over time holders of the share
classes described above may pay more than the economic equivalent of the maximum
front-end sales charge permitted by NASD regulation, Inc.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares daily and distributes substantially all of its net
investment income to shareholders monthly. Shares begin accruing dividends on
the day the purchase order for the shares is effected and continue to accrue
dividends through the day before such shares are redeemed. Dividends are paid
monthly by check, or by wire transfer if requested in writing by the
shareholder, within five business days after the end of the month or within five
business days after a redemption of all of a shareholder's shares of a
particular class.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same class of shares with respect
to which such dividends are declared at the net asset value of such shares on
the payment date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Reinvestment elections, and any revocations thereof,
must be made in writing to PFPC, the Fund's transfer agent, at P.O. Box 8950,
Wilmington, Delaware 19885-9628 and will become effective after its receipt by
PFPC with respect to dividends paid.
-12-
<PAGE>
TAXES
GENERAL. As long as the Fund meets the requirements for being a regulated
investment company, it pays no federal income tax on the earnings it distributes
to shareholders. The Fund qualified as a regulated investment company in its
last taxable year, and intends to qualify in future years.
Dividends you receive from the Fund, whether reinvested or taken as cash,
are generally taxable. Dividends from the Fund's long-term capital gains are
taxable as capital gains; dividends from other sources are generally taxable as
ordinary income. It is anticipated that substantially all of the dividends from
the Fund will be taxable as ordinary income.
PFPC, as transfer agent, will send each Fund shareholder or its authorized
representative an annual statement designating the amount, if any, of any
dividends and distributions made during each year and their federal tax
qualification.
MISCELLANEOUS. Dividends declared in December of any year, and payable to
shareholders of record on a specified date in December, will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during January of the
following year.
The foregoing discussion is only a brief summary of some of the federal tax
considerations generally affecting the Fund and its shareholders. No attempt is
made to present a detailed explanation of the federal, state or local income tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential investors in
the Fund should consult their tax advisors with specific reference to their own
tax situation.
-13-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are 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 PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, are incorporated by reference into the
Statement of Additional Information and included in the Annual Report, each of
which is available upon request. T-Fund Administration Shares, T-Fund Plus
Shares, T-Fund Cash Reserve Shares and T-Fund Cash Management Shares of the Fund
have not yet commenced operations, therefore no financial information has been
provided for these classes.
T-FUND SHARES
The table below sets forth selected financial data for a T-Fund Share
outstanding throughout each year presented.
YEAR ENDED OCTOBER 31,
----------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ----------
Income from Investment Operations
Net Investment Income _____ .0528 .0528 .0565 .0368
Net Gains or Losses on Securities
(both realized and unrealized) -- -- -- --
----- ---------- ---------- ---------- ----------
Total From Investment Operations .0528 .0528 .0565 .0368
----- ---------- ---------- ---------- ----------
Less Distribution
Dividends (from net investment
income) (_____) (.0528) (.0528) (.0565) (.0368)
Distributions (from capital gains) (_____) -- -- -- --
---------- ---------- ---------- ----------
Total Distributions (.0528) (.0528) (.0565) (.0368)
---------- ---------- ---------- ----------
Net Asset Value End of Period $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===== ========== ========== ========== ==========
Total Return ____% 5.41% 5.40% 5.80% 3.75%
Ratios/Supplement Data
Net Assets, End of Year (000's) $ $1,765,332 $1,507,603 $1,211,220 $1,012,977
Ratio of Expenses to Average
Daily Net Assets ____%/1/ .20%/1/ .19%/1/ .18%/1/ .18%/1/
Ratio of Net Investment Income
to Average Daily Net Assets ____% 5.28% 5.26% 5.66% 3.65%
</TABLE>
_________________
/1/ Without the waiver of advisory and administration fees, the ratio of
expenses to average daily net assets for T-Fund Shares would have been __% for
the year ended October 31, 1998, .29% for the year ended October 31, 1997, .30%
for the year ended October 31, 1996 and .29% for the years ended October 31,
1995 and 1994, respectively.
-14-
<PAGE>
T-FUND DOLLAR SHARES
The table below sets forth selected financial data for a T-Fund Dollar Share
outstanding throughout each year presented.
YEAR ENDED OCTOBER 31,
----------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- -------- -------- -------- --------
Income from Investment Operations
Net Investment Income _____ .0503 .0503 .0540 .0343
Net Gains or Losses on Securities
(both realized and unrealized) -- -- -- --
----- -------- -------- -------- --------
Total From Investment Operations _____ .0503 .0503 .0540 .0343
-------- -------- -------- --------
Less Distributions
Dividends (from net investment
income) (_____) (.0503) (.0503) (.0540) (.0343)
Distributions (from capital gains) -- -- -- --
----- -------- -------- -------- --------
Total Distributions (_____) (.0503) (.0503) (.0540) (.0343)
-------- -------- -------- --------
Net Asset Value, End of Period $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===== ======== ======== ======== ========
Total Return 5.16% 5.15% 5.55% 3.50%
Ratios/Supplement Data $____ $516,092 $ 51,271 $ 82,502 $ 22,195
Net Assets, End of Year (000's)
Ratio of Expenses to Average
Daily Net Assets ____%/1/ .45%/1/ .44%/1/ .43%/1/ .43%/1/
Ratio of Net Investment Income
to Average Daily Net Assets ____% 5.03% 5.07% 5.41% 3.40%
</TABLE>
_________________
/1/ Without the waiver of advisory and administration fees, the ratio of
expenses to average daily net assets for T-Fund Dollar Shares would have been
__% for the year ended October 31, 1998, .54% for the year ended October 31,
1997, .55% for the year ended October 31, 1996 and .54% for the years ended
October 31, 1995 and 1994, respectively.
-15-
<PAGE>
[BACK COVER]
WHERE TO FIND MORE INFORMATION
The Statement of Additional Information (the "SAI") includes additional
information about the Fund's investment policies, organization and management.
It is legally part of this prospectus (it is incorporated by reference). The
Annual and Semi-Annual Reports provide additional information about the Fund's
investments, performance and portfolio holdings.
Investors can get free copies of the above named documents, and make shareholder
inquiries, by calling 1-800-821-7432. Other information is available on the
Fund's web site at www.pif.com.
Information about the Fund (including the Fund's SAI) can be reviewed and copied
at the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. Information about the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. Reports and other information
about the Fund are available on the SEC's Internet site at http://www.sec.gov.
Copies of this information may be obtained, upon payment of a duplicating fee,
by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
The Trust for Federal Securities Act File No. is 811-2573
-16-
<PAGE>
[FRONT COVER]
TREASURY TRUST FUND
AN INVESTMENT PORTFOLIO OFFERED BY
PROVIDENT INSTITUTIONAL FUNDS
PROSPECTUS
January 31, 1999
Bellevue Park Corporate Center For purchase and redemption orders only
400 Bellevue Parkway call: 800-441-7450 (in Delaware: 302-
Wilmington, DE 19809 791-5350). For yield information call:
800-821-6006 (Treasury Trust Shares
code: 62; Treasury Trust Dollar Shares
code: 63). For other information call:
800-821-7432 or visit our website at
www.pif.com.
INVESTMENT ADVISER
BLACKROCK INSTITUTIONAL MANAGEMENT CORPORATION
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
FUND'S SHARES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A
CRIMINAL OFFENSE TO STATE OTHERWISE.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk/Return Summary......................................................
Investment Objective................................................
Investment Policies.................................................
Principal Risk of Investing.........................................
Who May Want to Invest in the Fund..................................
Performance Information.............................................
Fees and Expenses...................................................
Investment Strategies and Risk Disclosure................................
Management of the Fund...................................................
Shareholder Information..................................................
Price of Fund Shares................................................
Purchase of Shares..................................................
Redemption of Shares................................................
Shareholder Service Plan............................................
Dividends and Distributions.........................................
Taxes...............................................................
Financial Highlights.....................................................
</TABLE>
-2-
<PAGE>
RISK/RETURN SUMMARY
Investment Objective: The Fund seeks current income with liquidity
and security of principal.
Investment Policies: We are a money market fund which invests
solely in direct obligations of the U.S.
Treasury, such as Treasury bills and notes.
Because the Fund invests exclusively in
direct U.S. Treasury obligations, investors
may benefit from income tax exclusions or
exemptions that are available in certain
states and localities.
Principal Risk of Investing: Securities issued or guaranteed by the U.S.
Government have historically involved little
risk of loss of principal if held to
maturity. However, due to fluctuations in
interest rates, the market value of such
securities may vary during the period a
shareholder owns shares of the Fund. While
the Fund seeks to maintain a constant net
asset value of $1.00 per share, the Fund is
subject to risks related to changes in
prevailing interest rates, since generally, a
fixed-income security will increase in value
when interest rates fall and decrease in
value when interest rates rise.
The Fund may from time to time engage in
portfolio trading for liquidity purposes, in
order to enhance its yield or if otherwise
deemed advisable. In selling securities prior
to maturity, the Fund may realize a price
higher or lower than that paid to acquire any
given security, depending upon whether
interest rates have decreased or increased
since its acquisition. In addition,
shareholders in a particular state that
imposes income tax should determine through
consultation with their own tax advisors
whether such interest income, when
distributed by the Fund, will be considered
by the state to have retained exempt status,
and whether the Fund's capital gain and other
income, if any, when distributed will be
subject to the states income tax.
-3-
<PAGE>
An investment in the Fund is not a deposit in
PNC Bank, N.A. and is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Fund seeks to preserve the value
of your investment at $1.00 per share, it is
possible to lose money by investing in the
Fund.
WHO MAY WANT TO INVEST IN The Fund is designed for institutional
THE FUND: investors seeking current income with
liquidity and security of principal. The Fund
is particularly suitable for banks,
corporations and other financial institutions
that seek investment of short-term funds for
their own accounts or for the accounts of
their customers. The Fund's investment
policies are intended to qualify Fund shares
for the investment of funds of federally
regulated thrifts. The Fund intends to
qualify its shares as "short-term liquid
assets" as established in the published
rulings, interpretations, and regulations of
the Office of Thrift Supervision. However,
investing institutions are advised to consult
their primary regulator for concurrence that
Fund shares qualify under applicable
regulations and policies.
-4-
<PAGE>
PERFORMANCE INFORMATION
The Bar Chart and the Table below show the Fund's annual return and its
long-term performance. The Bar Chart shows how the performance of the Fund has
varied from year to year. The Table shows how the Fund's average annual return
for one, five and ten years compares to that of a selected market index. The Bar
Chart and the Table assume reinvestment of dividends and distributions. The
Fund's past performance does not necessarily indicate how it will perform in the
future.
[PLEASE PROVIDE BAR CHART FOR FUND SHOWING CALENDAR YEAR-BY-
YEAR TOTAL RETURN FOR THE FUND FOR THE LAST 10 CALENDAR
YEARS. THE BAR ON THE LEFT WILL COVER THE EARLIEST YEAR (OR
PERIOD), AND THE BARS TO THE RIGHT WILL REPRESENT SUBSEQUENT
CALENDAR YEARS, ENDING WITH 1998. THE NUMERICAL RETURN MUST
BE ADJACENT TO EACH BAR. THE BAR CHART CAN ONLY BE FOR ONE
OF THE CLASSES (E.G., EITHER TREASURY TRUST FUND SHARES OR
TREASURY TRUST FUND DOLLAR SHARES).]
During the ten-year period shown in the bar chart, the highest quarterly
return was ____% (for the quarter ended ______) and the lowest quarterly return
was ______% (for the quarter ended _______).
-5-
<PAGE>
THE FUND'S AVERAGE ANNUAL TOTAL RETURN FOR
PERIODS ENDED DECEMBER 31, 1998
- -----------------------------------
. IBC Financial Data's
Government Institutions -
Only Money Fund Average is
comprised of money funds
investing in U.S. T-Bills,
Repurchase Agreements and/or
Government Agencies.
- -----------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TREASURY TRUST FUND SHARES
- --------------------------------------------------------------------------------------------------------
TREASURY TRUST FUND DOLLAR SHARES
- --------------------------------------------------------------------------------------------------------
IBC FINANCIAL DATA'S GOVERNMENT INSTITUTIONS-ONLY MONEY FUND
AVERAGE
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
7 DAY YIELD
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------------
<S> <C>
TREASURY TRUST FUND SHARES __________%
- --------------------------------------------------------------------------------------------------------
TREASURY TRUST FUND DOLLAR SHARES __________%
- --------------------------------------------------------------------------------------------------------
IBC Financial Data's Government
INSTITUTIONS-ONLY MONEY FUND AVERAGE __________%
- --------------------------------------------------------------------------------------------------------
</TABLE>
CURRENT YIELD: You may obtain the Fund's current 7-day yield by calling 1-800-
821-7432 or by visiting its website at www.pif.com.
-6-
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
TREASURY TRUST FUND
- ----------------------------------------------------------------------------
TREASURY TRUST TREASURY TRUST FUND
FUND SHARES DOLLAR SHARES
---------------- -------------------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted
from Fund assets)
Management Fees % %
---- ----
Other Expenses % %
---- ----
Administration Fees % %
---- ----
Shareholder Servicing Fees % %
---- ----
Miscellaneous % %
---- ----
Total Annual Fund
Operating Expenses(1) % %
==== ====
- ----------------------------------------------------------------------------
</TABLE>
(1) Total Annual Fund Operating Expenses for Treasury Trust Fund Shares and
Treasury Trust Fund Dollar Shares for the fiscal year ended October 31, 1998,
with fee waivers, would have been .20% and .45%, respectively, of the Fund's
average net assets. BlackRock Institutional Management Corporation ("BIMC," or
the "Adviser") and PFPC Inc., the Fund's co-administrator, may from time to time
waive the investment advisory and administration fees otherwise payable to them
or may reimburse the Fund for its operating expenses. The Adviser and PFPC
expect to continue such fee waivers, but can terminate the waivers upon 120 days
prior written notice to the Fund. The foregoing table has not been audited by
the Fund's independent accountants.
-7-
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes 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. The
Example also assumes 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:
<TABLE>
<CAPTION>
TREASURY TRUST FUND
- --------------------------------------------------------------------------
TREASURY TRUST FUND TREASURY TRUST FUND
SHARES DOLLAR SHARES
- --------------------------------------------------------------------------
<S> <C> <C>
One Year $____ $____
Three years $____ $____
Five Years $____ $____
Ten Years $____ $____
- --------------------------------------------------------------------------
</TABLE>
-8-
<PAGE>
INVESTMENT STRATEGIES AND RISK DISCLOSURE
The Fund is a money market fund. The investment objective of the Fund is
to seek current income with liquidity and security of principal. The Fund's
investment objective may be changed by the Board of Trustees without shareholder
approval. The Fund invests solely in direct obligations of the U.S. Treasury,
such as Treasury bills and notes.
The Fund will invest in securities maturing within one year or less, with
certain exceptions. For example, certain government securities held by the Fund
may have remaining maturities exceeding 13 months if such securities provide for
adjustments in their interest rates not less frequently than every 13 months.
The securities purchased by the Fund are also subject to the quality,
diversification, and other requirements of Rule 2a-7 under the Investment
Company Act of 1940, as amended, and other rules of the Securities and Exchange
Commission.
INVESTMENTS. The following are some of the types of investments and
investment strategies used by the Fund.
U.S. Government Obligations. To the extent consistent with its investment
objectives, the Fund may invest in Treasury securities and related custodial
receipts.
Investment Company Securities. The Fund may invest in securities issued by
other open-end investment companies that invest in the type of obligations in
which the Fund may invest and that determine their net asset value per share
based upon the amortized cost or penny rounding method.
When-Issued and Delayed Settlement Transactions. The Fund may purchase
securities on a "when-issued" or "delayed settlement" basis. The Fund expects
that commitments to purchase when-issued or delayed settlement securities will
not exceed 25% of the value of its total assets absent unusual market
conditions. The Fund does not intend to purchase when-issued or delayed
settlement securities for speculative purposes but only in furtherance of its
investment objective.
Other Types of Investments. This Prospectus describes the Fund's
principal investment strategies, and the particular types of securities in which
the Fund principally invests. The Fund may, from time to time, make other types
of investments and pursue other investment strategies in support of its overall
investment goal. These supplemental investment strategies are described in
detail in the Statement of Additional Information, which is referred to on the
back cover of this Prospectus.
-9-
<PAGE>
RISK FACTORS. The principal risks of investing in the Fund are also
described above in the Risk/Return Summary. The following supplements that
description.
Interest Rate Risk. Generally, a fixed-income security will increase in
value when interest rates fall and decrease in value when interest rates rise.
As a result, if interest rates were to change rapidly, there is a risk that the
change in market value of the Fund's assets may not enable the Fund to maintain
a stable net asset value of $1.00 per share.
Credit Risk. The risk that an issuer will be unable to make principal and
interest payments when due is known as "credit risk." U.S. government
securities are generally considered to be the safest type of investment in terms
of credit risk.
Other Risks. Certain investment strategies employed by the Fund may
involve additional investment risk. For example, when-issued or delayed
settlement transactions may involve leverage risk. Leverage risk is associated
with securities or practices that multiply small market movements into larger
changes in the value of the Fund's investment portfolio.
Year 2000. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and the Fund's other service providers, or
persons with whom they deal, do not properly process and calculate date-related
information and data from and after January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." The Fund has been advised by the
Adviser, the Administrators and the Custodian that they are actively taking
steps to address the Year 2000 Problem with respect to the computer systems that
they use and to obtain assurances that comparable steps are being taken by the
Fund's other major service providers. While there can be no assurance that the
Fund's service providers will be Year 2000 compliant, the Fund's service
providers expect that their plans to be compliant will be achieved.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER
The Adviser, a wholly-owned indirect subsidiary of PNC Bank, serves as the
Fund's investment adviser. The Adviser and its affiliates are one of the
largest U.S. bank managers of mutual funds, with assets currently under
management in excess of $__ billion. BIMC (formerly known as PNC Institutional
Management Corporation or "PIMC") was organized in 1977 by PNC Bank to perform
advisory services for investment companies and has its principal offices at
Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809.
As investment adviser, BIMC manages the Fund and is responsible for all
purchases and sales of the Fund's securities. For the investment advisory
services provided and expenses assumed by it, BIMC is entitled to receive a fee,
computed daily and payable monthly, based on the Fund's average net assets. BIMC
and PFPC, the co-administrator, may from time to time reduce the investment
advisory and administration fees otherwise payable to them or may reimburse the
Fund for its operating expenses. Any fees waived and any expenses reimbursed by
BIMC and PFPC with respect to a particular fiscal year are not recoverable. For
the fiscal year ended October 31, 1998, the Fund paid investment advisory fees
and administration fees each aggregating ___% of its average net assets. The
services provided by BIMC and the fees payable by the Fund for these
-10-
<PAGE>
services are described further in the Statement of Additional Information under
"Management of the Funds."
SHAREHOLDER INFORMATION
PRICE OF FUND SHARES
The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by PFPC Inc. ("PFPC"), the Funds co-
administrator, as of 12:00 noon and 4:00 P.M., Eastern time, on each day on
which both the New York Stock Exchange and the Federal Reserve Bank of
Philadelphia are open for business (a "Business Day"). The net asset value per
share of each class of the Fund's shares is calculated by adding the value of
all securities and other assets of the Fund that are allocable to a particular
class, subtracting liabilities charged to such class, and dividing the result by
the total number of outstanding shares of such class. In computing net asset
value, the Fund uses the amortized cost method of valuation as described in the
Statement of Additional Information under "Additional Purchase and Redemption
Information." Under the 1940 Act, the Fund may postpone the date of payment of
any redeemable security for up to seven days.
PURCHASE OF SHARES
Fund shares are sold at the net asset value per share next determined after
acceptance of a purchase order by PFPC, which also serves as the Fund's transfer
agent. Purchase orders for shares are accepted only on Business Days and must
be transmitted to PFPC in Wilmington, Delaware by telephone (800-441-7450; in
Delaware: 302-791-5350) or through the Fund's computer access program. Orders
accepted before 12:00 noon, Eastern time, for which payment has been received by
PNC Bank, N.A. ("PNC Bank"), the Fund's custodian, will be executed at 12:00
noon. Orders accepted after 12:00 noon and before 2:30 P.M., Eastern time (or
orders accepted earlier in the same day for which payment has not been received
by 12:00 noon), will be executed at 4:00 P.M., Eastern time, if payment has been
received by PNC Bank by that time. Orders received at other times, and orders
for which payment has not been received by 4:00 P.M., Eastern time, will not be
accepted, and notice thereof will be given to the institution placing the order.
(Payment for orders which are not received or accepted will be returned after
prompt inquiry to the sending institution.) The Fund may in its discretion
reject any order for shares.
Payment for Fund shares may be made only in federal funds or other funds
immediately available to PNC Bank. The minimum initial investment by an
institution is $3 million for Treasury Trust Fund Shares and $5,000 for Treasury
Trust Fund Dollar Shares; however, broker-dealers and other institutional
investors may set a higher minimum for their customers. There is no minimum
subsequent investment. The Fund, at its discretion, may reduce the minimum
initial investment for Treasury Trust Fund Shares for specific institutions
whose aggregate relationship with the Provident Institutional Funds is
substantially equivalent to this $3 million minimum and warrants this reduction.
-11-
<PAGE>
Fund shares are sold and redeemed without charge by the Fund. Institutional
investors purchasing or holding Fund shares for their customer accounts may
charge customer fees for cash management and other services provided in
connection with their accounts. A customer should, therefore, consider the terms
of its account with an institution before purchasing Fund shares. An institution
purchasing or redeeming Fund shares on behalf of its customers is responsible
for transmitting orders to the Fund in accordance with its customer agreements.
Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Treasury Trust Fund Dollar Shares. (See also "Management of the Fund -
- - Service Organizations," as described in the Statement of Additional
Information.) Institutions, including banks regulated by the Comptroller of the
Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, are urged to consult their legal advisors before investing
fiduciary funds in Treasury Trust Fund Dollar Shares. (See also "Management of
the Fund -- Banking Laws," as described in the Statement of Additional
Information.)
REDEMPTION OF SHARES
Redemption orders must be transmitted to PFPC in Wilmington, Delaware in
the manner described under "Purchase of Shares." Shares are redeemed at the net
asset value per share next determined after PFPC's receipt of the redemption
order. While the Fund intends to use its best efforts to maintain its net asset
value per share at $1.00, the proceeds paid to a shareholder upon redemption may
be more or less than the amount invested depending upon a share's net asset
value at the time of redemption. Call 1-800-441-7450 (in Delaware: 302-791-
5350) to place redemption orders.
Payment for redeemed shares for which a redemption order is received by
PFPC by 2:30 P.M., Eastern time, on a Business Day is normally made in federal
funds wired to the redeeming shareholder on the same day. Payment for
redemption orders which are received between 2:30 P.M. and 4:00 P.M., Eastern
time, or on a day when PNC Bank is closed, is normally wired in federal funds on
the next day following redemption that PNC Bank is open for business.
The Fund shall have the right to redeem shares in any account if the value
of the account is less than $1,000 after sixty-days' prior written notice to the
shareholder. Any such redemption shall be effected at the net asset value next
determined after the redemption order is entered. If during the sixty-day
period the shareholder increases the value of its account to $1,000 or more, no
such redemption shall take place. Moreover, if a shareholders Treasury Trust
Shares account falls below an average of $100,000 in any particular calendar
month, the account may be charged an account maintenance fee with respect to
that month. In addition, the Fund may also redeem shares involuntarily under
certain special circumstances described in the Statement of Additional
Information under "Additional Purchase and Redemption Information."
-12-
<PAGE>
SHAREHOLDER SERVICE PLAN
Institutional investors, such as banks, savings and loan associations and
other financial institutions, including affiliates of PNC Bank Corp. ("Service
Organizations"), may purchase Dollar Shares. Treasury Trust Fund Dollar Shares
are identical in all respects to Treasury Trust Fund Shares except that they
bear the service fees described below and enjoy certain exclusive voting rights
on matters relating to these fees. The Fund will enter into an agreement with
each Service Organization which purchases Dollar Shares requiring it to provide
support services to its customers who are the beneficial owners of such shares
in consideration of the Fund's payment of .25% (on an annualized basis) of the
average daily net asset value of the Dollar Shares held by the Service
Organization for the benefit of customers. Such services, which are described
more fully in the Statement of Additional Information under "Management of the
Fund Service Organizations," include aggregating and processing purchase and
redemption requests from customers and placing net purchase and redemption
orders with PFPC; processing dividend payments from the Fund on behalf of
customers; providing information periodically to customers showing their
positions in Dollar Shares; and providing sub-accounting or the information
necessary for sub-accounting with respect to Dollar Shares beneficially owned by
customers. Under the terms of the agreements, Service Organizations are
required to provide to their customers a schedule of any fees that they may
charge customers in connection with their investments in Dollar Shares.
Treasury Trust Fund Shares are sold to institutions that have not entered into
servicing agreements with the Fund in connection with their investments.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends daily and distributes substantially all of its
net investment income to shareholders monthly. Shares begin accruing dividends
on the day the purchase order for the shares is effected and continue to accrue
dividends through the day before such shares are redeemed. Dividends are paid
monthly by check, or by wire transfer if requested in writing by the
shareholder, within five business days after the end of the month or within five
business days after a redemption of all of a shareholder's shares of a
particular class.
Dividends are determined in the same manner for each class of shares of the
Fund. Treasury Trust Fund Dollar Shares bear all the expense of fees paid to
Service Organizations, and as a result, at any given time, the dividend on
Treasury Trust Fund Dollar Shares will be approximately .25% lower than the
dividend on Treasury Trust Fund Shares.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same class of shares with respect
to which such dividends are declared at the net asset value of such shares on
the payment date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Reinvestment elections, and any revocations thereof,
must be made in writing to PFPC, the Fund's transfer agent, at P.O. Box 8950,
Wilmington, Delaware 19885-9628 and will become effective after its receipt by
PFPC with respect to dividends paid.
-13-
<PAGE>
TAXES
GENERAL. As long as the Fund meets the requirements for being a regulated
investment company, it pays no federal income tax on the earnings it distributes
to shareholders. The Fund qualified as a regulated investment company in its
last taxable year, and intends to qualify in future years.
Dividends you receive from the Fund, whether reinvested or taken as cash,
are generally taxable. Dividends from the Fund's long-term capital gains are
taxable as capital gains; dividends from other sources are generally taxable as
ordinary income. It is anticipated that substantially all of the dividends from
the Fund will be taxable as ordinary income.
To the extent permissible by federal and state law, the Fund is structured
to provide shareholders with income that is exempt or excluded from taxation at
the state and local level. Substantially all dividends paid to shareholders
residing in certain states will be exempt or excluded from state income tax.
Many states, by statute, judicial decision or administrative action, have taken
the position that dividends of a regulated investment company such as the Fund
that are attributable to interest on direct U.S. Treasury obligations are the
functional equivalent of interest from such obligations and are, therefore,
exempt from state and local income taxes. Investors should be aware of the
application of their state and local tax laws to investments in the Fund.
PFPC, as transfer agent, will send each Fund shareholder or its authorized
representative an annual statement designating the amount, if any, of any
dividends and distributions made during each year and their federal tax
qualification.
MISCELLANEOUS. Dividends declared in December of any year, and payable to
shareholders of record on a specified date in December, will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during January of the
following year.
The foregoing discussion is only a brief summary of some of the federal tax
considerations generally affecting the Fund and its shareholders. No attempt is
made to present a detailed explanation of the federal, state or local income tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential investors in
the Fund should consult their tax advisors with specific reference to their own
tax situation.
-14-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are 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 PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, are incorporated by reference into the
Statement of Additional Information and included in the Annual Report, each of
which is available upon request.
TREASURY TRUST FUND SHARES
The table below sets forth selected financial data for a Treasury Trust Fund
Share outstanding throughout each year presented.
YEAR ENDED OCTOBER 31,
----------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment -------- -------- ---------- ----------
Operations
Net Investment Income _____ .0504 .0508 .0545 .0359
Net Gains or Losses on
Securities
(both realized and
unrealized) _____ -- -- -- --
Total From Investment
Operations _____ -------- -------- ---------- ----------
.0504 .0508 .0545 .0359
-------- -------- ---------- ----------
Less Distribution
Dividends (from net investment
income) (_____) (.0504) (.0508) (.0545) (.0359)
Distributions (from capital
gains) (_____) -- -- -- --
-------- -------- ---------- ----------
Total Distributions (.0504) (.0508) (.0545) (.0359)
-------- -------- ---------- ----------
Net Asset Value End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========== ==========
Total Return _____% 5.16% 5.20% 5.59% 3.65%
Ratios/Supplement Data
Net Assets, End of Period
(000's) $ $786,556 $897,659 $1,101,834 $1,016,635
Ratio of Expenses to Average
Daily Net Assets ____%/1/ .20%/1/ .19%/1/ .18%/1/ .18%/1/
Ratio of Net Investment Income
to Average Daily Net Assets ____%/1/ 5.04% 5.08% 5.45% 3.57%
</TABLE>
_________________
/1/ Without the waiver of advisory and administration fees, the ratio of
expenses to average daily net assets for Treasury Trust Fund Shares would have
been __% for the year ended October 31, 1998, .30% for the years ended October
31, 1997 and 1996, and .29% for the years ended October, 31, 1995 and 1994.
-15-
<PAGE>
TREASURY TRUST FUND DOLLAR SHARES
The table below sets forth selected financial data for a Treasury Trust Fund
Dollar Share outstanding throughout each year presented.
YEAR ENDED OCTOBER 31,
----------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment operations ----- -------- -------- -------- --------
Net Investment Income .0479 .0483 .0520 .0334
-----
Net Gains or Losses on Securities
(both realized and
unrealized) -- -- -- --
----- -------- -------- -------- --------
Total From Investment Operations .0479 .0483 .0520 .0334
----- -------- -------- -------- --------
Less Distributions
Dividends (from net investment
income) (_____) (.0479) (.0483) (.0520) (.0334)
Distributions (from capital -- -- -- --
gains) ----- -------- -------- -------- --------
Total Distributions (_____) (.0479) (.0483) (.0520) (.0334)
-------- -------- -------- --------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===== ======== ======== ======== ========
Total Return 4.91% 4.95% 5.34% 3.40%
Ratios/Supplement Data $ _____ $331,498 $294,228 $223,272 $181,934
Net Assets, End of Period
(000's)
Ratio of Expenses to Average
Daily Net Assets _____%/1/ .45%/1/ .44%/1/ .43%/1/ .43%/1/
Ratio of Net Investment Income
to Average Daily Net Assets _____% 4.79% 4.83% 5.20% 3.32%
</TABLE>
_________________
/1/ Without the waiver of advisory and administration fees, the ratio of
expenses to average daily net assets for Treasury Trust Fund Dollar Shares would
have been __% for the year ended October 31, 1998, .55% for the years ended
October 31, 1997 and 1996, and .54% for the years ended October 31, 1995 and
1994.
-16-
<PAGE>
[BACK COVER]
WHERE TO FIND MORE INFORMATION
The Statement of Additional Information (the "SAI") includes additional
information about the Fund's investment policies, organization and management.
It is legally part of this prospectus (it is incorporated by reference). The
Annual and Semi-Annual Reports provide additional information about the Fund's
investments, performance and portfolio holdings.
Investors can get free copies of the above named documents, and make shareholder
inquiries, by calling 1-800-821-7432. Other information is available on the
Fund's web site at www.pif.com.
Information about the Fund (including the Fund's SAI) can be reviewed and copied
at the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. Information about the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. Reports and other information
about the Fund are available on the SEC's Internet site at http://www.sec.gov.
Copies of this information may be obtained, upon payment of a duplicating fee,
by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
The Trust for Federal Securities Act File No. is 811-2573
-17-
<PAGE>
[FRONT COVER]
FEDERAL TRUST FUND
AN INVESTMENT PORTFOLIO OFFERED BY
PROVIDENT INSTITUTIONAL FUNDS
PROSPECTUS
January 31, 1999
Bellevue Park Corporate Center For purchase and redemption orders only
400 Bellevue Parkway call: 800-441-7450 (in Delaware:
Wilmington, DE 19809 302-791-5350). For yield information
call: 800-821-6006 (Federal Trust Fund
Shares code: 11; Federal Trust Fund
Dollar Shares code: 12). For other
information call: 800-821-7432 or
visit our web site at www.pif.com.
INVESTMENT ADVISER
BLACKROCK INSTITUTIONAL MANAGEMENT CORPORATION
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
FUND'S SHARES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A
CRIMINAL OFFENSE TO STATE OTHERWISE.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Risk/Return Summary............................................
Investment Objective......................................
Investment Policies.......................................
Principal Risk of Investing...............................
Who May Want to Invest in the Fund........................
Performance Information...................................
Fees and Expenses.........................................
Investment Strategies and Risk Disclosure......................
Management of the Fund.........................................
Shareholder Information........................................
Price of Fund Shares......................................
Purchase of Shares.......................................
Redemption of Shares......................................
Shareholder Service Plan..................................
Dividends and Distributions...............................
Taxes.....................................................
Financial Highlights...........................................
</TABLE>
-2-
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE: The Fund seeks current income with liquidity and
security of principal.
INVESTMENT POLICIES: We are a money market fund which invests in
obligations issued or guaranteed as to principal
and interest by the U.S. government or by its
agencies or instrumentalities thereof the interest
income from which, under current law, generally
may not be subject to state income tax by reason
of federal law.
PRINCIPAL RISK OF INVESTING: Securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities
have historically involved little risk of loss of
principal if held to maturity. However, due to
fluctuations in interest rates, the market value
of such securities may vary during the period a
shareholder owns shares of the Fund. While the
Fund seeks to maintain a constant net asset value
of $1.00 per share, the Fund is subject to risks
related to changes in prevailing interest rates,
since generally, a fixed-income security will
increase in value when interest rates fall and
decrease in value when interest rates rise.
The Fund may from time to time engage in portfolio
trading for liquidity purposes, in order to
enhance its yield or if otherwise deemed
advisable. In selling securities prior to
maturity, the Fund may realize a price higher or
lower than that paid to acquire any given
security, depending upon whether interest rates
have decreased or increased since its acquisition.
In addition, shareholders in a particular state
that imposes an income tax should determine
through consultation with their own tax advisors
whether such interest income, when distributed by
the Fund, will be considered by the state to have
retained exempt status, and whether the Fund's
capital gain and other income, if any, when
distributed will be subject to the state's income
tax
An investment in the Fund is not a deposit in PNC
Bank, N.A. and is not insured or guaranteed by the
-3-
<PAGE>
Federal Deposit Insurance Corporation or
any other government agency. Although the
Fund seeks to preserve the value of your
investment at $1.00 per share, it is
possible to lose money by investing in
the Fund.
WHO MAY WANT TO INVEST IN THE FUND: The Fund is designed for institutional
investors seeking current income with
liquidity and security of principal. The
Fund is particularly suitable for banks,
corporations and other financial
institutions that seek investment of
short-term funds for their own accounts
or for the accounts of their customers.
PERFORMANCE INFORMATION
The Bar Chart and the Table below show the Fund's annual return and its long-
term performance. The Bar Chart shows how the performance of the Fund has varied
from year to year. The Table shows how the Fund's average annual return for one,
five and ten years compares to that of a selected market index. The Bar Chart
and the Table assume reinvestment of dividends and distributions. The Fund's
past performance does not necessarily indicate how it will perform in the
future.
[PLEASE PROVIDE BAR CHART FOR FUND SHOWING CALENDAR YEAR-BY-
YEAR TOTAL RETURN FOR THE FUND FOR THE LAST 10 CALENDAR
YEARS. THE BAR ON THE LEFT WILL COVER THE EARLIEST YEAR (OR
PERIOD), AND THE BARS TO THE RIGHT WILL REPRESENT SUBSEQUENT
CALENDAR YEARS, ENDING WITH 1998. THE NUMERICAL RETURN MUST
BE ADJACENT TO EACH BAR. THE BAR CHART CAN ONLY BE FOR ONE
OF THE CLASSES (E.G., EITHER FEDERAL TRUST FUND SHARES OR
FEDERAL TRUST FUND DOLLAR SHARES).]
During the ten-year period shown in the bar chart, the highest
quarterly return was ____% (for the quarter ended ______) and the
lowest quarterly return was ______% (for the quarter ended _______).
-4-
<PAGE>
THE FUND'S AVERAGE ANNUAL TOTAL RETURN FOR
PERIODS ENDED DECEMBER 31, 1998
- -----------------------------------------
. IBC Financial Data's Government
Institutions - Only Money Fund
Average is comprised of money
funds investing in U.S. T-Bills,
Repurchase Agreements and/or
Government Agencies.
- -----------------------------------------
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL TRUST FUND SHARES
- --------------------------------------------------------------------------------------------------------
FEDERAL TRUST FUND DOLLAR SHARES
- --------------------------------------------------------------------------------------------------------
IBC DATA'S GOVERNMENT INSTITUTIONS-ONLY MONEY FUND AVERAGE
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
7 DAY YIELD
AS OF DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------------
<S> <C>
FEDERAL TRUST FUND SHARES __________%
- --------------------------------------------------------------------------------------------------------
FEDERAL TRUST FUND DOLLAR SHARES __________%
- --------------------------------------------------------------------------------------------------------
IBC Data's Government
INSTITUTIONS-ONLY MONEY FUND AVERAGE __________%
- --------------------------------------------------------------------------------------------------------
</TABLE>
CURRENT YIELD: You may obtain the Fund's current 7-day yield by calling 1-800-
821-7432 or by visiting its webtsite at www.pif.com.
-5-
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
FEDERAL TRUST FUND
- ---------------------------------------------------------------------------------------------
FEDERAL TRUST FEDERAL TRUST FUND
FUND SHARES DOLLAR SHARES
-------------- ------------------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted
from Fund assets)
Management Fees ___% ___%
Other Expenses ___% ___%
Administration Fees ___% ___%
Shareholder Servicing Fees ___% ___%
Miscellaneous ___% ___%
Total Annual Fund
Operating Expenses(1) === ===%
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Total Annual Fund Operating Expenses for Federal Trust Fund Shares and
Federal Trust Fund Dollar Shares for the fiscal year ended October 31, 1998,
with fee waivers, would have been .20% and .45%, respectively, of the Fund's
average net assets. BlackRock Institutional Management Corporation ("BIMC," or
the "Adviser") and PFPC Inc., the Fund's co-administrator, may from time to time
waive the investment advisory and administration fees otherwise payable to them
or may reimburse the Fund for its operating expenses. The Adviser and PFPC
expect to continue such fee waivers, but can terminate the waivers upon 120 days
prior written notice to the Fund. The foregoing table has not been audited by
the Fund's independent accountants.
-6-
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes 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. The
Example also assumes 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:
<TABLE>
<CAPTION>
FEDERAL TRUST FUND
- ------------------------------------------------------------
FEDERAL TRUST FUND FEDERAL TRUST FUND
SHARES DOLLAR SHARES
- ------------------------------------------------------------
<S> <C> <C>
One Year $__ $__
Three years $__ $__
Five Years $__ $__
Ten Years $__ $__
- ------------------------------------------------------------
</TABLE>
-7-
<PAGE>
INVESTMENT STRATEGIES AND RISK DISCLOSURE
The Fund is a money market fund. The investment objective of the Fund is
to seek current income with liquidity and security of principal. The Fund's
investment objective may be changed by the Board of Trustees without shareholder
approval. The Fund invests in obligations issued or guaranteed as to principal
and interest by the U.S. Government or by agencies or instrumentalities thereof
the interest income from which, under current law, generally may not be subject
to state income tax by reason of federal law.
The Fund will invest in securities maturing within 13 months or less from
the date of purchase, with certain exceptions. For example, certain government
securities held by the Fund may have remaining maturities exceeding 13 months if
such securities provide for adjustments in their interest rates not less
frequently than every 13 months. The securities purchased by the Fund are also
subject to the quality, diversification, and other requirements of Rule 2a-7
under the Investment Company Act of 1940, as amended, and other rules of the
Securities and Exchange Commission.
INVESTMENTS. The following are some of the types of investments and
investment strategies used by the Fund.
U.S. Government Obligations. The Fund may purchase obligations issued or
guaranteed by the U.S. Government, including securities issued by the U.S.
Treasury and by certain agencies or instrumentalities such as the Federal Home
Loan Bank, Federal Farm Credit Banks Funding Corp. and the Student Loan
Marketing Association, and related custodial receipts.
Investment Company Securities. The Fund may invest in securities issued by
other open-end investment companies that invest in the type of obligations in
which the Fund may invest and that determine their net asset value per share
based upon the amortized cost or penny rounding method.
When-Issued and Delayed Settlement Transactions. The Fund may purchase
securities on a "when-issued" or "delayed settlement" basis. The Fund expects
that commitments to purchase when-issued or delayed settlement securities will
not exceed 25% of the value of its total assets absent unusual market
conditions. The Fund does not intend to purchase when-issued or delayed
settlement securities for speculative purposes but only in furtherance of its
investment objective.
Other Types of Investments. This Prospectus describes the Fund's
principal investment strategies, and the particular types of securities in which
the Fund principally invests. The Fund may, from time to time, make other types
of investments and pursue other investment strategies in support of its overall
investment goal. These supplemental investment strategies are described in
detail in the Statement of Additional Information, which is referred to on the
back cover of this Prospectus.
-8-
<PAGE>
RISK FACTORS. The principal risks of investing in the Fund are also
described above in the Risk/Return Summary. The following supplements that
description.
Interest Rate Risk. Generally, a fixed-income security will increase in
value when interest rates fall and decrease in value when interest rates rise.
As a result, if interest rates were to change rapidly, there is a risk that the
change in market value of the Fund's assets may not enable the Fund to maintain
a stable net asset value of $1.00 per share.
Credit Risk. The risk that an issuer will be unable to make principal and
interest payments when due is known as "credit risk." U.S. Government
securities are generally considered to be the safest type of investment in terms
of credit risk. Not all U.S. Government Securities are backed by the full faith
and credit of the United States. Obligations of certain agencies and
instrumentlities of the U.S. Government are backed by the full faith and credit
of the United States; others are backed by the right of the issuer to borrow
from the U.S. Treasury or are backed only by the credit of the agency or
instrumentality issuing the obligation.
Other Risks. Certain investment strategies employed by the Fund may
involve additional investment risk. For example, when-issued or delayed
settlement transactions may involve leverage risk. Leverage risk is associated
with securities or practices that multiply small market movements into larger
changes in the value of the Fund's investment portfolio.
Year 2000. Like other mutual funds, financial and business organizations
and individuals around the world, the Fund could be adversely affected if the
computer systems used by the Adviser and the Fund's other service providers, or
persons with whom they deal, do not properly process and calculate date-related
information and data from and after January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." The Fund has been advised by the
Adviser, the Administrators and the Custodian that they are actively taking
steps to address the Year 2000 Problem with respect to the computer systems that
they use and to obtain assurances that comparable steps are being taken by the
Fund's other major service providers. While there can be no assurance that the
Fund's service providers will be Year 2000 compliant, the Fund's service
providers expect that their plans to be compliant will be achieved.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER
The Adviser, a wholly-owned indirect subsidiary of PNC Bank, serves as the
Fund's investment adviser. The Adviser and its affiliates are one of the
largest U.S. bank managers of mutual funds, with assets currently under
management in excess of $__ billion. BIMC (formerly known as PNC Institutional
Management Corporation or "PIMC") was organized in 1977 by PNC Bank to perform
advisory services for investment companies and has its principal offices at
Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809.
As investment adviser, BIMC manages the Fund and is responsible for all
purchases and sales of the Fund's securities. For the investment advisory
services provided and expenses assumed by it, BIMC is entitled to receive a fee,
computed daily and payable monthly, based on the Fund's average net assets.
BIMC and PFPC, the co-administrator, may from time to time reduce the investment
advisory and administration fees otherwise payable to them or may reimburse the
Fund for its operating expenses. Any fees waived and any expenses reimbursed by
BIMC and
-9-
<PAGE>
PFPC with respect to a particular fiscal year are not recoverable. For the
fiscal year ended October 31, 1998, the Fund paid investment advisory fees and
administration fees each aggregating .___% of its average net assets. The
services provided by BIMC and the fees payable by the Fund for these services
are described further in the Statement of Additional Information under
"Management of the Funds."
SHAREHOLDER INFORMATION
PRICE OF FUND SHARES
The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by PFPC Inc. ("PFPC"), the Funds co-
administrator, as of 12:00 noon and 4:00 P.M., Eastern time, on each day on
which both the New York Stock Exchange and the Federal Reserve Bank of
Philadelphia are open for business (a "Business Day"). The net asset value per
share of each class of the Fund's shares is calculated by adding the value of
all securities and other assets of the Fund that are allocable to a particular
class, subtracting liabilities charged to such class, and dividing the result by
the total number of outstanding shares of such class. In computing net asset
value, the Fund uses the amortized cost method of valuation as described in the
Statement of Additional Information under "Additional Purchase and Redemption
Information." Under the 1940 Act, the Fund may postpone the date of payment of
any redeemable security for up to seven days.
PURCHASE OF SHARES
Fund shares are sold at the net asset value per share next determined after
acceptance of a purchase order by PFPC, which also serves as the Fund's transfer
agent. Purchase orders for shares are accepted only on Business Days and must
be transmitted to PFPC in Wilmington, Delaware by telephone (800-441-7450; in
Delaware: 302-791-5350) or through the Fund's computer access program. Orders
accepted before 12:00 noon, Eastern time, for which payment has been received by
PNC Bank, N.A. ("PNC Bank"), the Fund's custodian, will be executed at 12:00
noon. Orders accepted after 12:00 noon and before 2:30 P.M., Eastern time (or
orders accepted earlier in the same day for which payment has not been received
by 12:00 noon), will be executed at 4:00 P.M., Eastern time, if payment has been
received by PNC Bank by that time. Orders received at other times, and orders
for which payment has not been received by 4:00 P.M., Eastern time, will not be
accepted, and notice thereof will be given to the institution placing the order.
(Payment for orders which are not received or accepted will be returned after
prompt inquiry to the sending institution.) The Fund may in its discretion
reject any order for shares.
Payment for Fund shares may be made only in federal funds or other funds
immediately available to PNC Bank. The minimum initial investment by an
institution is $3 million for Federal Trust Fund Shares and $5,000 for Federal
Trust Fund Dollar Shares; however, broker-dealers and other institutional
investors may set a higher minimum for their customers. There is no minimum
subsequent investment. The Fund, at its discretion, may reduce the minimum
initial investment for Federal Trust Fund Shares for specific institutions whose
aggregate
-10-
<PAGE>
relationship with the Provident Institutional Funds is substantially equivalent
to this $3 million minimum and warrants this reduction.
Fund shares are sold and redeemed without charge by the Fund.
Institutional investors purchasing or holding Fund shares for their customer
accounts may charge customer fees for cash management and other services
provided in connection with their accounts. A customer should, therefore,
consider the terms of its account with an institution before purchasing Fund
shares. An institution purchasing or redeeming Fund shares on behalf of its
customers is responsible for transmitting orders to the Fund in accordance with
its customer agreements.
Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Federal Trust Fund Dollar Shares. (See also "Management of the Fund --
Service Organizations," as described in the Statement of Additional
Information.) Institutions, including banks regulated by the Comptroller of the
Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, are urged to consult their legal advisors before investing
fiduciary funds in Federal Trust Fund Dollar Shares. (See also "Management of
the Fund -- Banking Laws," as described in the Statement of Additional
Information).
REDEMPTION OF SHARES
Redemption orders must be transmitted to PFPC in Wilmington, Delaware in
the manner described under "Purchase of Shares." Shares are redeemed at the net
asset value per share next determined after PFPC's receipt of the redemption
order. While the Fund intends to use its best efforts to maintain its net asset
value per share at $1.00, the proceeds paid to a shareholder upon redemption may
be more or less than the amount invested depending upon a share's net asset
value at the time of redemption. Call 1-800-441-7450 (in Delaware: 302-791-
5350) to place redemption orders.
Payment for redeemed shares for which a redemption order is received by
PFPC by 2:30 P.M., Eastern time, on a Business Day is normally made in federal
funds wired to the redeeming shareholder on the same day. Payment for
redemption orders which are received between 2:30 P.M. and 4:00 P.M., Eastern
time, or on a day when PNC Bank is closed, is normally wired in federal funds on
the next day following redemption that PNC Bank is open for business.
The Fund shall have the right to redeem shares in any account if the value
of the account is less than $1,000 after sixty-days' prior written notice to the
shareholder. Any such redemption shall be effected at the net asset value next
determined after the redemption order is entered. If during the sixty-day
period the shareholder increases the value of its account to $1,000 or more, no
such redemption shall take place. Moreover, if a shareholder's Federal Trust
Fund Shares account falls below an average of $100,000 in any particular
calendar month, the account may be charged an account maintenance fee with
respect to that month. In addition, the Fund may also
-11-
<PAGE>
redeem shares involuntarily under certain special circumstances described in the
Statement of Additional Information under "Additional Purchase and Redemption
Information."
SHAREHOLDER SERVICE PLAN
Institutional investors, such as banks, savings and loan associations and
other financial institutions, including affiliates of PNC Bank Corp. ("Service
Organizations"), may purchase Dollar Shares. Federal Trust Fund Dollar Shares
are identical in all respects to Federal Trust Fund Shares except that they bear
the service fees described below and enjoy certain exclusive voting rights on
matters relating to these fees. The Fund will enter into an agreement with each
Service Organization which purchases Dollar Shares requiring it to provide
support services to its customers who are the beneficial owners of such shares
in consideration of the Fund's payment of .25% (on an annualized basis) of the
average daily net asset value of the Dollar Shares held by the Service
Organization for the benefit of customers. Such services, which are described
more fully in the Statement of Additional Information under "Management of the
Fund Service Organizations," include aggregating and processing purchase and
redemption requests from customers and placing net purchase and redemption
orders with PFPC; processing dividend payments from the Fund on behalf of
customers; providing information periodically to customers showing their
positions in Dollar Shares; and providing sub-accounting or the information
necessary for sub-accounting with respect to Dollar Shares beneficially owned by
customers. Under the terms of the agreements, Service Organizations are
required to provide to their customers a schedule of any fees that they may
charge customers in connection with their investments in Dollar Shares. Federal
Trust Fund Shares are sold to institutions that have not entered into servicing
agreements with the Fund in connection with their investments.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends daily and distributes substantially all of its
net investment income to shareholders monthly. Shares begin accruing dividends
on the day the purchase order for the shares is effected and continue to accrue
dividends through the day before such shares are redeemed. Dividends are paid
monthly by check, or by wire transfer if requested in writing by the
shareholder, within five business days after the end of the month or within five
business days after a redemption of all of a shareholder's shares of a
particular class.
Dividends are determined in the same manner for each class of shares of the
Fund. Federal Trust Fund Dollar Shares bear all the expense of fees paid to
Service Organizations, and as a result, at any given time, the dividend on
Federal Trust Fund Dollar Shares will be approximately .25% lower than the
dividend on Federal Trust Fund Shares.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same class of shares with respect
to which such dividends are declared at the net asset value of such shares on
the payment date. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Reinvestment elections, and any revocations thereof,
must be made in writing to PFPC, the Fund's transfer agent, at P.O. Box 8950,
-12-
<PAGE>
Wilmington, Delaware 19885-9628 and will become effective after its receipt by
PFPC with respect to dividends paid.
TAXES
GENERAL. As long as the Fund meets the requirements for being a regulated
investment company, it pays no federal income tax on the earnings it distributes
to shareholders. The Fund qualified as a regulated investment company in its
last taxable year, and intends to qualify in future years.
Dividends you receive from the Fund, whether reinvested or taken as cash,
are generally taxable. Dividends from the Fund's long-term capital gains are
taxable as capital gains; dividends from other sources are generally taxable as
ordinary income. It is anticipated that substantially all of the dividends from
the Fund will be taxable as ordinary income.
To the extent permissible by federal and state law, the Fund is structured
to provide shareholders with income that is exempt or excluded from taxation at
the state and local level. Substantially all dividends paid to shareholders
residing in certain states will be exempt or excluded from state income tax.
Many states, by statute, judicial decision or administrative action, have taken
the position that dividends of a regulated investment company such as the Fund
that are attributable to interest on obligations of the U.S. Treasury and
certain U.S. Government agencies and instrumentalities are the functional
equivalent of interest from such obligations and are, therefore, exempt from
state and local income taxes. Investors should be aware of the application of
their state and local tax laws to investments in the Fund.
PFPC, as transfer agent, will send each Fund shareholder or its authorized
representative an annual statement designating the amount, if any, of any
dividends and distributions made during each year and their federal tax
qualification.
MISCELLANEOUS. Dividends declared in December of any year, and payable to
shareholders of record on a specified date in December, will be deemed to have
been received by the shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during January of the
following year.
The foregoing discussion is only a brief summary of some of the federal tax
considerations generally affecting the Fund and its shareholders. No attempt is
made to present a detailed explanation of the federal, state or local income tax
treatment of the Fund or its shareholders, and this discussion is not intended
as a substitute for careful tax planning. Accordingly, potential investors in
the Fund should consult their tax advisors with specific reference to their own
tax situation.
-13-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are 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 PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, are incorporated by reference into the
Statement of Additional Information and included in the Annual Report, each of
which is available upon request.
FEDERAL TRUST FUND SHARES
The table below sets forth selected financial data for a Federal Trust Fund
Share outstanding throughout each year presented.
YEAR ENDED OCTOBER 31
---------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Period -------- -------- -------- --------
Income from Investment
Operations
Net Investment Income _____ .0521 .0523 .0563 .0380
Net Gains or Losses on
Securities -- -- -- --
(both realized and ------ -------- -------- -------- --------
unrealized) .0521 .0523 .0563 .0380
------ -------- -------- -------- --------
Total From Investment
Operations
Less Distribution
Dividends (from net investment
income) (_____) (.0521) (.0523) (.0563) (.0380)
Distributions (from capital
gains) (_____) -- -- -- --
-------- -------- -------- --------
Total Distributions (.0521) (.0523) (.0563) (.0380)
-------- -------- -------- --------
Net Asset Value End of Period $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===== ======== ======== ======== ========
Total Return 5.33% 5.35% 5.77% 3.87%
Ratios/Supplement Data
Net Assets, End of Year (000's) $ ____ $229,292 $273,752 $237,718 $317,769
Ratio of Expenses to Average
Daily Net Assets ____%/1/ .20%/1/ .19%/1/ .18%/1/ .18%/1/
Ratio of Net Investment Income ____% 5.21% 5.22% 5.61% 3.85%
to Average Daily Net Assets
</TABLE>
_________________
/1/ Without the waiver of advisory and administration fees, the ratio of
expenses to average daily net assets for Federal Trust Fund Shares would have
been __% for the year ended October 31, 1998, .31% for the years ended October
31, 1997 and 1996, .32% for the year ended October 31, 1995 and .31% for the
year ended October 31, 1994.
-14-
<PAGE>
FEDERAL TRUST FUND DOLLAR SHARES
The table below sets forth selected financial data for a Federal Trust Fund
Dollar Share outstanding throughout each year presented.
YEAR ENDED OCTOBER 30,
----------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Period ----- ------- ------- ------- -------
Income from Investment
Operations
Net Investment Income _____ .0496 .0498 .0538 .0355
Net Gains or Losses on
Securities -- -- -- --
(both realized and ----- ------- ------- ------- -------
unrealized) .0496 .0498 .0538 .0355
----- ------- ------- ------- -------
Total From Investment
Operations
Less Distributions
Dividends (from net investment
income) (_____) (.0496) (.0498) (.0538) (.0355)
Distributions (from capital
gains) -- -- -- --
----- ------- ------- ------- -------
Total Distributions (.0496) (.0498) (.0538 (.0355)
(_____) ------- ------- ------- -------
Net Asset Value, End of Period $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===== ======= ======= ======= =======
Total Return 5.08% 5.10% 5.52% 3.62%
Ratios/Supplement Data $_____ $38,700 $26,875 $28,402 $ 8,278
Net Assets, End of Year (000's)
Ratio of Expenses to Average
Daily Net Assets _____%/1/ .45%/1/ .44%/1/ .43%/1/ .43%
Ratio of Net Investment Income
to Average Daily Net Assets _____% 4.96% 4.97% 5.36% 3.60%
</TABLE>
_________________
/1/ Without the waiver of advisory and administration fees, the ratio of
expenses to average daily net assets for Federal Trust Fund Dollar Shares would
have been __% for the year ended October 31, 1998, .56% for the years ended
October 31, 1997 and 1996, .57% for the year ended October 31, 1995 and .56% for
the year ended October 31, 1994.
-15-
<PAGE>
[BACK COVER]
WHERE TO FIND MORE INFORMATION
The Statement of Additional Information (the "SAI") includes additional
information about the Fund's investment policies, organization and management.
It is legally part of this prospectus (it is incorporated by reference). The
Annual and Semi-Annual Reports provide additional information about the Fund's
investments, performance and portfolio holdings.
Investors can get free copies of the above named documents, and make shareholder
inquiries, by calling 1-800-821-7432. Other information is available on the
Fund's web site at www.pif.com.
Information about the Fund (including the Fund's SAI) can be reviewed and copied
at the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. Information about the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. Reports and other information
about the Fund are available on the SEC's Internet site at http://www.sec.gov.
Copies of this information may be obtained, upon payment of a duplicating fee,
by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
The Trust for Federal Securities Act File No. is 811-2573
-16-
<PAGE>
PROVIDENT INSTITUTIONAL FUNDS
Statement of Additional Information
January 31, 1999
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the current Prospectuses for TempFund, TempCash,
FedFund, T-Fund, Federal Trust Fund, Treasury Trust Fund, MuniFund, MuniCash,
California Money Fund and New York Money Fund, each dated January 31, 1999, of
Provident Institutional Funds ("PIF" or the "Company"), as they may from time to
time be supplemented or revised. No investment in shares should be made without
reading the Prospectus of the Fund. This Statement of Additional Information is
incorporated by reference in its entirety into each Prospectus. Copies of the
Prospectuses and Annual Reports of each of the Funds may be obtained, without
charge, by writing PIF, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, DE 19809 or calling PIF at 1-800-821-7432. The financial
statements included in the Annual Reports of each of the Funds are incorporated
by reference into this Statement of Additional Information.
TABLE OF CONTENTS
-----------------
Page
----
General Information......................................................
Investment Strategies, Risks and Policies................................
Portfolio Transactions..............................................
Investment Instruments and Policies.................................
Variable and Floating Rate Instruments.........................
Repurchase Agreements..........................................
Securities Lending.............................................
Reverse Repurchase Agreements..................................
When Issued and Delayed Settlement Transactions................
U.S. Government Obligations....................................
Mortgage-Related and Other Asset-Backed Securities.............
Banking Industry Obligations...................................
Special Considerations Regarding Foreign Investments...........
Guaranteed Investment Contracts................................
Investment Company Securities..................................
Municipal Obligations..........................................
Restricted and Other Illiquid Securities.......................
Stand-By Commitments...........................................
Short-Term Trading.............................................
Special Considerations with Respect to California Money Fund........
Special Considerations with Respect to New York Money Fund..........
Investment Limitations...................................................
Additional Purchase and Redemption Information...........................
In General..........................................................
Net Asset Value.....................................................
Management of the Funds..................................................
Trustees and Officers...............................................
Investment Adviser..................................................
Banking Laws........................................................
Co-Administrators...................................................
Distributor.........................................................
Custodian and Transfer Agent........................................
Service Organization................................................
Expenses............................................................
Additional Information Concerning Taxes..................................
Dividends................................................................
Additional Yield Information.............................................
Description Concerning Shares............................................
Counsel..................................................................
Auditors.................................................................
Miscellaneous............................................................
APPENDIX A............................................................... A-1
-i-
<PAGE>
GENERAL INFORMATION
PIF was organized as a Delaware business trust on October 21, 1998.
It is the successor to the following five investment companies: (1) Temporary
Investment Fund, Inc. ("Temp"), (2) Trust for Federal Securities ("Fed"), (3)
Municipal Fund for Temporary Investment ("Muni"); (4) Municipal Fund for
California Investors, Inc. ("Cal Muni") and (5) Municipal Fund for New York
Investors, Inc. ("NY Muni") (each a "Predecessor Company", collectively the
"Predecessor Companies"). The Predecessor Companies were comprised of the
following portfolios (each, a "Fund" or "Predecessor Fund", collectively, the
"Funds" or "Predecessor Funds"): Temp - TempFund and TempCash; Fed - FedFund,
T-Fund, Federal Trust Fund and Treasury Trust Fund; Muni - MuniFund and
MuniCash; Cal Muni - California Money Fund; and NY Muni - New York Money
Fund.
The Funds commenced operations as follows: TempFund - October 1973;
TempCash - February 1984; FedFund - October 1975; T-Fund - March 1980; Federal
Trust Fund - December 1980; - Treasury Trust Fund - May 1989; MuniFund -
February 1980; MuniCash - February 1984; California Money Fund - February 1983
and New York Money Fund - March 1983.
The present fiscal year end for each of the Predecessor Companies and
their respective Funds is as follows: Temp - September 30, Fed - October 31,
Muni - November 30, Cal Muni - January 31 and NY Muni - July 31. This Statement
of Additional Information contains various charts with respect to fees and
performance information of the Predecessor Companies and/or Predecessor Funds.
On January __, 1999, each of the Predecessor Funds was reorganized
into a separate series of PIF. PIF is a no-load open-end management investment
company. Currently, PIF offers shares of each of ten Funds. Each Fund is a
diversified fund, with the exception of California Money Fund and New York Money
Fund which are classified as non-diversified investment companies under the 1940
Act. Each of the Funds offers a class of Shares to institutional investors.
Each of the Funds also offers to institutional investors, such as banks, savings
and loan associations and other financial institutions ("Service
Organizations"), a separate class of shares, Dollar Shares. Additionally,
TempFund, MuniFund, T-Fund and California Money Fund offer to Service
Organizations the following separate classes of Shares: Administration Shares,
Cash Reserve Shares and Cash Management Shares. TempFund, T-Fund, MuniFund, New
York Money Fund and the California Money Fund, also offer to broker dealers who
provide assistance in the sale of shares and institutional services to their
customers, a separate class of shares, Plus Shares.
INVESTMENT STRATEGIES, RISKS AND POLICIES
PORTFOLIO TRANSACTIONS
Subject to the general control of the Board of Trustees, BlackRock
Institutional Management Corporation ("BIMC", or the "Adviser"), each Fund's
investment adviser, is responsible for, makes decisions with respect to, and
places orders for all purchases and sales of
<PAGE>
portfolio securities for a Fund. BIMC purchases portfolio securities for the
Funds either directly from the issuer or from dealers who specialize in money
market instruments. Such purchases are usually without brokerage commissions. In
making portfolio investments, BIMC seeks to obtain the best net price and the
most favorable execution of orders. To the extent that the execution and price
offered by more than one dealer are comparable, BIMC may, in its discretion,
effect transactions in portfolio securities with dealers who provide the Funds
with research advice or other services.
With respect to TempFund and TempCash, BIMC may seek to obtain an
undertaking from issuers of commercial paper or dealers selling commercial paper
to consider the repurchase of such securities from a Fund prior to their
maturity at their original cost plus interest (interest may sometimes be
adjusted to reflect the actual maturity of the securities) if BIMC believes that
those Fund's anticipated need for liquidity makes such action desirable.
Certain dealers (but not issuers) have charged and may in the future charge a
higher price for commercial paper where they undertake to repurchase prior to
maturity. The payment of a higher price in order to obtain such an undertaking
reduces the yield which might otherwise be received by a Fund on the commercial
paper. The Company's Board of Trustees has authorized BIMC to pay a higher
price for commercial paper where it secures such an undertaking if BIMC believes
that the prepayment privilege is desirable to assure a Fund's liquidity and such
an undertaking cannot otherwise be obtained.
Investment decisions for each Fund are made independently from those
for another of the Company's portfolios or other investment company portfolios
or accounts advised or managed by BIMC. Such other portfolios may also invest
in the same securities as the Funds. When purchases or sales of the same
security are made at substantially the same time on behalf of such other
portfolios, transactions are averaged as to price, and available investments
allocated as to amount, in a manner which BIMC believes to be equitable to each
Fund and its customers who also are acquiring securities, including the Fund.
In some instances, this investment procedure may adversely affect the price paid
or received by a Fund or the size of the position obtained for a Fund. To the
extent permitted by law, BIMC may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for such other
portfolios in order to obtain best execution.
The Funds will not execute portfolio transactions through or acquire
portfolio securities issued by BIMC, PNC Bank, National Association ("PNC
Bank"), PFPC Inc. ("PFPC"), and Provident Distributors, Inc. ("PDI"), or any
affiliated person (as such term is defined in the Investment Company Act of 1940
(the "1940 Act")) of any of them, except to the extent permitted by the
Securities and Exchange Commission (the "SEC"). In addition, with respect to
such transactions, securities, deposits and agreements, the Funds will not give
preference to Service Organizations with whom a Fund enters into agreements
concerning the provision of support services to customers who beneficially own
Dollar Shares, Administration Shares, Cash Reserve Shares, Cash Management
Shares and Plus Shares.
The Funds do not intend to seek profits through short-term trading.
Each Fund's annual portfolio turnover will be relatively high, but is not
expected to have a material effect on its net income. Each Fund's portfolio
turnover rate is expected to be zero for regulatory reporting purposes.
-2-
<PAGE>
INVESTMENT INSTRUMENTS AND POLICIES
The following supplements the description of the investment
instruments and/or policies which are applicable to the Funds. In such cases
where an instrument or policy is utilized only by a specific Fund or Funds, its
applicability to the specific Fund is noted below:
VARIABLE AND FLOATING RATE INSTRUMENTS. TempFund, TempCash, MuniFund,
MuniCash, California Money Fund and New York Money Fund may purchase variable
and floating rate instruments. Variable and floating rate instruments are
subject to the credit quality standards described in the Prospectuses. In some
cases the Funds may require that the obligation to pay the principal of the
instrument be backed by a letter or line of credit or guarantee. Such
instruments may carry stated maturities in excess of 13 months provided that the
maturity-shortening provisions stated in Rule 2a-7 are satisfied. Although a
particular variable or floating rate demand instrument may not be actively
traded in a secondary market, in some cases, a Fund may be entitled to principal
on demand and may be able to resell such notes in the dealer market.
Variable and floating rate demand instruments held by a Fund may have
maturities of more than 13 months provided: (i) the Fund is entitled to the
payment of principal at any time, or during specified intervals not exceeding 13
months, upon giving the prescribed notice (which may not exceed 30 days), and
(ii) the rate of interest on such instruments is adjusted at periodic intervals
which may extend up to 13 months. Variable and floating rate notes that do not
provide for payment within seven days may be deemed illiquid and subject to a
10% limitation on such investments.
In determining a Fund's average weighted portfolio maturity and
whether a long-term variable or floating rate demand instrument has a remaining
maturity of 13 months or less, each instrument will be deemed by a Fund to have
a maturity equal to the longer of the period remaining until its next interest
rate adjustment or the period remaining until the principal amount can be
recovered through demand. Variable and floating notes are not typically rated
by credit rating agencies, but their issuers must satisfy the Fund's quality and
maturity requirements. If an issuer of such a note were to default on its
payment obligation, the Fund might be unable to dispose of the note because of
the absence of an active secondary market and might, for this or other reasons,
suffer a loss. The Fund invests in variable or floating rate notes only when
the Adviser deems the investment to involve minimal credit risk.
REPURCHASE AGREEMENTS. TempFund, TempCash, FedFund and T-Fund may
purchase repurchase agreements. In a repurchase agreement, a Fund purchases
money market instruments from financial institutions, such as banks and broker-
dealers, subject to the seller's agreement to repurchase them at an agreed upon
time and price, reflecting interest on the repurchase price for the securities
subject to the repurchase agreement. The securities subject to a repurchase
agreement may bear maturities exceeding 13 months, provided the repurchase
agreement itself matures in one year or less. The seller under a repurchase
agreement will be required to maintain the value of the securities subject to
the agreement at not less than the repurchase price. Default by the seller
would, however, expose the Fund to possible loss because of adverse market
action or delay in connection with the disposition of the underlying securities.
Collateral for a repurchase agreement may include obligations issued by the U.S.
Government or
-3-
<PAGE>
its agencies or instrumentalities or obligations rated in the highest category
by a nationally recognized statistical rating organization (an "NRSRO"). The
ratings by NRSROs represent their respective opinions as to the quality of the
obligations they undertake to rate. Ratings, however, are general and are not
absolute standards of quality. Consequently, obligations with the same rating,
maturity, and interest rate may have different market prices. The Appendix to
this Statement of Additional Information contains a description of the relevant
rating symbols used by NRSROs for commercial paper that may be purchased by each
Fund. The repurchase price under the repurchase agreements described in the
Funds' Prospectuses generally equals the price paid by that Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the securities underlying the repurchase agreement). Securities
subject to repurchase agreements will be held by the Company's custodian or sub-
custodian, or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by the Funds under the 1940 Act.
SECURITIES LENDING. Each of TempFund, TempCash, FedFund and T-Fund
may lend its securities with a value of up to one-third of its total assets
(including the value of the collateral for the loan) to qualified brokers,
dealers, banks and other financial institutions for the purpose of realizing
additional net investment income through the receipt of interest on the loan.
Such loans would involve risks of delay in receiving additional collateral in
the event the value of the collateral decreased below the value of the
securities loaned or of delay in recovering the securities loaned or even loss
of rights in the collateral should the borrower of the securities fail
financially. Loans will only be made to borrowers deemed by the Adviser to be
creditworthy.
REVERSE REPURCHASE AGREEMENTS. Each of TempFund, TempCash, FedFund
and T-Fund may enter into reverse repurchase agreements. In a reverse
repurchase agreement a Fund sells a security and simultaneously commits to
repurchase that security at a future date from the buyer. In effect, the Fund
is temporarily borrowing money at an agreed upon interest rate from the
purchaser of the security, and the security sold represents collateral for the
loan.
A Fund's investment of the proceeds of a reverse repurchase agreement
involves the speculative factor known as leverage. A Fund may enter into a
reverse repurchase agreement only if the interest income from investment of the
proceeds is greater than the interest expense of the transaction and the
proceeds are invested for a period no longer than the term of the agreement. A
Fund will maintain in a segregated account, liquid securities at least equal to
its purchase obligations under these agreements. The Adviser will evaluate the
creditworthiness of the other party in determining whether a Fund will enter
into a reverse repurchase agreement. The use of reverse repurchase agreements
involves certain risks. For example, the securities acquired by a Fund with the
proceeds of such an agreement may decline in value, although the Fund is
obligated to repurchase the securities sold to the counter party at the agreed
upon price. In addition, the market value of the securities sold by a Fund may
decline below the repurchase price to which the Fund remains committed.
Each of TempFund, TempCash, FedFund and T-Fund is permitted to invest
up to one-third of its total assets in reverse repurchase agreements and
securities lending transactions. Investments in reverse repurchase agreements
and securities lending transaction will be aggregated for purposes of this
investment limitation.
-4-
<PAGE>
WHEN-ISSUED AND DELAYED SETTLEMENT TRANSACTIONS. The Funds may utilize
when-issued and delayed settlement transactions. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a stated
price and yield. Delayed settlement describes settlement of a securities
transaction in the secondary market sometime in the future. The Fund will
generally not pay for such securities or start earning interest on them until
they are received. Securities purchased on a when-issued or delayed settlement
basis are recorded as an asset and are subject to changes in value based upon
changes in the general level of interest rates. When a Fund agrees to purchase
when-issued or delayed settlement securities, the custodian will set aside cash
or liquid portfolio securities equal to the amount of the commitment in a
separate account. Normally, the custodian will set aside portfolio securities to
satisfy a purchase commitment, and in such a case that Fund may be required
subsequently to place additional assets in the separate account in order to
ensure that the value of the account remains equal to the amount of such Fund's
commitment. It may be expected that the market value of the Fund's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. A Fund's liquidity
and ability to manage its portfolio might be affected when it sets aside cash or
portfolio securities to cover such purchase commitments. When a Fund engages in
when-issued or delayed settlement transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in a Fund's
incurring a loss or missing an opportunity to obtain a price considered to be
advantageous. The Funds do not intend to purchase when-issued or delayed
settlement securities for speculative purposes but only in furtherance of a
Fund's investment objective. Each Fund reserves the right to sell these
securities before the settlement date if it is deemed advisable.
U.S. GOVERNMENT OBLIGATIONS. Examples of the types of U.S. Government
obligations that may be held by the Funds include U.S. Treasury Bills, Treasury
Notes, and Treasury Bonds and the obligations of the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
Federal National Mortgage Association, Federal Financing Bank, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks, Federal Farm Credit
Banks, Maritime Administration, Tennessee Valley Authority, Washington D.C.
Armory Board, and International Bank for Reconstruction and Development. The
Funds may also invest in mortgage-related securities issued or guaranteed by
U.S. Government agencies and instrumentalities, including such instruments as
obligations of the Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC").
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES. TempFund and
TempCash may purchase mortgage-related and other asset-backed securities.
Mortgage-related securities include fixed and adjustable Mortgage Pass-Through
Certificates, which provide the holder with a pro-rata share of interest and
principal payments on a pool of mortgages, ordinarily on residential properties.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Pass-Through Certificates guaranteed
by GNMA (also known as "Ginnie Maes") are guaranteed as to the timely payment of
principal and interest by GNMA,
-5-
<PAGE>
whose guarantee is backed by the full faith and credit of the United States.
Mortgage-related securities issued by FNMA include FNMA guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are guaranteed as
to timely payment of principal and interest by FNMA. They are not backed by or
entitled to the full faith and credit of the United States, but are supported by
the right of the FNMA to borrow from the Treasury. Mortgage-related securities
issued by FHLMC include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs"). Freddie Macs are not guaranteed by the United States or by any
Federal Home Loan Banks and do not constitute a debt or obligation of the United
States or of any Federal Home Loan Bank. Freddie Macs entitle the holder to
timely payment of interest, which is guaranteed by the FHLMC. FHLMC guarantees
either ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC is required to remit the amount due on account of its guarantee
of ultimate payment of principal no later than one year after it becomes
payable.
A Fund from time to time may purchase in the secondary market (i)
certain mortgage pass-through securities packaged and master serviced by PNC
Mortgage Securities Corp. ("PNC Mortgage") (or Sears Mortgage if PNC Mortgage
succeeded to the rights and duties of Sears Mortgage) or Midland Loan Services,
Inc. ("Midland"), or (ii) mortgage-related securities containing loans or
mortgages originated by PNC Bank, National Association ("PNC Bank") or its
affiliates). It is possible that under some circumstances, PNC Mortgage,
Midland or other affiliates could have interests that are in conflict with the
holders of these mortgage-backed securities, and such holders could have rights
against PNC Mortgage, Midland or their affiliates.
TempCash only may also invest in classes of collateralized mortgage
obligations ("CMOs") which have a remaining maturity of 13 months or less in
accordance with the requirements of Rule 2a-7 under the 1940 Act. Each class of
a CMO, which frequently elect to be taxed as a real estate mortgage investment
conduit ("REMIC"), represents an ownership interest in, and the right to receive
a specified portion of, the cash flow consisting of interest and principal on a
pool of residential mortgage loans or mortgage pass-through securities
("Mortgage Assets"). CMOs are issued in multiple classes, each with a specified
fixed or floating interest rate and a final distribution date. The relative
payment rights of the various CMO classes may be structured in many ways. In
most cases, however, payments of principal are applied to the CMO classes in the
order of their respective stated maturities, so that no principal payments will
be made on a CMO class until all other classes having an earlier stated maturity
date are paid in full. These multiple class securities may be issued or
guaranteed by U.S. Government agencies or instrumentalities, including GNMA,
FNMA and FHLMC, or issued by trusts formed by private originators of, or
investors in, mortgage loans. Classes in CMOs which TempCash may hold are known
as "regular" interests. CMOs also issue "residual" interests, which in general
are junior to and more volatile than regular interests. TempCash does not
intend to purchase residual interests.
TempFund and TempCash may also invest in non-mortgage asset-backed
securities (backed, e.g., by installment sales contracts, credit card
----
receivables or other assets). Asset-backed securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in an underlying pool of assets, or as debt instruments,
-6-
<PAGE>
which are also known as collateralized obligations, and are generally issued as
the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt.
The yield characteristics of certain mortgage-related and asset-backed
securities may differ from traditional debt securities. One such major
difference is that all or a principal part of the obligations may be prepaid at
any time because the underlying assets (i.e., loans) may be prepaid at any time.
----
As a result, a decrease in interest rates in the market may result in increases
in the level of prepayments as borrowers, particularly mortgagors, refinance and
repay their loans. An increased prepayment rate with respect to a mortgage-
related or asset-backed security subject to such a prepayment feature will have
the effect of shortening the maturity of the security. If a Fund has purchased
such a mortgage-related or asset-backed security at a premium, a faster than
anticipated prepayment rate could result in a loss of principal to the extent of
the premium paid. Conversely, an increase in interest rates may result in
lengthening the anticipated maturity of such a security because expected
prepayments are reduced. A prepayment rate that is faster than expected will
reduce the yield to maturity of such a security, while a prepayment rate that is
slower than expected may have the opposite effect of increasing yield to
maturity.
In general, the assets supporting non-mortgage asset-backed securities
are of shorter maturity than the assets supporting mortgage-related securities.
Like other fixed-income securities, when interest rates rise the value of an
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed-income securities, and, as noted above,
changes in market rates of interest may accelerate or retard prepayments and
thus affect maturities.
These characteristics may result in a higher level of price volatility
for asset-backed securities with prepayment features under certain market
conditions. In addition, while the trading market for short-term mortgages and
asset backed securities is ordinarily quite liquid, in times of financial stress
the trading market for these securities sometimes becomes restricted.
BANKING INDUSTRY OBLIGATIONS. For purposes of TempCash's investment
policies with respect to obligations of issuers in the financial services
industry, the assets of a bank or savings institution will be deemed to include
the assets of its domestic and foreign branches. Obligations of foreign banks
in which TempCash may invest include Eurodollar Certificates of Deposit ("ECDs")
which are U.S. dollar-denominated certificates of deposit issued by offices of
foreign and domestic banks located outside the United States; Eurodollar Time
Deposits ("ETDs") which are U.S. dollar-denominated deposits in a foreign branch
of a U.S. bank or a foreign bank; Canadian Time Deposits ("CTDs") which are
essentially the same as ETDs except they are issued by Canadian offices of major
Canadian banks; and Yankee Certificates of Deposit ("Yankee CDs") which are U.S.
dollar-denominated certificates of deposit issued by a U.S. branch of a foreign
bank and held in the United States.
SPECIAL CONSIDERATIONS REGARDING FOREIGN INVESTMENTS. TempCash's
investments in the obligations of foreign issuers, including foreign
governments, foreign banks
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and foreign branches of U.S. banks, may subject TempCash to investment risks
that are different in some respects from those of investments in obligations of
U.S. domestic issuers. These risks may include future unfavorable political and
economic developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, interest limitations, the possible
establishment of exchange controls, or other governmental restrictions which
might affect the payment of principal or interest on the securities held by the
Fund. Additionally, foreign branches of U.S. banks and foreign banks may be
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping requirements than those applicable to
domestic branches of U.S. banks. TempCash will acquire securities issued by
foreign issuers, including foreign governments, foreign banks and foreign
branches of U.S. banks, only when the Fund's investment adviser believes that
the risks associated with such instruments are minimal.
GUARANTEED INVESTMENT CONTRACTS. TempCash may invest in guaranteed
investment contracts and similar funding agreements ("GICs"). In connection with
this, TempCash makes cash contributions to a deposit fund of the insurance
company's general account. The insurance company then credits to the Fund on a
monthly basis guaranteed interest which is based on an index (in most cases this
index is expected to be the Salomon Brothers CD Index). The GICs provide that
this guaranteed interest will not be less than a certain minimum rate. The
purchase price paid for a GIC becomes part of the general assets of the
insurance company, and the contract is paid from the general assets of the
insurance company. TempCash will only purchase GICs from insurance companies
which, at the time of purchase, are rated "A+" by A.M. Best Company, have assets
of $1 billion or more and meet quality and credit standards established by the
adviser under guidelines approved by the Board of Trustees. Generally, GICs are
not assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in some GICs does not currently exist.
INVESTMENT COMPANY SECURITIES. The Funds may invest in securities
issued by other open-end investment companies that invest in the type of
obligations in which such Fund may invest and that determine their net asset
value per share based upon the amortized cost or penny rounding method.
Investments in the other investment companies will cause a Fund (and,
indirectly, the Fund's shareholders) to bear proportionately the costs incurred
in connection with the other investment companies' operations. Except as
otherwise permitted under the 1940 Act, each Fund currently intends to limit its
investments in other investment companies so that, as determined immediately
after a securities purchase is made: (a) not more that 5% of the value of its
total assets will be invested in the securities of any one investment company;
(b) not more than 10% of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (c) not more than 3% of the
outstanding voting securities of any one investment company will be owned by the
Fund. A Fund, as discussed below in "Investment Limitations" may invest all of
its assets in a single open-end investment company or series thereof with
substantially the same investment objectives, restrictions and policies as the
Fund.
MUNICIPAL OBLIGATIONS. MuniFund, MuniCash, California MoneyFund, New
York Money Fund, TempFund and TempCash, may purchase municipal obligations.
Municipal Obligations include debt obligations issued by governmental entities
to obtain funds for various public purposes, including the construction of a
wide range of public facilities, the refunding of outstanding obligations, the
payment of
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general operating expenses and the extension of loans to public institutions and
facilities. Private activity bonds that are issued by or on behalf of public
authorities to finance various privately-operated facilities are included within
the term Municipal Obligations if the interest paid thereon is (subject to the
federal alternative minimum tax) exempt from regular federal income tax.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. For example, under the Tax Reform Act of
1986, enacted in October 1986, interest on certain private activity bonds must
be included in an investor's alternative minimum taxable income, and corporate
investors must include all tax-exempt interest in the calculation of adjusted
current earnings for purposes of determining the corporation's alternative
minimum tax liability. The Company cannot predict what legislation or
regulations, if any, may be proposed in Congress or promulgated by the
Department of Treasury as regards the federal income tax exemption of interest
on such obligations or the impact of such legislative and regulatory activity on
such exemption.
The two principal classifications of Municipal Obligations which may
be held by the Funds are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit, and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Revenue securities include private activity bonds
which are not payable from the unrestricted revenues of the Municipal issuer.
Consequently, the credit quality of private activity bonds is usually related to
the credit standing of the corporate user of the facility involved.
The Funds' portfolios may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
There are, of course, variations in the quality of Municipal
Obligations, both within a particular classification and between
classifications, and the yields on Municipal Obligations depend upon a variety
of factors, including general money market conditions, the financial condition
of the issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of Moody's and S&P represent their opinions as to the quality of
Municipal Obligations. It should be emphasized, however, that ratings are
general and are not absolute standards of quality, and Municipal Obligations
with the same maturity, interest rate and rating may have different yields while
Municipal Obligations of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by the Funds, an
issue of Municipal Obligations may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Funds. The Adviser
will consider such an event in determining whether the Funds should continue to
hold the obligation.
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An issuer's obligations under its Municipal Obligations are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the federal Bankruptcy Code, and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the payment
of interest on and principal of its Municipal Obligations may be materially
adversely affected by litigation or other conditions.
Among other types of Municipal Obligations, the Funds may purchase
short-term General Obligation Notes, Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes, Tax-Exempt Commercial Paper, Construction
Loan Notes and other forms of short-term loans. Such instruments are issued with
a short-term maturity in anticipation of the receipt of tax funds, the proceeds
of bond placements or other revenues. In addition, the Funds may invest in other
types of tax-exempt instruments, including general obligation and private
activity bonds, provided they have remaining maturities of 13 months or less at
the time of purchase.
MuniFund, MuniCash, California Money Fund and New York Money Fund may
hold tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust, partnership interests or other
forms. A number of different structures have been used. For example, interests
in long-term fixed-rate Municipal Obligations, held by a bank as trustee or
custodian, are coupled with tender option, demand and other features when the
tax-exempt derivatives are created. Together, these features entitle the holder
of the interest to tender (or put) the underlying Municipal Obligation to a
third party at periodic intervals and to receive the principal amount thereof.
In some cases, Municipal Obligations are represented by custodial receipts
evidencing rights to receive specific future interest payments, principal
payments, or both, on the underlying municipal securities held by the custodian.
Under such arrangements, the holder of the custodial receipt has the option to
tender the underlying municipal security at its face value to the sponsor
(usually a bank or broker dealer or other financial institution), which is paid
periodic fees equal to the difference between the bond's fixed coupon rate and
the rate that would cause the bond, coupled with the tender option, to trade at
par on the date of a rate adjustment. The Funds may hold tax-exempt
derivatives, such as participation interests and custodial receipts, for
Municipal Obligations which give the holder the right to receive payment of
principal subject to the conditions described above. The Internal Revenue
Service has not ruled on whether the interest received on tax-exempt derivatives
in the form of participation interests or custodial receipts is tax-exempt, and
accordingly, purchases of any such interests or receipts are based on the
opinion of counsel to the sponsors of such derivative securities. Neither the
Funds nor the Adviser will independently review the underlying proceedings
related to the creation of any tax-exempt derivatives or the bases for such
opinion.
Before purchasing a tax-exempt derivative for such Funds, the Adviser
is required by the Funds' procedures to conclude that the tax-exempt security
and the supporting short-term obligation involve minimal credit risks and are
Eligible Securities under the Funds' Rule 2a-7
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procedures. In evaluating the creditworthiness of the entity obligated to
purchase the tax-exempt security, the Adviser will review periodically the
entity's relevant financial information. Currently, the Trustees have authorized
the purchase of tax-exempt derivatives by the Funds so long as after any
purchase not more than 10% of the Funds' assets are invested in such securities.
RESTRICTED AND OTHER ILLIQUID SECURITIES. The SEC has adopted Rule
144A under the Securities Act of 1933 (the "1933 Act") that allows for a broader
institutional trading market for securities otherwise subject to restriction on
resale to the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. The Adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this regulation and the development of automated systems
for the trading, clearance and settlement of unregistered securities of domestic
and foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers.
The Adviser will monitor the liquidity of restricted and other
illiquid securities under the supervision of the Board of Trustees. In reaching
liquidity decisions, the Adviser will consider, inter alia, the following
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factors: (1) the unregistered nature of a Rule 144A security; (2) the frequency
of trades and quotes for the Rule 144A security; (3) the number of dealers
wishing to purchase or sell the Rule 144A security and the number of other
potential purchasers; (4) dealer undertakings to make a market in the Rule 144A
security; (5) the trading markets for the Rule 144A security; and (6) the nature
of the Rule 144A security and the nature of the marketplace trades (e.g., the
----
time needed to dispose of the Rule 144A security, the method of soliciting
offers and the mechanics of the transfer).
STAND-BY COMMITMENTS. MuniFund, MuniCash, California MoneyFund and
New York Money Fund may acquire stand-by committments. Under a stand-by
commitment, a dealer would agree to purchase at a Fund's option specified
Municipal Obligations at their amortized cost value to the Fund plus accrued
interest, if any. (Stand-by commitments acquired by a Fund may also be referred
to as "put" options.) Stand-by commitments may be exercisable by a Fund at any
time before the maturity of the underlying Municipal Obligations and may be
sold, transferred, or assigned only with the instruments involved. A Fund's
right to exercise stand-by commitments will be unconditional and unqualified.
SHORT-TERM TRADING. Federal Trust Fund and Treasury Trust Fund may
seek profits through short-term trading and engage in short-term trading for
liquidity purposes. Increased trading may provide greater potential for capital
gains and losses, and also involves correspondingly greater trading costs which
are borne by the Fund involved. BIMC will consider such costs in determining
whether or not a Fund should engage in such trading. The portfolio turnover
rate for the Funds is expected to be zero for regulatory reporting purposes.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MONEY FUND.
The following information constitutes only a brief summary, does not
purport to be a complete description, and is based on information available as
of the date of this Statement of Additional Information from official statements
and prospectuses relating to securities offerings of the State of California and
various local agencies in California. While the Company
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has not independently verified such information, they have no reason to believe
that such information is not correct in all material respects.
ECONOMIC FACTORS
FISCAL YEARS PRIOR TO 1995-96. Pressures on the State's budget in the
late 1980's and early 1990's were caused by a combination of external economic
conditions and growth of the largest General Fund Programs - K-14 education,
health, welfare and corrections -- at rates faster than the revenue base. These
pressures could continue as the State's overall population and school age
population continue to grow, and as the State's corrections program responds to
a "Three Strikes" law enacted in 1994, which requires mandatory life prison
terms for certain third-time felony offenders. In addition, the State's health
and welfare programs are in a transition period as a result of recent federal
and State welfare reform initiatives.
As a result of these factors and others, and especially because a
severe recession between 1990-94 reduced revenues and increased expenditures for
social welfare programs, from the late 1980's until 1992-93, the State had
periods of significant budget imbalance. During this period, expenditures
exceeded revenues in four out of six years, and the State accumulated and
sustained a budget deficit in its budget reserve, the Special Fund for Economic
Uncertainties ("SFEU") approaching $2.8 billion at its peak on June 30, 1993.
BETWEEN THE 1991-92 AND 1994-95 FISCAL YEARS, EACH budget required
multibillion dollar actions to bring projected revenues and expenditures into
balance, including significant cuts in health and welfare program expenditures;
transfers of program responsibilities and funding from the State to local
governments; transfers of about $3.6 billion in annual local property tax
revenues from other local governments to local school districts, thereby
reducing State funding for schools under Proposition 98; and revenue increases
(particularly in the 1991-92 Fiscal Year budget), most of which were for a short
duration.
Despite these budget actions, as noted, the effects of the recession
led to large, unanticipated deficits in the SFEU, as compared to projected
positive balances. By the 1993-94 Fiscal Year, the accumulated deficit was so
large that it was impractical to budget to retire such deficits in one year, so
a two-year program was implemented, using the issuance of revenue anticipation
warrants to carry a portion of the deficit over the end of the fiscal year. When
the economy failed to recover sufficiently in 1993-94, a second two-year plan
was implemented in 1994-95, again using cross-fiscal year revenue anticipation
warrants to partly finance the deficit into the 1995-96 fiscal year.
Another consequence of the accumulated budget deficits, together with
other factors such as disbursement of funds to local school districts "borrowed"
from future fiscal years and hence not shown in the annual budget, was to
significantly reduce the State's cash resources available to pay its ongoing
obligations. When the Legislature and the Governor failed to adopt a budget for
the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the State to
carry out its normal annual cash flow borrowing to replenish cash reserves, the
State Controller issued registered warrants to pay a variety of obligations
representing prior years' or continuing appropriations, and mandates from court
orders. Available funds were used to make
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constitutionally-mandated payments, such as debt service on bonds and warrants.
Between July 1 and September 4, 1992, when the budget was adopted, the State
Controller issued a total of approximately $3.8 billion of registered warrants.
For several fiscal years during the recession, the State was forced to
rely on external debt markets to meet its cash needs, as a succession of notes
and revenue anticipation warrants were issued in the period from June 1992 to
July 1994, often needed to pay previously maturing notes or warrants. These
borrowings were used also in part to spread out the repayment of the accumulated
budget deficit over the end of a fiscal year, as noted earlier. The last and
largest of these borrowings was $4.0 billion of revenue anticipation warrants
which were issued in July, 1994 and matured on April 25, 1996.
1995-96 AND 1996-97 FISCAL YEARS
With the end of the recession, and a growing economy beginning in
1994, the State's financial condition improved markedly in the last two fiscal
years, with a combination of better than expected revenues, slowdown in growth
of social welfare programs, and continued spending restraint based on the
actions taken in earlier years. The last of the recession-induced budget
deficits was repaid, allowing the SFEU to post a positive cash balance for only
the second time in the 1990's, totaling $281 million as of June 30, 1997. The
State's cash position also returned to health, as cash flow borrowing was
limited to $3 billion in 1996-97, and no deficit has occurred over the end of
these last two fiscal years.
In each of these two fiscal years, the State budget contained the
following major features:
1. Expenditures for K-14 schools grew significantly, as new revenues
were directed to school spending under Proposition 98. This new money allowed
several new education initiatives to be funded, and raised K-12 per-pupil
spending to around $4,900 by Fiscal Year 1996-97. See "STATE FINANCES -
Proposition 98" above.
2. The budgets restrained health and welfare spending levels, holding
to reduced benefit levels enacted in earlier years, and attempted to reduce
General Fund spending by calling for greater support from the federal
government. The State also attempted to shift to the federal government a
larger share of the cost of incarceration and social services for illegal
aliens. Some of these efforts were successful, and federal welfare reform also
helped, but as a whole the federal support never reached the levels anticipated
when the budgets were enacted. These funding shortfalls were, however, filled
by the strong revenue collections, which exceeded expectations.
3. General Fund support for the University of California and the
California State University system grew by an average of 5.2 percent and 3.3
percent per year, respectively, and there were no increases in student fees.
4. General Fund support for the Department of Corrections grew as
needed to meet increased prison population. No new prisons were approved for
construction, however.
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5. There were no tax increases, and starting January 1, 1997, there
was a 5 percent cut in corporate taxes. The suspension of the Renter's Tax
Credit, first taken as a cost-saving measure during the recession, was
continued.
As noted, the economy grew strongly during these fiscal years, and as
a result, the General Fund took in substantially greater tax revenues (about
$2.2 billion in 1995-96 and $1.6 billion in 1996-97) than were initially planned
when the budgets were enacted. These additional funds were largely directed to
school spending as mandated by Proposition 98, and to make up shortfalls from
reduced federal health and welfare aid. As a result, there was no dramatic
increase in budget reserves, although the accumulated budget deficit from the
recession years was finally eliminated in the past fiscal year.
1997-98 FISCAL YEAR
BACKGROUND
On January 9, 1997, the Governor released his proposed budget for the
1997-98 Fiscal Year (the "Proposed Budget"). The Proposed Budget estimated
General Fund revenues and transfers of about $50.7 billion and proposed
expenditures of $50.3 billion, resulting in an anticipated budget reserve in the
SFEU of about $550 million. The Proposed Budget included provisions for a
further 10% cut in Bank and Corporation Taxes, which ultimately was not enacted
by the Legislature.
At the time of the Department of Finance May Revision, released on May
14, 1997, the Department of Finance increased its revenue estimate for the
upcoming fiscal year by $1.3 billion, in response to the continued strong growth
in the State's economy. Budget negotiations continued into the summer, with
major issues to be resolved including final agreement on State welfare reform,
an increase in State employee salaries and consideration of the tax cut proposed
by the Governor.
In May, 1997, action was taken by the California Supreme Court in an
ongoing lawsuit, PERS v. Wilson, below, which made final a judgment against the
State requiring an immediate payment from the General Fund to the Public
Employees Retirement Fund ("PERF") to make up certain deferrals in annual
retirement fund contributions which had been legislated in earlier years for
budget savings, and which the courts found to be unconstitutional. On July 30,
1997, following a direction from the Governor, the Controller transferred $1.235
billion from the General Fund to the PERF in satisfaction of the judgment,
representing the principal amount of the improperly deferred payments from 1995-
96 and 1996-97. In late 1997, the plaintiffs filed a claim with the State Board
of Control for payment of interest under the Court rulings in an amount of $308
million. The Department of Finance has recommended approval of this claim. If
approved by the Board of Control, the claim would become part of an annual
claims bill in the 1998-99 Budget.
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FISCAL YEAR 1997-98 BUDGET ACT
Following the transfer of funds to the PERF, final agreement was
reached within a few weeks on the welfare package and the remainder of the
budget. The Legislature passed the Budget Bill on August 11, 1997, along with
numerous related bills to implement its provisions. Agreement was not finally
reached at that time on one aspect of the budget plan, concerning the Governor's
proposal for a comprehensive educational testing program.
On August 18, 1997, the Governor signed the Budget Act, but vetoed
about $314 million of specific spending items, primarily in health and welfare
and education areas from both the General Fund and Special Funds. Approximately
$200 million of this amount was restored in subsequent legislation passed before
the end of the Legislative Session.
The Budget Act anticipated General Fund revenues and transfers of
$52.5 billion (a 6.8 percent increase over the final 1996-97 amount), and
expenditures of $52.8 billion (an 8.0 percent increase from the 1996-97 levels).
The Budget Act also included Special Fund expenditures of $14.4 billion (as
against estimated Special Fund revenues of $14.0 billion), and $2.1 billion of
expenditures from various Bond Funds. Subsequent to the Budget Act enactment,
the State undertook its normal cash flow borrowing program by issuing $3.0
billion of Notes which mature June 30, 1998.
The following were major features of the 1997-98 Budget Act:
1. For the second year in a row, the Budget contained a large
increase in funding for K-14 education under Proposition 98, reflecting strong
revenues which have exceeded initial budgeted amounts. Part of the nearly $1.75
billion in increased spending was allocated to prior fiscal years. Funds were
provided to fully pay for the cost-of-living-increase component of Proposition
98, and to extend the class size reduction and reading initiatives. See "STATE
FINANCES -Proposition 98" above.
2. The Budget Act reflected the $1.228 billion pension case judgment
payment, and brings funding of the State's pension contribution back to the
quarterly basis which existed prior to the deferral actions which were
invalidated by the courts.
3. Continuing the third year of a four-year "compact" which the
Administration had made with higher education units, funding from the General
Fund for the University of California and the California State University system
was increased by approximately 6 percent ($121 million and $107 million,
respectively). There was no increase in student fees.
4. Because of the effect of the pension payment, most other State
programs were continued at 1996-97 levels, adjusted for caseload changes.
5. Health and welfare costs were contained, continuing generally the
grant levels from prior years, as part of the initial implementation of the new
CalWORKs program.
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6. Unlike prior years, this Budget Act did not depend on uncertain
federal budget actions. About $300 million in general funds, already included in
the federal FY 1997 and 1998 budgets, were included in the Budget Act, to offset
incarceration costs for illegal aliens.
7. The Budget Act contained no tax increases, and no tax reductions.
The Renters Tax Credit was suspended for another year, saving approximately $500
million. The Legislature has not made any decision on conformity of State tax
laws to the recent federal tax reduction bill; a comprehensive review of this
subject is expected to take place next year.
At the end of the Legislative Session on September 13, 1997, the
Legislature passed and the Governor later signed several bills encompassing a
coordinated package of fiscal reforms, mostly to take effect after the 1997-98
Fiscal Year. Included in the package are a variety of phased-in tax cuts,
conformity with certain provisions of the federal tax reform law passed earlier
in the year, and reform of funding for county trial courts, with the State to
assume greater financial responsibility. The Department of Finance estimates
that the major impact of these fiscal reforms will occur in Fiscal Year 1998-99
and subsequent years.
The Department of Finance released updated estimates for the 1997-98
Fiscal year on January 9, 1998 as part of the Governor's 1998-99 Fiscal Year
Budget Proposal. Total revenues and transfers are projected at $52.9 billion, up
approximately $360 million from the Budget Act projection. Expenditures for the
fiscal year are expected to rise approximately $200 million above the original
Budget Act, to $53.0 billion. The balance in the budget reserve, the SFEU, is
projected to be $329 million at June 30, 1998, compared to $461 million at June
30, 1997.
PROPOSED 1998-99 FISCAL YEAR BUDGET
On January 9, 1998, the Governor released his Budget Proposal for the
1998-99 Fiscal Year (the "Governor's Budget"). The Governor's Budget projects
total General Fund revenues and transfers of $55.4 billion, a $2.5 billion
increase (4.7 percent) over revised 1997-98 revenues. This revenue increase
takes into account reduced revenues of approximately $600 million from the 1997
tax cut package, but also assumes approximately $500 million additional revenues
primarily associated with capital gains realizations. The Governor's Budget
notes, however, that capital gains activity and the resultant revenues derived
from it are very hard to predict.
Total General Fund expenditures for 1998-99 are recommended at $55.4
billion, an increase of $2.4 billion (4.5 percent) above the revised 1997-98
level. The Governor's Budget includes funds to pay the interest claim relating
to the court decision on pension fund payments PERS v. Wilson (SEE "1997-98
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Fiscal Year" above). The Governor's Budget projects that the State will carry
out its normal intra-year cash flow external borrowing in 1998-99, in an
estimated amount of $3.0 billion. The Governor's Budget projects that the budget
reserve, the SFEU, will be $296 million at June 30, 1999, slightly lower than
the projected level at June 30, 1998 PERS liability.
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The Governor's Budget projects Special Fund revenues of $14.7 billion,
and Special Fund expenditures of $15.2 billion, in the 1998-99 Fiscal Year. A
total of $3.2 billion of bond fund expenditures are also proposed.
OTHER MATTERS. On December 6, 1994, Orange County, California and its
Investment Pool (the "Pool") filed for bankruptcy under Chapter 9 of the United
States Bankruptcy Code. The subsequent restructuring led to the sale of
substantially all of the Pool's portfolio and resulted in losses estimated to be
approximately $1.7 billion (or approximately 22% of amounts deposited by the
Pool investors). Approximately 187 California public entities -- substantially
all of which are public agencies within the county -- had various bonds, notes
or other forms of indebtedness outstanding. In some instances the proceeds of
such indebtedness were invested in the Pool.
In April, 1996, the County emerged from bankruptcy after closing on a
$900 million recovery bond transaction. At that time, the County and its
financial advisors stated that the County had emerged from the bankruptcy
without any structural fiscal problems and assured that the County would not
slip back into bankruptcy. However, for many of the cities, schools and special
districts that lost money in the County portfolio, repayment remains contingent
on the outcome of litigation which is pending against investment firms and other
finance professionals. Thus, it is impossible to determine the ultimate impact
of the bankruptcy and its aftermath on these various agencies and their claims.
In May 1996, a taxpayer action was filed against the City of San Diego
("San Diego") and the San Diego Convention Center Expansion Authority (the
"Authority") challenging the validity of a lease revenue financing involving a
lease (the "San Diego Lease") having features similar to the leases commonly
used in California lease-based financings such as certificates of participation
(the "Rider Case"). The Rider Case plaintiffs alleged that voter approval is
required for the San Diego Lease (a) since the lease constituted indebtedness
prohibited by Article XVI, Section 18 of the California Constitution without a
two-thirds vote of the electorate, and (b) since San Diego was prohibited under
its charter from issuing bonds without a two-thirds vote of the electorate, and
the power of the Authority, a joint powers' authority, one of the members of
which is San Diego, to issue bonds is no greater than the power of San Diego. in
response to San Diego's motion for summary judgment, the trial Court rejected
the plaintiffs' arguments and ruled that the San Diego Lease was
constitutionally valid and that the Authority's related lease revenue bonds did
not require voter approval. The plaintiffs appealed the matter to the Court of
Appeals for the Fourth District, which affirmed the validity of the San Diego
Lease and of the lease revenue bond financing arrangements. The plaintiffs then
filed a petition for review with the California State Supreme Court, and, on
April 2, 1997, the Court granted the plaintiff's petition for review. A decision
from the Supreme Court is expected to be decided within the 1998 term.
CONSTITUTIONAL, LEGISLATIVE AND OTHER FACTORS.
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could produce
the adverse effects described below, among others.
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REVENUE DISTRIBUTION. Certain Debt Obligations in the Portfolio may be
obligations of issuers which rely in whole or in part on California State
revenues for payment of these obligations. Property tax revenues and a portion
of the State's general fund surplus are distributed to counties, cities and
their various taxing entities and the State assumes certain obligations
theretofore paid out of local funds. Whether and to what extent a portion of the
State's general fund will be distributed in the future to counties, cities and
their various entities is unclear.
HEALTH CARE LEGISLATION. Certain Debt Obligations in the Portfolio may
be obligations which are payable solely from the revenues of health care
institutions. Certain provisions under California law may adversely affect these
revenues and, consequently, payment on those Debt Obligations.
The federally sponsored Medicaid program for health care services to
eligible welfare beneficiaries in California is known as the Medi-Cal program.
Historically, the Medi-Cal program has provided for a cost-based system of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by any
hospital wanting to participate in the Medi-Cal program, provided such hospital
met applicable requirements for participation. California law now provides that
the State of California shall selectively contract with hospitals to provide
acute inpatient services to Medi-Cal patients. Medi-Cal contracts currently
apply only to acute inpatient services. Generally, such selective contracting is
made on a flat per diem payment basis for all services to Medi-Cal
beneficiaries, and generally such payment has not increased in relation to
inflation, costs or other factors. Other reductions or limitations may be
imposed on payment for services rendered to Medi-Cal beneficiaries in the
future.
Under this approach, in most geographical areas of California, only
those hospitals which enter into a Medi-Cal contract with the State of
California will be paid for non-emergency acute inpatient services rendered to
Medi-Cal beneficiaries. The State may also terminate these contracts without
notice under certain circumstances and is obligated to make contractual payments
only to the extent the California legislature appropriates adequate funding
therefor.
California enacted legislation in 1982 that authorizes private health
plans and insurers to contract directly with hospitals for services to
beneficiaries on negotiated terms. Some insurers have introduced plans known as
"preferred provider organizations" ("PPOs"), which offer financial incentives
for subscribers who use only the hospitals which contract with the plan. Under
an exclusive provider plan, which includes most health maintenance organizations
("HMOs"), private payors limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly from
projections. Often, HMO or PPO contracts are enforceable for a stated term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO. It
is expected that failure to execute and maintain such PPO and HMO contracts
would reduce a hospital's patient base or gross revenues. Conversely,
participation may maintain
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or increase the patient base, but may result in reduced payment and lower net
income to the contracting hospitals.
These Debt Obligations may also be insured by the State of California
pursuant to an insurance program implemented by the Office of Statewide Health
Planning and Development for health facility construction loans. If a default
occurs on insured Debt Obligations, the State Treasurer will issue debentures
payable out of a reserve fund established under the insurance program or will
pay principal and interest on an unaccelerated basis from unappropriated State
funds. At the request of the Office of Statewide Health Planning and
Development, Arthur D. Little, Inc. prepared a study in December 1983, to
evaluate the adequacy of the reserve fund established under the insurance
program and based on certain formulations and assumptions found the reserve fund
substantially underfunded. In September of 1986, Arthur D. Little, Inc. prepared
an update of the study and concluded that an additional 10% reserve be
established for "multi-level" facilities. For the balance of the reserve fund,
the update recommended maintaining the current reserve calculation method. In
March of 1990, Arthur D. Little, Inc. prepared a further review of the study and
recommended that separate reserves continue to be established for "multi-level"
facilities at a reserve level consistent with those that would be required by an
insurance company.
MORTGAGES AND DEEDS. Certain Debt Obligations in the Portfolio may be
obligations which are secured in whole or in part by a mortgage or deed of trust
on real property. California has five principal statutory provisions which limit
the remedies of a creditor secured by a mortgage or deed of trust. Two statutes
limit the creditor's right to obtain a deficiency judgment, one limitation being
based on the method of foreclosure and the other on the type of debt secured.
Under the former, a deficiency judgment is barred when the foreclosure is
accomplished by means of a nonjudicial trustee's sale. Under the latter, a
deficiency judgment is barred when the foreclosed mortgage or deed of trust
secures certain purchase money obligations. Another California statute, commonly
known as the "one form of action" rule, requires creditors secured by real
property to exhaust their real property security by foreclosure before bringing
a personal action against the debtor. The fourth statutory provision limits any
deficiency judgment obtained by a creditor secured by real property following a
judicial sale of such property to the excess of the outstanding debt over the
fair value of the property at the time of the sale, thus preventing the creditor
from obtaining a large deficiency judgment against the debtor as the result of
low bids at a judicial sale. The fifth statutory provision gives the debtor the
right to redeem the real property from any judicial foreclosure sale as to which
a deficiency judgment may be ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to
California real property, the creditor's nonjudicial foreclosure rights under
the power of sale contained in the mortgage or deed of trust are subject to the
constraints imposed by California law upon transfers of title to real property
by private power of sale. During the three-month period beginning with the
filing of a formal notice of default, the debtor is entitled to reinstate the
mortgage by making any overdue payments. Under standard loan servicing
procedures, the filing of the formal notice of default does not occur unless at
least three full monthly payments have become due and remain unpaid. The power
of sale is exercised by posting and publishing a notice of sale for at least 20
days after expiration of the three-month reinstatement period. The debtor may
reinstate
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the mortgage, in the manner described above, up to five business days prior to
the scheduled sale date. Therefore, the effective minimum period for foreclosing
on a mortgage could be in excess of seven months after the initial default. Such
time delays in collections could disrupt the flow of revenues available to an
issuer for the payment of debt service on the outstanding obligations if such
defaults occur with respect to a substantial number of mortgages or deeds of
trust securing an issuer's obligations.
In addition, a court could find that there is sufficient involvement
of the issuer in the nonjudicial sale of property securing a mortgage for such
private sale to constitute "state action," and could hold that the
private-right-of-sale proceedings violate the due process requirements of the
Federal or State Constitutions, consequently preventing an issuer from using the
nonjudicial foreclosure remedy described above.
Certain Debt Obligations in the Portfolio may be obligations which
finance the acquisition of single family home mortgages for low and moderate
income mortgagors. These obligations may be payable solely from revenues derived
from the home mortgages, and are subject to California's statutory limitations
described above applicable to obligations secured by real property. Under
California antideficiency legislation, there is no personal recourse against a
mortgagor of a single family residence purchased with the loan secured by the
mortgage, regardless of whether the creditor chooses judicial or nonjudicial
foreclosure.
Under California law, mortgage loans secured by single-family owner-
occupied dwellings may be prepaid at any time. Prepayment charges on such
mortgage loans may be imposed only with respect to voluntary prepayments made
during the first five years during the term of the mortgage loan, and then only
if the borrower prepays an amount in excess of 20% of the original principal
amount of the mortgage loan in a 12-month period; a prepayment charge cannot in
any event exceed six months' advance interest on the amount prepaid during the
12-month period in excess of 20% of the original principal amount of the loan.
This limitation could affect the flow of revenues available to an issuer for
debt service on the outstanding debt obligations which financed such home
mortgages.
PROPOSITION 13. Certain of the Debt Obligations may be obligations of
issuers who rely in whole or in part on ad valorem real property taxes as a
source of revenue. On June 6, 1978, California voters approved an amendment to
the California Constitution known as Proposition 13, which added Article XIIIA
to the California Constitution. The effect of Article XIIIA was to limit ad
valorem taxes on real property and to restrict the ability of taxing entities to
increase real property tax revenues.
Section 1 of Article XIIIA, as amended, limits the maximum ad valorem
tax on real property to 1% of full cash value to be collected by the counties
and apportioned according to law. The 1% limitation does not apply to ad valorem
taxes or special assessments to pay the interest and redemption charges on any
bonded indebtedness for the acquisition or improvement of real property approved
by two-thirds of the votes cast by the voters voting on the proposition. Section
2 of Article XIIIA defines "full cash value" to mean "the County Assessor's
valuation of real property as shown on the 1975/76 tax bill under 'full cash
value' or, thereafter, the appraised value of real property when purchased,
newly constructed, or a change in ownership has occurred
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after the 1975 assessment." The full cash value may be adjusted annually to
reflect inflation at a rate not to exceed 2% per year, or reduction in the
consumer price index or comparable local data, or reduced in the event of
declining property value caused by damage, destruction or other factors.
Legislation enacted by the California Legislature to implement Article
XIIIA provides that notwithstanding any other law, local agencies may not levy
any ad valorem property tax except to pay debt service on indebtedness approved
by the voters prior to July 1, 1978, and that each county will levy the maximum
tax permitted by Article XIIIA.
PROPOSITION 9. On November 6, 1979, an initiative known as
"Proposition 9" or the "Gann Initiative" was approved by the California voters,
which added Article XIIIB to the California Constitution. Under Article XIIIB,
State and local governmental entities have an annual "appropriations limit" and
are not allowed to spend certain moneys called "appropriations subject to
limitation" in an amount higher than the "appropriations limit." Article XIIIB
does not affect the appropriation of moneys which are excluded from the
definition of "appropriations subject to limitation," including debt service on
indebtedness existing or authorized as of January 1, 1979, or bonded
indebtedness subsequently approved by the voters. In general terms, the
"appropriations limit" is required to be based on certain 1978/79 expenditures,
and is to be adjusted annually to reflect changes in consumer prices,
population, and certain services provided by these entities. Article XIIIB also
provides that if these entities' revenues in any year exceed the amounts
permitted to be spent, the excess is to be returned by revising tax rates or fee
schedules over the subsequent two years.
PROPOSITION 98. On November 8, 1988, voters of the State approved
Proposition 98, a combined initiative constitutional amendment and statute
called the "Classroom Instructional Improvement and Accountability Act."
Proposition 98 changed State funding of public education below the university
level and the operation of the State Appropriations Limit, primarily by
guaranteeing K-14 schools a minimum share of General Fund revenues. Under
Proposition 98 (modified by Proposition 111 as discussed below), K-14 schools
are guaranteed the greater of (a) in general, a fixed percent of General Fund
revenues ("Test 1"), (b) the amount appropriated to K-14 schools in the prior
year, adjusted for changes in the cost of living (measured as in Article XIII B
by reference to State per capita personal income) and enrollment ("Test 2"), or
(c) a third test, which would replace Test 2 in any year when the percentage
growth in per capita General Fund revenues from the prior year plus one half of
one percent is less than the percentage growth in State per capita personal
income ("Test 3"). Under Test 3, schools would receive the amount appropriated
in the prior year adjusted for changes in enrollment and per capita General Fund
revenues, plus an additional small adjustment factor. If Test 3 is used in any
year, the difference between Test 3 and Test 2 would become a "credit" to
schools which would be the basis of payments in future years when per capita
General Fund revenue growth exceeds per capita personal income growth.
Proposition 98 permits the Legislature -- by two-thirds vote of both
houses, with the Governor's concurrence -- to suspend the K-14 schools' minimum
funding formula for a one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIII B limit to
K-14 schools.
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During the recession years of the early 1990s, General Fund revenues
for several years were less than originally projected, so that the original
Proposition 98 appropriations turned out to be higher than the minimum
percentage provided in the law. The Legislature responded to these developments
by designating the "extra" Proposition 98 payments in one year as a "loan" from
future years' Proposition 98 entitlements, and also intended that the "extra"
payments would not be included in the Proposition 98 "base" for calculating
future years' entitlements. In 1992, a lawsuit was filed, California Teachers'
--------------------
Association v. Gould, which challenged the validity of these off-budget loans.
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During the course of this litigation, a trial court determined that almost $2
billion in "loans" which had been provided to school districts during the
recession violated the constitutional protection of support for public
education. A settlement was reached on April 12, 1996 which ensures that future
school funding will not be in jeopardy over repayment of these so-called loans.
PROPOSITION 111. On June 30, 1989, the California Legislature enacted
Senate Constitutional Amendment 1, a proposed modification of the California
Constitution to alter the spending limit and the education funding provisions of
Proposition 98. Senate Constitutional Amendment 1 -- on the June 5, 1990 ballot
as Proposition 111 -- was approved by the voters and took effect on July 1,
1990. Among a number of important provisions, Proposition 111 recalculated
spending limits for the State and for local governments, allowed greater annual
increases in the limits, allowed the averaging of two years' tax revenues before
requiring action regarding excess tax revenues, reduced the amount of the
funding guarantee in recession years for school districts and community college
districts (but with a floor of 40.9 percent of State general fund tax revenues),
removed the provision of Proposition 98 which included excess moneys transferred
to school districts and community college districts in the base calculation for
the next year, limited the amount of State tax revenue over the limit which
would be transferred to school districts and community college districts, and
exempted increased gasoline taxes and truck weight fees from the State
appropriations limit. Additionally, Proposition 111 exempted from the State
appropriations limit funding for capital outlays.
PROPOSITION 62. On November 4, 1986, California voters approved an
initiative statute known as Proposition 62. This initiative provided the
following:
1. Requires that any tax for general governmental purposes imposed
by local governments be approved by resolution or ordinance adopted by a
two-thirds vote of the governmental entity's legislative body and by a
majority vote of the electorate of the governmental entity;
2. Requires that any special tax (defined as taxes levied for other
than general governmental purposes) imposed by a local governmental entity
be approved by a two-thirds vote of the voters within that jurisdiction;
3. Restricts the use of revenues from a special tax to the purposes
or for the service for which the special tax was imposed;
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4. Prohibits the imposition of ad valorem taxes on real property by
local governmental entities except as permitted by Article XIIIA;
5. Prohibits the imposition of transaction taxes and sales taxes on
the sale of real property by local governments;
6. Requires that any tax imposed by a local government on or after
August 1, 1985 be ratified by a majority vote of the electorate within two
years of the adoption of the initiative;
7. Requires that, in the event a local government fails to comply
with the provisions of this measure, a reduction in the amount of property
tax revenue allocated to such local government occurs in an amount equal to
the revenues received by such entity attributable to the tax levied in
violation of the initiative; and
8. Permits these provisions to be amended exclusively by the voters
of the State of California.
In September 1988, the California Court of Appeal in City of
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Westminster v. County of Orange, 204 Cal.App. 3d 623, 215 Cal.Rptr. 511 (Cal.Ct.
- -------------------------------
App. 1988), held that Proposition 62 is unconstitutional to the extent that it
requires a general tax by a general law city, enacted on or after August 1, 1985
and prior to the effective date of Proposition 62, to be subject to approval by
a majority of voters. The Court held that the California Constitution prohibits
the imposition of a requirement that local tax measures be submitted to the
electorate by either referendum or initiative. It is impossible to predict the
impact of this decision on charter cities, on special taxes or on new taxes
imposed after the effective date of Proposition 62. The California Court of
Appeal in City of Woodlake v. Logan, (1991) 230 Cal.App.3d 1058, subsequently
-------------------------
held that Proposition 62's popular vote requirements for future local taxes also
provided for an unconstitutional referenda. The California Supreme Court
declined to review both the City of Westminster and the City of Woodlake
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decisions.
In Santa Clara Local Transportation Authority v. Guardino, (Sept. 28,
------------------------------------------------------
1995) 11 Cal.4th 220, reh'g denied, modified (Dec. 14, 1995) 12 Cal.4th 344e,
----- ------ --------
the California Supreme Court upheld the constitutionality of Proposition 62's
popular vote requirements for future taxes, and specifically disapproved of the
City of Woodlake decision as erroneous. The Court did not determine the
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correctness of the City of Westminster decision, because that case appeared
-------------------
distinguishable, was not relied on by the parties in Guardino, and involved
--------
taxes not likely to still be at issue. It is impossible to predict the impact
of the Supreme Court's decision on charter cities or on taxes imposed in
reliance on the City of Woodlake case.
----------------
Senate Bill 1590 (O'Connell), introduced February 16, 1996, would make
the Guardino decision inapplicable to any tax first imposed or increased by an
--------
ordinance or resolution adopted before December 14, 1995. The California State
Senate pas sed the Bill on May 16, 1996 and it is currently pending in the
California State Assembly. It is not clear whether the Bill, if enacted, would
be constitutional as a non-voted amendment to Proposition 62 or as a non-voted
change to Proposition 62's operative date.
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PROPOSITION 218. On November 5, 1996,the voters of the State approved
Proposition 218, a constitutional initiative, entitled the "Right to Vote on
Taxes Act" ("Proposition 218"). Proposition 218 adds Articles XIII C and XIII D
to the California Constitution and contains a number of interrelated provisions
affecting the ability of local governments to levy and collect both existing and
future taxes, assessments, fees and charges. Proposition 218 became effective on
November 6, 1996. The Sponsors are unable to predict whether and to what extent
Proposition 218 may be held to be constitutional or how its terms will be
interpreted and applied by the courts. However, if upheld, Proposition 218 could
substantially restrict certain local governments' ability to raise future
revenues and could subject certain existing sources of revenue to reduction or
repeal, and increase local government costs to hold elections, calculate fees
and assessments, notify the public and defend local government fees and
assessments in court.
Article XIII C of Proposition 218 requires majority voter approval for
the imposition, extension or increase of general taxes and two-thirds voter
approval for the imposition, extension or increase of special taxes, including
special taxes deposited into a local government's general fund. Proposition 218
also provides that any general tax imposed, extended or increased without voter
approval by any local government on or after January 1, 1995 and prior to
November 6, 1996 shall continue to be imposed only if approved by a majority
vote in an election held within two years of November 6, 1996.
Article XIII C of Proposition 218 also expressly extends the
initiative power to give voters the power to reduce or repeal local taxes,
assessments, fees and charges, regardless of the date such taxes, assessments,
fees or charges were imposed. This extension of the initiative power to some
extent constitutionalizes the March 6, 1995 State Supreme Court decision in
Rossi v. Brown, which upheld an initiative that repealed a local tax and held
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that the State constitution does not preclude the repeal, including the
prospective repeal, of a tax ordinance by an initiative, as contrasted with the
State constitutional prohibition on referendum powers regarding statutes and
ordinances which impose a tax. Generally, the initiative process enables
California voters to enact legislation upon obtaining requisite voter approval
at a general election. Proposition 218 extends the authority stated in Rossi v.
--------
Brown by expanding the initiative power to include reducing or repealing
- -----
assessments, fees and charges, which had previously been considered
administrative rather than legislative matters and therefore beyond the
initiative power.
The initiative power granted under Article XIII C of Proposition 218,
by its terms, applies to all local taxes, assessments, fees and charges and is
not limited to local taxes, assessments, fees and charges that are property
related.
Article XIII D of Proposition 218 adds several new requirements making
it generally more difficult for local agencies to levy and maintain
"assessments" for municipal services and programs. "Assessment" is defined to
mean any levy or charge upon real property for a special benefit conferred upon
the real property.
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Article XIII D of Proposition 218 also adds several provisions
affecting "fees" and "charges" which are defined as "any levy other than an ad
valorem tax, a special tax, or an assessment, imposed by a local government upon
a parcel or upon a person as an incident of property ownership, including a user
fee or charge for a property related service." All new and, after June 30, 1997,
existing property related fees and charges must conform to requirements
prohibiting, among other things, fees and charges which (i) generate revenues
exceeding the funds required to provide the property related service, (ii) are
used for any purpose other than those for which the fees and charges are
imposed, (iii) are for a service not actually used by, or immediately available
to, the owner of the property in question, or (iv) are used for general
governmental services, including police, fire or library services, where the
service is available to the public at large in substantially the same manner as
it is to property owners. Further, before any property related fee or charge may
be imposed or increased, written notice must be given to the record owner of
each parcel of land affected by such fee or charges. The local government must
then hold a hearing upon the proposed imposition or increase of such property
based fee, and if written protests against the proposal are presented by a
majority of the owners of the identified parcels, the local government may not
impose or increase the fee or charge. Moreover, except for fees or charges for
sewer, water and refuse collection services, no property related fee or charge
may be imposed or increased without majority approval by the property owners
subject to the fee or charge or, at the option of the local agency, two-thirds
voter approval by the electorate residing in the affected area.
PROPOSITION 87. On November 8, 1988, California voters approved
Proposition 87. Proposition 87 amended Article XVI, Section 16, of the
California Constitution by authorizing the California Legislature to prohibit
redevelopment agencies from receiving any of the property tax revenue raised by
increased property tax rates levied to repay bonded indebtedness of local
governments which is approved by voters on or after January 1, 1989.
SPECIAL CONSIDERATIONS WITH RESPECT TO NEW YORK MONEY FUND
Some of the significant financial considerations relating to
investments in New York Municipal Obligations are summarized below. This summary
information is not intended to be a complete description and is principally
derived from official statements relating to issues of New York Municipal
Obligations that were available prior to the date of this Statement of
Additional Information. The accuracy and completeness of the information
contained in those official statements have not been independently verified.
STATE ECONOMY. New York is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made it an important
link in international commerce. Travel and tourism constitute an important part
of the economy. Like the rest of the nation, New York has a declining proportion
of its workforce engaged in manufacturing, and an increasing proportion engaged
in service industries.
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The State has historically been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation as
a whole, gradually eroding its relative economic position. State per capita
personal income has historically been significantly higher than the national
average, although the ratio has varied substantially. Because New York City (the
"City") is a regional employment center for a multi-state region, State personal
income measured on a residence basis understates the relative importance of the
State to the national economy and the size of the base to which State taxation
applies.
The State economic forecast has been raised slightly from the enacted
budget forecast. Continued growth is projected in 1998 and 1999 for employment,
wages, and personal income, although the growth rates of personal income and
wages are expected to be lower than those in 1997. The growth of personal income
is projected to decline from 5.7 percent in 1997 to 4.8 percent in 1998 and 4.2
percent in 1999, in part because growth in bonus payments is expected to slow
down, a distinct shift from the torrid rate of the last few years. Overall
employment growth is expected to be 1.9 percent in 1998, the strongest in a
decade, but will drop to 1.0 percent in 1999, reflecting the slowing growth in
the national economy, continued restraint in governmental spending, and
restructuring in the health care, social service, and banking sectors.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
STATE BUDGET. The State Constitution requires the governor (the
"Governor") to submit to the State legislature (the "Legislature") a balanced
executive budget which contains a complete plan of expenditures for the ensuing
fiscal year and all moneys and revenues estimated to be available therefor,
accompanied by bills containing all proposed appropriations or reappropriations
and any new or modified revenue measures to be enacted in connection with the
executive budget. The entire plan constitutes the proposed State financial plan
for that fiscal year. The Governor is required to submit to the Legislature
quarterly budget updates which include a revised cash-basis state financial
plan, and an explanation of any changes from the previous state financial plan.
State law requires the Governor to propose a balanced budget each
year. In recent years, the State has closed projected budget gaps of $5.0
billion (1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than
$1 billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the 1998-
99 budget process. Such reserves would not be available against subsequent year
imbalances.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of higher-than-
projected tax receipts and in lower-than-expected entitlement spending. However,
the State's projections in 1999-00 currently assume actions to achieve $600
million in lower disbursements and $250 million in additional
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receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1990-00 Financial Plan will achieve savings from initiatives by
State agencies to deliver services more efficiently, workforce management
efforts, maximization of federal and non-General Fund spending offsets, and
other actions necessary to bring projected disbursements and receipts into
balance.
The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999-00
Executive Budget process, as required by law. The revised expectations for years
2000-01 and 2001-02 will reflect the cumulative impact of tax reductions and
spending commitments enacted over the last several years as well as new 1999-00
Executive Budget recommendations. The School Tax Relief Program ("STAR")
program, which dedicates a portion of personal income tax receipts to fund
school tax reductions, has a significant impact on General Fund receipts. STAR
is projected to reduce personal income tax revenues available to the General
Fund by an estimated $1.3 billion in 2000-01. Measured from the 1998-99 base,
scheduled reductions to estate and gift, sales and other taxes, reflecting tax
cuts enacted in 1997-98 and 1998-99, will lower General Fund taxes and fees by
an estimated $1.8 billion in 2000-01. Disbursement projections for the outyears
currently assume additional outlays for school aid, Medicaid, welfare reform,
mental health community reinvestment, and other multi-year spending commitments
in law.
On September 11, 1997, the New York State Comptroller issued a report
which noted that the ability to deal with future budget gaps could become a
significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.
The State's current fiscal year began on April 1, 1998 and ends on
March 31, 1999 and is referred to herein as the State's 1998-99 fiscal year. The
Legislature adopted the debt service component of the State budget for the 1998-
99 fiscal year on March 30, 1998 and the remainder of the budget on April 18,
1998. In the period prior to adoption of the budget for the current fiscal year,
the Legislature also enacted appropriations to permit the State to continue its
operations and provide for other purposes. On April 25, 1998, the Governor
vetoed certain items that the Legislature added to the Executive Budget. The
Legislature had not overridden any of the Governor's vetoes as of the start of
the legislative recess on June 19, 1998 (under the State Constitution, the
Legislature can override one or more of the Governor's vetoes with the approval
of two-thirds of the members of each house).
General Fund disbursements in 1998-99 are now projected to grow by
$2.43 billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive
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Budget to the enacted budget reflects legislative additions (net of the value of
the Governor's vetoes), actions taken at the end of the regular legislative
session, as well as spending that was originally anticipated to occur in 1997-98
but is now expected to occur in 1998-99. The State projects that the 1998-99
State Financial Plan is balanced on a cash basis, with an estimated reserve for
future needs of $761 million.
The State's enacted budget includes several new multi-year tax
reduction initiatives, including acceleration of State-funded property and local
income tax relief for senior citizens under the STAR, expansion of the child
care income-tax credit for middle-income families, a phased-in reduction of the
general business tax, and reduction of several other taxes and fees, including
an accelerated phase-out of assessments on medical providers. The enacted budget
also provides for significant increases in spending for public schools, special
education programs, and for the State and City university systems. It also
allocates $50 million for a new Debt Reduction Reserve Fund ("DRRF") that may
eventually be used to pay debt service costs on or to prepay outstanding State-
supported bonds.
The 1998-99 State Financial Plan projects a closing balance in the
General Fund of $1.42 billion that is comprised of a reserve of $761 million
available for future needs, a balance of $400 million in the Tax Stabilization
Reserve Fund ("TSRF"), a balance of $158 million in the Community Projects Fund
("CPF"), and a balance of $100 million in the Contingency Reserve Fund ("CRF").
The TSRF can be used in the event of an unanticipated General Fund cash
operating deficit, as provided under the State Constitution and State Finance
Law. The CPF is used to finance various legislative and executive initiatives.
The CRF provides resource to help finance any extraordinary litigation costs
during the fiscal year.
The forecast of General Fund receipts in 1998-99 incorporates several
Executive Budget tax proposals that, if enacted, would further reduce receipts
otherwise available to the General Fund by approximately $700 million during
1998-99. The Executive Budget proposes accelerating school tax relief for senior
citizens under STAR, which is projected to reduce General Fund receipts by $537
million in 1998-99. The proposed reduction supplements STAR tax reductions
already scheduled in law, which are projected at $187 million in 1998-99. The
Budget also proposes several new tax-cut initiatives and other funding changes
that are projected to further reduce receipts available to the General Fund by
over $200 million. These initiatives include reducing the fee to register
passenger motor vehicles and earmarking a larger portion of such fees to
dedicated funds and other purposes; extending the number of weeks in which
certain clothing purchases are exempt from sales taxes; more fully conforming
State law to reflect recent Federal changes in estate taxes; continuing lower
pari-mutuel tax rates; and accelerating scheduled property tax relief for
farmers from 1999 to 1998. In addition to the specific tax and fee reductions
discussed above, the Executive Budget also proposes establishing a reserve of
$100 million to permit the acceleration into 1998-99 of other tax reductions
that are otherwise scheduled in law for implementation in future fiscal years.
The Division of the Budget ("DOB") estimates that the 1998-99
Financial Plan includes approximately $62 million in non-recurring resources,
comprising less than two-tenths of one percent of General Fund disbursements.
The non-recurring resources projected for use in 1998-99 consist of $27 million
in retroactive federal welfare reimbursements for family
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assistance recipients with HIV/AIDS, $25 million in receipts from the Housing
Finance Agency that were originally anticipated in 1997-98, and $10 million in
other measures, including $5 million in asset sales.
Disbursements from Capital Projects funds in 1998-99 are estimated at
$4.82 billion, or $1.07 billion higher than 1997-98. The proposed spending plan
includes: $2.51 billion in disbursements for transportation purposes, including
the State and local highway and bridge program; $815 million for environmental
activities; $379 million for correctional services; $228 million for the State
University of New York ("SUNY") and the City University of New York ("CUNY");
$290 million for mental hygiene projects; and $375 million for CEFAP.
Approximately 28 percent of capital projects are proposed to be financed by
"pay-as-you-go" resources. State-supported bond issuances finance 46 percent of
capital projects, with federal grants financing the remaining 26 percent.
Many complex political, social and economic forces influence the
State's economy and finances, which may in turn affect the State's Financial
Plan. These forces may affect the State unpredictably from fiscal year to fiscal
year and are influenced by governments, institutions, and organizations that are
not subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. Actual results,
however, could differ materially and adversely from their projections, and those
projections may be changed materially and adversely from time to time.
In the past, the State has taken management actions and made use of
internal sources to address potential State financial plan shortfalls, and the
DOB believes it could take similar actions should variances occur in its
projections for the current fiscal year.
RECENT FINANCIAL RESULTS. The General Fund is the principal operating
fund of the State and is used to account for all financial transactions, except
those required to be accounted for in another fund. It is the State's largest
fund and receives almost all State taxes and other resources not dedicated to
particular purposes.
On March 31, 1998, the State recorded, on a GAAP-basis, its first-
ever, accumulated positive balance in its General Fund. This "accumulated
surplus" was $567 million. The improvement in the State's GAAP position is
attributable, in part, to the cash surplus recorded at the end of the State's
1997-98 fiscal year. Much of that surplus is reserved for future requirements,
but a portion is being used to meet spending needs in 1998-99. Thus, the State
expects some deterioration in its GAAP position, but expects to maintain a
positive GAAP balance through the end of the current fiscal year.
The State completed its 1997-98 fiscal year with a combined
Governmental Funds operating surplus of $1.80 billion, which included an
operating surplus in the General Fund of $1.56 billion, in Capital Projects
Funds of $232 million and in Special Revenue Funds of $49 million, offset in
part by an operating deficit of $43 million in Debt Service Funds.
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The State reported a General Fund operating surplus of $1.56 billion
for the 1997-98 fiscal year, as compared to an operating surplus of $1.93
billion for the 1996-97 fiscal year. As a result, the State reported an
accumulated surplus of $567 million in the General Fund for the first time since
it began reporting its operations on a GAAP-basis. The 1997-98 fiscal year
operating surplus reflects several major factors, including the cash-basis
operating surplus resulting from the higher-than-anticipated personal income tax
receipts, an increase in taxes receivable of $681 million, an increase in other
assets of $195 million and a decrease in pension liabilities of $144 million.
This was partially offset by an increase in payables to local governments of
$270 million and tax refunds payable of $147 million.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by
which the State of New York may incur debt. Under the State Constitution, the
State may not, with limited exceptions for emergencies, undertake long-term
general obligation borrowing (i.e., borrowing for more than one year) unless the
----
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval
(i) in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of proceeds
from the sale of duly authorized but unissued general obligation bonds, by
issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State of New York's authorities and public benefit corporations ("Authorities").
Payments of debt service on New York State general obligation and New York
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.
The State employs additional long-term financing mechanisms, lease-
purchase and contractual-obligation financings, which involve obligations of
public authorities or municipalities that are State-supported but are not
general obligations of the State. Under these financing arrangements, certain
public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a contractual-
obligation financing arrangement with the LGAC to restructure the way the State
makes certain local aid payments.
In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991
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and 1996, JDA would have experienced a debt service cash flow shortfall had it
not completed its recent refinancing. JDA anticipates that it will transact
additional refinancings in 1999, 2000 and 2003 to complete its long-term plan of
finance and further alleviate cash flow imbalances which are likely to occur in
future years. The State does not anticipate that it will be called upon to make
any payments pursuant to the State guarantee in the 1997-98 fiscal year. JDA
recently resumed its lending activities under a revised set of lending programs
and underwriting guidelines.
On January 13, 1992, Standard & Poor's Ratings Services ("Standard &
Poor's") reduced its ratings on the State's general obligation bonds from A to
A- and, in addition, reduced its ratings on the State's moral obligation, lease
purchase, guaranteed and contractual obligation debt. On August 28, 1997,
Standard & Poor's revised its ratings on the State's general obligation bonds
from A- to A and revised its ratings on the State's moral obligation, lease
purchase, guaranteed and contractual obligation debt. On March 2, 1998,
Standard & Poor's affirmed its A rating on the State's outstanding bonds.
On January 6, 1992, Moody's Investors Service, Inc. ("Moody's")
reduced its ratings on outstanding limited-liability State lease purchase and
contractual obligations from A to Baa1. On February 28, 1994, Moody's
reconfirmed its A rating on the State's general obligation long-term
indebtedness. On March 20, 1998, Moody's assigned the highest commercial paper
rating of P-1 to the short-term notes of the State. On July 6, 1998, Moody's
assigned an A2 rating with a stable outlook to the State's general obligations.
The State anticipates that its capital programs will be financed, in
part, through borrowings by the State and its public authorities in the 1998-99
fiscal year. Information on the State's five-year Capital Program and Financing
Plan for the 1998-99 through 2002-03 fiscal years, updated to reflect actions
taken in the 1998-99 State budget, will be released on or before July 30, 1998.
The projection of State borrowings for the 1998-99 fiscal year is subject to
change as market conditions, interest rates and other factors vary throughout
the fiscal year.
The State expects to issue $528 million in general obligation bonds
(including $154 million for purposes of redeeming outstanding BANs) and $154
million in general obligation commercial paper. The State also anticipates the
issuance of up to a total of $419 million in Certificates of Participation to
finance equipment purchases (including costs of issuance, reserve funds, and
other costs) during the 1998-99 fiscal year. Of this amount, it is anticipated
that approximately $191 million will be issued to finance agency equipment
acquisitions, including amounts to address Statewide technology issues related
to Year 2000 compliance. Approximately $228 million will also be issued to
finance equipment acquisitions for welfare reform-related information technology
systems.
Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.93 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99.
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The proposed 1997-98 through 2002-03 Capital Program and Financing
Plan was released with the 1998-99 Executive Budget on January 20, 1998. As a
part of that Plan, changes were proposed to the State's 1997-98 borrowing plan,
including: the delay in the issuance of COPs to finance welfare information
systems until 1998-99 to permit a thorough assessment of needs; and the
elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
LITIGATION. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) action against New York
State and New York City officials alleging inadequate shelter allowances to
maintain proper housing; (4) alleged responsibility of New York State officials
to assist in remedying racial segregation in the City of Yonkers; (5) challenges
to regulations promulgated by the Superintendent of Insurance establishing
certain excess medical malpractice premium rates; (6) challenges to the
constitutionality of Public Health Law 2807-d, which imposes a gross receipts
tax from certain patient care services; (7) action seeking enforcement of
certain sales and excise taxes and tobacco products and motor fuel sold to non-
Indian consumers on Indian reservations; (8) a challenge to the
constitutionality of Clean Water/Clean Air Bond Act; and (9) a challenge to the
Governor's application of his constitutional line item veto authority.
Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed actuarial funding
methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
Comptroller developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal 1996-97, $193 million in fiscal 1997-98, peaking at $241 million in
fiscal 1998-99. Beginning in fiscal 2001-02, State contributions required under
the Comptroller's plan are projected to be less than that required under the
prior funding method. As a result of the United States Supreme Court decision
in the case of State of Delaware v. State of New York, on January 21, 1994, the
State entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's 1994-
95 fiscal year. Litigation challenging the constitutionality of the treatment
of certain moneys held in a reserve fund was settled in June 1996 and certain
amounts in a Supplemental Reserve Fund previously credited by the State against
prior State and local pension contributions will be paid in 1998.
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The legal proceedings noted above involve State finances, State
programs and miscellaneous cure rights, tort, real property and contract claims
in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could
affect adversely the financial condition of the State in the 1997-98 fiscal year
or thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings
could exceed the amount of the reserve established in the State's financial plan
for the payment of judgments and, therefore, could affect the ability of the
State to maintain a balanced financial plan.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
AUTHORITIES. The fiscal stability of New York State is related, in
part, to the fiscal stability of its Authorities, which generally have
responsibility for financing, constructing and operating revenue-producing
public benefit facilities. Authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself, and may
issue bonds and notes within the amounts of, and as otherwise restricted by,
their legislative authorization. The State's access to the public credit markets
could be impaired, and the market price of its outstanding debt may be
materially and adversely affected, if any of the Authorities were to default on
their respective obligations, particularly with respect to debt that is State-
supported or State-related.
Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however,
New York State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the Authorities for operating and
other expenses and, in fulfillment of its commitments on moral obligation
indebtedness or otherwise, for debt service. This operating assistance is
expected to continue to be required in future years. In addition, certain
statutory arrangements provide for State local assistance payments otherwise
payable to localities to be made under certain circumstances to certain
Authorities. The State has no obligation to provide additional assistance to
localities whose local assistance payments have been paid to Authorities under
these arrangements. However, in the event that such local assistance payments
are so diverted, the affected localities could seek additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State
may also be impacted by the fiscal health of its localities, particularly the
City, which has required and continues to require significant financial
assistance from the State. The City depends on State aid both to enable the City
to balance its budget and to meet its cash requirements. There can be no
assurance that there will not be reductions in State aid to the City from
amounts currently projected or that State budgets will be adopted by the April 1
statutory deadline or that any such
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reductions or delays will not have adverse effects on the City's cash flow or
expenditures. In addition, the Federal budget negotiation process could result
in a reduction in or a delay in the receipt of Federal grants which could have
additional adverse effects on the City's cash flow or revenues.
In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and New York State. In that year the City
lost access to the public credit markets. The City was not able to sell short-
term notes to the public again until 1979. In 1975, Standard & Poor's suspended
its A rating of City bonds. This suspension remained in effect until March
1981, at which time the City received an investment grade rating of BBB from
Standard & Poor's.
On July 2, 1985, Standard & Poor's revised its rating of City bonds
upward to BBB+ and on November 19, 1987, to A-. On February 3, 1998 and again on
May 27, 1998, Standard & Poor's assigned a BBB+ rating to the City's general
obligation debt and placed the ratings on CreditWatch with positive
implications.
Moody's ratings of City bonds were revised in November 1981 from B (in
effect since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in
May 1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded nearly $28 billion of the City's general obligations from Baa1 to A3.
On June 9, 1998, Moody's again assigned on A3 rating to the City's general
obligations and stated that its outlook was stable.
New York City is heavily dependent on New York State and federal
assistance to cover insufficiencies in its revenues. There can be no assurance
that in the future federal and State assistance will enable the City to make up
its budget deficits. To help alleviate the City's financial difficulties, the
Legislature created the Municipal Assistance Corporation ("MAC") in 1975. Since
its creation, MAC has provided, among other things, financing assistance to the
City by refunding maturing City short-term debt and transferring to the City
funds received from sales of MAC bonds and notes. MAC is authorized to issue
bonds and notes payable from certain stock transfer tax revenues, from the
City's portion of the State sales tax derived in the City and, subject to
certain prior claims, from State per capita aid otherwise payable by the State
to the City. Failure by the State to continue the imposition of such taxes, the
reduction of the rate of such taxes to rates less than those in effect on July
2, 1975, failure by the State to pay such aid revenues and the reduction of such
aid revenues below a specified level are included among the events of default in
the resolutions authorizing MAC's long-term debt. The occurrence of an event of
default may result in the acceleration of the maturity of all or a portion of
MAC's debt. MAC bonds and notes constitute general obligations of MAC and do
not constitute an enforceable obligation or debt of either the State or the
City.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing
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balanced budgets determined in accordance with GAAP. New York State also
established the Office of the State Deputy Comptroller for New York City
("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On June 10, 1997, the City submitted to the Control Board the
Financial Plan (the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal
years, relating to the City, the Board of Education ("BOE") and CUNY and
reflected the City's expense and capital budgets for the 1998 fiscal year, which
were adopted on June 6, 1997. The 1998-2001 Financial Plan projected revenues
and expenditures for the 1998 fiscal year balanced in accordance with GAAP.
The 1998-99 Financial Plan projects General Fund receipts (including transfers
from other funds) of $36.22 billion, an increase of $1.02 billion over the
estimated 1997-987 level. Recurring growth in the State General Fund tax base
is projected to be approximately six percent during 1998-99, after adjusting for
tax law and administrative changes. This growth rate is lower than the rates
for 1996-97 or currently estimated for 1997-98, but roughly equivalent to the
rate for 1995-96.
The 1998-99 forecast for user taxes and fees also reflects the impact
of scheduled tax reductions that will lower receipts by $38 million, as well as
the impact of two Executive Budget proposals that are projected to lower
receipts by an additional $79 million. The first proposal would divert $30
million in motor vehicle registration fees from the General Fund to the
Dedicated Highway and Bridge Trust Fund; the second would reduce fees for motor
vehicle registrations, which would further lower receipts by $49 million. The
underlying growth of receipts in this category is projected at 4 percent, after
adjusting for these scheduled and recommended changes.
In comparison to the current fiscal year, business tax receipts are
projected to decline slightly in 1998-99, falling from $4.98 million to $4.96
billion. The decline in this category is largely attributable to scheduled tax
reductions. In total, collections for corporation and utility taxes and the
petroleum business tax are projected to fall by $107 million from 1997-98. The
decline in receipts in these categories is partially offset by growth in the
corporation franchise, insurance and bank taxes, which are projected to grow by
$88 million over the current fiscal year.
The Financial Plan is projected to show a GAAP-basis surplus of $131
million for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99 in the
General Fund, primarily as a result of the use of the 1997-98 cash surplus. In
1998-99, the General Fund GAAP Financial Plan shows total revenues of $34.68
billion, total expenditures of $35.94 billion, and net other financing sources
and uses of $42 million.
Although the City has maintained balanced budgets in each of its last
seventeen fiscal years and is projected to achieve balanced operating results
for the 1998 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or that
the City will maintain a balanced budget in future years without
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additional State aid, revenue increases or expenditure reductions. Additional
tax increases and reductions in essential City services could adversely affect
the City's economic base.
The projections set forth in the 1998-2001 Financial Plan were based
on various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the Health and Hospitals Corporation and
the BOE to take actions to offset reduced revenues, the ability to complete
revenue generating transactions, provision of State and Federal aid and mandate
relief and the impact on City revenues and expenditures of Federal and State
welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon
the City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was
created as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Despite this additional
financing mechanism, the City currently projects that, if no further action is
taken, it will reach its debt limit in City fiscal year 1999-2000. Indebtedness
subject to the constitutional debt limit includes liability on capital contracts
that are expected to be funded with general obligation bonds, as well as general
obligation bonds. On June 2, 1997, an action was commenced seeking a
declaratory judgment declaring the legislation establishing the Transitional
Finance Authority to be unconstitutional. If such legislation were voided,
projected contracts for the City capital projects would exceed the City's debt
limit during fiscal year 1997-98. Future developments concerning the City or
entities issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities credit
ratings, may affect the ability or cost to sell securities issued by the City or
such entities and may also affect the market for their outstanding securities.
The City Comptroller and other agencies and public officials have
issued reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
The City since 1981 has fully satisfied its seasonal financing needs
in the public credit markets, repaying all short-term obligations within their
fiscal year of issuance. Although the City's current financial plan projects
$2.4 billion of seasonal financing for the 1998 fiscal year, the City expects to
undertake only approximately $1.4 billion of seasonal financing. The City
issued $2.4 billion of short-term obligations in fiscal year 1997. Seasonal
financing
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requirements for the 1996 fiscal year increased to $2.4 billion from $2.2
billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re-establishment of the Financial Control Board for the City of
Yonkers (the "Yonkers Board") by New York State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken
by the State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during the
1996 legislative session through $50 million in special appropriations targeted
for distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share in more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million
will be dispersed among all cities, towns and villages, a 3.97% increase in
General Purpose State Aid.
The 1998-99 budget includes an additional $29.4 million in
unrestricted aid targeted to 57 municipalities across the State. Other
assistance for municipalities with special needs totals more than $25.6 million.
Twelve upstate cities will receive $24.2 million in one-time assistance from a
cash flow acceleration of State aid.
Municipalities and school districts have engaged in substantial short-
term and long-term borrowings. In 1996, the total indebtedness of all localities
in the State other than New York City was approximately $20.0 billion. A small
portion (approximately $77.2 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to enabling State
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding. Twenty-
one localities had outstanding indebtedness for deficit financing at the close
of their fiscal year ending in 1996.
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From time to time, federal expenditure reductions could reduce, or in
some cases eliminate, federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the Authorities were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by localities
within the State could be adversely affected. Localities also face anticipated
and potential problems resulting from certain pending litigation, judicial
decisions and long-range economic trends. Long-range potential problems of
declining urban population, increasing expenditures and other economic trends
could adversely affect localities and require increasing the State assistance in
the future.
YEAR 2000 COMPLIANCE. The State is currently addressing "Year 2000"
data processing compliance issues. The Year 2000 compliance issue ("Y2K") arises
because most computer software programs allocate two digits to the data field
for "year" on the assumption that the first two digits will be "19". Such
programs will thus interpret the year 2000 as the year 1900 absent
reprogramming. Y2K could impact both the ability to enter data into computer
programs and the ability of such programs to correctly process data.
The Office for Technology is monitoring compliance on a quarterly
basis and is providing assistance and assigning resources to accelerate
compliance for mission critical systems, with most compliance testing expected
to be completed by mid-1999. There can be no guarantee, however, that all of
the State's mission-critical and high-priority computer systems will be Year
2000 compliant and that there will not be an adverse impact upon State
operations or State finances as a result.
INVESTMENT LIMITATIONS
The following is a complete list of investment limitations and
policies applicable to each of the Funds or, as indicated below, to specific
Funds, that may not changed without the affirmative votes of the holders of a
majority of each Fund's outstanding shares (as defined below under
"Miscellaneous"):
1. A Fund may not borrow money or issue senior securities except to
the extent permitted under the 1940 Act.
2. A Fund may not act as an underwriter of securities. A Fund will
not be an underwriter for purposes of this limitation if it purchases securities
in transactions in which the Fund would not be deemed to be an underwriter for
purposes of the Securities Act of 1933.
3. A Fund may not make loans. The purchase of debt obligations, the
lending of portfolio securities and the entry into repurchase agreements are not
treated as the making of loans for purposes of this limitation.
-38-
<PAGE>
4. A Fund may not purchase or sell real estate. The purchase of
securities secured by real estate or interests therein are not considered to be
a purchase of real estate for the purposes of the limitation.
5. A Fund may not purchase or sell commodities or commodities
contracts
6. A Fund may, notwithstanding any other fundamental investment
limitations, invest all of its assets in a single open-end investment company or
series thereof with substantially the same investment objectives, restrictions
and policies as the Fund.
7. With respect to TempFund, TempCash, MuniFund and MuniCash only: A
--------------------------------------------------------------
Fund may not purchase the securities of any issuer if as a result more than 5%
of the value of the Fund's assets would be invested in the securities of such
issuer except that up to 25% of the value of the Fund's assets may be invested
without regard to this 5% limitation.
8. With respect to TempFund only. TempFund may not purchase any
-----------------------------
securities which would cause 25% or more of the value of its total assets at the
time of such purchase to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that (a) there is no limitation with respect to investments in U.S. Treasury
Bills, other obligations issued or guaranteed by the federal government, its
agencies and instrumentalities, certificates of deposit, and bankers'
acceptances and (b) neither all finance companies, as a group, nor all utility
companies, as a group, are considered a single industry for purposes of this
policy. The Fund interprets the exception for "certificates of deposit, and
bankers' acceptances" in this fundamental policy to include other similar
obligations of domestic banks.
9. With respect to TempCash only: TempCash may not purchase any
-----------------------------
securities which would cause, at the time of purchase, less than 25% of the
value of its total assets to be invested in obligations of issuers in the
financial services industry or in obligations, such as repurchase agreements,
secured by such obligations (unless the Fund is in a temporary defensive
position) or which would cause, at the time of purchase, 25% or more of the
value of its total assets to be invested in the obligations of issuers in any
other industry, provided that (a) there is no limitation with respect to
investments in U.S. Treasury Bills and other obligations issued or guaranteed by
the federal government, its agencies and instrumentalities and (b) neither all
finance companies, as a group, nor all utility companies, as a group, are
considered a single industry for purposes of this policy.
10. With respect to California Money Fund and New York Money Fund
-------------------------------------------------------------
only: Each of these Funds may not purchase any securities which would cause 25%
- ----
or more of the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that there is no limitation with respect to
obligations issued or guaranteed by the U.S. government, any state or territory
of the United States, or any of their agencies, instrumentalities or political
subdivisions.
The following is a partial list of non-fundamental investment
limitations applicable to each of the Funds or, as indicated below, to specific
Funds. Unlike a fundamental
-39-
<PAGE>
limitation, a non-fundamental investment limitation may be changed without the
approval of shareholders.
1. A Fund may not acquire any other investment company or investment
company security except in connection with a merger, consolidation,
reorganization or acquisition of assets or where otherwise permitted by the 1940
Act.
2. With Respect to MuniFund, MuniCash, Cal Money and NY Money only:
---------------------------------------------------------------
The Fund may not invest more than 10% of the value of the Fund's total assets in
illiquid securities which may be illiquid due to legal or contractual
restrictions on resale or the absence of readily available market quotations.
3. MuniFund and MuniCash only: A Fund may not invest in industrial
--------------------------
revenue bonds where the payment of principal and interest are the responsibility
of a company (including its predecessors) with less than 3 years of continuous
operations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
IN GENERAL
Information on how to purchase and redeem each Fund's shares is
included in the applicable Prospectuses. The issuance of shares is recorded on a
Fund's books, and share certificates are not issued unless expressly requested
in writing. Certificates are not issued for fractional shares.
The regulations of the Comptroller of the Currency provide that funds
held in a fiduciary capacity by a national bank approved by the Comptroller to
exercise fiduciary powers must be invested in accordance with the instrument
establishing the fiduciary relationship and local law. The Company believes
that the purchase of shares of the Funds by such national banks acting on behalf
of their fiduciary accounts is not contrary to applicable regulations if
consistent with the particular account and proper under the law governing the
administration of the account.
Prior to effecting a redemption of shares represented by certificates,
PFPC, the Company's transfer agent, must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance the
signature must be guaranteed. A signature guarantee may be obtained from a
domestic bank or trust company, broker, dealer, clearing agency or savings
association who are participants in a medallion program recognized by the
Securities Transfer Association. The three recognized medallion programs are
Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion
Signature Program (MSP) and the New York Stock Exchange, Inc. Medallion
Securities Program. Signature guarantees that are not part of these programs
will not be accepted. A Fund may require any additional information reasonably
necessary to evidence that a redemption has been duly authorized.
-40-
<PAGE>
Under the 1940 Act, a Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange is closed, other than customary weekend and holiday
closings, or during which trading on said Exchange is restricted, or during
which (as determined by the SEC by rule or regulation) an emergency exists as a
result of which disposal or valuation of portfolio securities is not reasonably
practicable, or for such other periods as the SEC may permit. (A Fund may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.)
In addition, if, in the opinion of the directors of a Company,
ownership of shares has or may become concentrated to an extent which would
cause a Fund to be deemed a personal holding company, a Fund may compel the
redemption of, reject any order for or refuse to give effect on the books of a
Fund to the transfer of a Fund's shares in an effort to prevent that
consequence. A Fund may also redeem shares involuntarily if such redemption
appears appropriate in light of a Fund's responsibilities under the 1940 Act
or otherwise. If the Company's Board of Directors determines that conditions
exist which make payment of redemption proceeds wholly in cash unwise or
undesirable, a Fund may make payment wholly or partly in securities or other
property. In certain instances, a Fund may redeem shares pro rata from each
shareholder of record without payment of monetary consideration.
Any institution purchasing shares on behalf of separate accounts will
be required to hold the shares in a single nominee name (a "Master Account").
Institutions investing in more than one of the portfolios, or classes of shares,
must maintain a separate Master Account for each Fund's class of shares.
Institutions may also arrange with PFPC for certain sub-accounting services
(such as purchase, redemption, and dividend recordkeeping). Sub-accounts may be
established by name or number either when the Master Account is opened or later.
NET ASSET VALUE
Net asset value per share of each share in a particular Fund is
calculated by adding the value of all portfolio securities and other assets
belonging to a Fund, subtracting the Fund's liabilities, and dividing the result
by the number of outstanding shares in the Fund. "Assets belonging to" a Fund
consist of the consideration received upon the issuance of Fund shares together
with all income, earnings, profits and proceeds derived from the investment
thereof, including any proceeds from the sale of such investments, any funds or
payments derived from any reinvestment of such proceeds, and a portion of any
general assets not belonging to a particular portfolio. Assets belonging to a
Fund are charged with the direct liabilities of that Fund and with a share of
the general liabilities of the Company allocated on a daily basis in proportion
to the relative net assets of each of the portfolios. Determinations made in
good faith and in accordance with generally accepted accounting principles by
the Board of Trustees as to the allocation of any assets or liabilities with
respect to a Fund are conclusive. The expenses that are charged to a Fund are
borne equally by each share of the Fund, and for payments to Service
-41-
<PAGE>
Organizations are borne solely by Dollar Shares, Plus Shares, Administration
Shares, Cash Reserve Shares and Cash Management Shares, respectively.
In computing the net asset value of its shares for purposes of sales
and redemptions, each Fund uses the amortized cost method of valuation pursuant
to Rule 2a-7. Under this method, a Fund values each of its portfolio securities
at cost on the date of purchase and thereafter assumes a constant proportionate
amortization of any discount or premium until maturity of the security. As a
result, the value of a portfolio security for purposes of determining net asset
value normally does not change in response to fluctuating interest rates. While
the amortized cost method seems to provide certainty in portfolio valuation, it
may result in valuations of a Fund's securities which are higher or lower than
the market value of such securities.
In connection with its use of amortized cost valuation, each Fund
limits the dollar-weighted average maturity of its portfolio to not more than 90
days and does not purchase any instrument with a remaining maturity of more than
13 months (with certain exceptions). The Board of Trustees has also established
procedures, pursuant to rules promulgated by the SEC, that are intended to
stabilize each Fund's net asset value per share for purposes of sales and
redemptions at $1.00. Such procedures include the determination, at such
intervals as the Board deems appropriate, of the extent, if any, to which a
Fund's net asset value per share calculated by using available market quotations
deviates from $1.00 per share. In the event such deviation exceeds 1/2 of 1%,
the Board will promptly consider what action, if any, should be initiated. If
the Board believes that the amount of any deviation from a Fund's $1.00
amortized cost price per share may result in material dilution or other unfair
results to investors or existing shareholders, it will take such steps as it
considers appropriate to eliminate or reduce to the extent reasonably
practicable any such dilution or unfair results. These steps may include
selling portfolio instruments prior to maturity to realize capital gains or
losses or to shorten a Fund's average portfolio maturity, redeeming shares in
kind, reducing or withholding dividends, or utilizing a net asset value per
share determined by using available market quotations.
MANAGEMENT OF THE FUNDS
TRUSTEES AND OFFICERS
The business and affairs of the Company are managed under the
direction of the Board of Trustees. The Trustees and executive officers, their
addresses, ages, principal occupations during the past five years and other
affiliations are as follows:
-42-
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Name the Company Age During Past 5 Years
- ---- ------------- --- --------------------
<S> <C> <C> <C>
G. Nicholas Beckwith, III Trustee 53 President and Chief Executive
Officer, Beckwith Machinery
Company; First Vice Chairman of the
Board of Directors, University of
Pittsburgh Medical Center
Shadyside/Presbyterian Hospitals;
Second Vice Chairman of the Board
of Directors, University of
Pittsburgh Medical Center Health
System; Board of Overseers, Brown
University School of Medicine;
Board of Trustees, Shady Side
Academy; Trustee, Claude
Worthington Benedum Foundation;
Trustee, Chatham College; Director
or Trustee of two other investment
companies advised by BIMC.
Jerrold B. Harris Trustee, 56 President and Chief Executive
President and Officer, VWR Scientific Products
Treasurer Corp.; Director or Trustee of two
other investment companies advised
by BIMC.
Rodney D. Johnson* Trustee, 57 President, Fairmount Capital
President and Advisors, Inc.; Director or Trustee
Treasurer of five other investment companies
advised by BIMC.
Joseph P. Platt, Jr. Trustee 51 Partner, Amarna Partners (private
investment company); formerly, a
Director and Executive Vice
President of Johnson & Higgins.
Robert C. Robb, Jr.1 Trustee 53 Partner, Lewis, Eckert, Robb &
Company ( ); Trustee, EQK
Realty Investors; Director, Tamaqua
Cable Products Company; Director,
Brynwood Partners; former Director,
PNC Bank.
</TABLE>
-43-
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation
Name the Company Age During Past 5 Years
- ---- ------------- --- --------------------
<S> <C> <C> <C>
Kenneth L. Urish Trustee 47 Managing Partner, Urish Popeck &
Co. LLC (certified public
accountants and consultants).
Frederick W. Winter Trustee 53 Dean, Joseph M. Katz School of
Business University of Pittsburgh;
formerly, Dean, School of
Management - State University of
New York at Buffalo (1994-1997);
former Director, Rand Capital
(1996-1997); former Director, Bell
Sports (1991-1998); former
Director, Alkon Corporation
(1992-1998).
W. Bruce McConnel, III Secretary 54 Partner of the law firm of Drinker
Biddle & Reath LLP, Philadelphia,
Pennsylvania
</TABLE>
- ------------------------------
* Mr. Johnson is an "interested person" of Provident Institutional Funds, as
that term is defined in the 1940 Act, because he is an officer of the
Company.
1. From 1994 until April 14, 1998, Mr. Robb was a director of PNC Bank.
-44-
<PAGE>
The following provides certain information about the fees received by
the trustees/directors of the Predecessor Companies and/or the Company and as
directors/trustees of the Fund Complex for the year ending December 31, 1998.
<TABLE>
<CAPTION>
===============================================================================================================
PENSION OR TOTAL
RETIREMENT COMPENSATION FROM
AGGREGATE BENEFITS COMPANY AND/OR
COMPENSATION ACCRUED AS PART PREDECESSOR
FROM OF COMPANY AND/OR ESTIMATED COMPANIES AND
COMPANY AND/OR PREDECESSOR ANNUAL FUND COMPLEX1
NAME OF PERSON, PREDECESSOR COMPANIES BENEFITS UPON PAID TO
POSITION COMPANIES EXPENSES RETIREMENT TRUSTEES
-------- --------- -------- ---------- --------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
G. Nicholas Beckwith, III, Trustee $ n/a n/a $ 2
- ---------------------------------------------------------------------------------------------------------------
Jerrold B. Harris, Trustee $ n/a n/a $ 2
- ---------------------------------------------------------------------------------------------------------------
Rodney D. Johnson*, Trustee, $ n/a n/a $ 2
President and Treasurer
- ---------------------------------------------------------------------------------------------------------------
Joseph P. Platt, Jr., Trustee $ n/a n/a $ 2
- ---------------------------------------------------------------------------------------------------------------
Robert C. Robb, Jr.,1 Trustee $ n/a n/a $ 2
- ---------------------------------------------------------------------------------------------------------------
Kenneth L. Urish, Trustee $ n/a n/a $ 2
- ---------------------------------------------------------------------------------------------------------------
Federick W. Winter, Trustee $ n/a n/a $ 2
===============================================================================================================
</TABLE>
1. A Fund complex means two or more investment companies that hold themselves
out to investors as related companies for purposes of investment and
investor services, or have a common investment adviser or have an
investment adviser that is an affiliated person of the investment adviser
of any of the other investment companies.
2. Total number of such other investment companies a trustee served on within
the Fund Complex.
* This trustee is considered by the Company to be an "interested person" of
the Company as defined by the 1940 Act.
Until January 28, 1998, when the Predecessor Companies were
reorganized into the Company G. Willing Pepper was director/trustee and Chairman
of the Board of Temp, Fed and Cal Muni. William R. Howell and Rudolph A.
Peterson were each directors of Cal Muni. Anthony Santomero was a director of
Cal Muni and NY Muni. Philip E. Coldwell and Robert F. Fortune were
directors/trustees of Temp, Fed and Muni. Thomas A. Melfe and Francis E. Drake
were each directors of NY Muni. Mr. Melfe was also Chairman of the Board of NY
Muni.
Drinker Biddle & Reath LLP, of which Mr. McConnel is a partner,
receive legal fees as counsel to the Predecessor Companies and receives legal
fees as counsel to the Company. No employee of PDI, BIMC, PFPC or PNC Bank
receives any compensation from the Predecessor Companies for acting as an
officer or director of the Predecessor Companies. The directors and officers of
the Predecessor Companies as a group own less than 1% of the shares of each of
the Predecessor Funds.
-45-
<PAGE>
INVESTMENT ADVISER
The advisory services provided by BIMC are described in the Funds'
Prospectuses. For the advisory services provided and expenses assumed by it,
BIMC is entitled to receive fees, computed daily and payable monthly, at the
following annual rates:
TEMPFUND:
--------
ANNUAL FEE AVERAGE NET ASSETS
- ---------- ------------------
.175%....................of the first $1 billion
.150%....................of the next $1 billion
.125%....................of the next $1 billion
.100%....................of the next $1 billion
.095%....................of the next $1 billion
.090%....................of the next $1 billion
.080%....................of the next $1 billion
.075%....................of the next $1 billion
.070%...............of amounts in excess of $8 billion.
TEMPCASH, MUNIFUND AND MUNICASH:
-------------------------------
ANNUAL FEE A FUND'S AVERAGE NET ASSETS
- ---------- ---------------------------
.175%....................of the first $1 billion
.150%....................of the next $1 billion
.125%....................of the next $1 billion
.100%....................of the next $1 billion
.095%....................of the next $1 billion
.090%....................of the next $1 billion
.085%....................of the next $1 billion
.080%...............of amounts in excess of $7 billion.
-46-
<PAGE>
FED FUND, T FUND, FEDERAL TRUST FUND AND TREASURY TRUST FUND:
- ------------------------------------------------------------
THE FUNDS' COMBINED
ANNUAL FEE AVERAGE NET ASSETS
- ---------- -------------------
.175%....................of the first $1 billion
.150%....................of the next $1 billion
.125%....................of the next $1 billion
.100%....................of the next $1 billion
.095%....................of the next $1 billion
.090%....................of the next $1 billion
.085%....................of the next $1 billion
.080%...............of amounts in excess of $7 billion.
CALIFORNIA MONEY FUND AND NEW YORK MONEY FUND:
- ---------------------------------------------
ANNUAL FEE A FUND'S AVERAGE NET ASSETS
- ---------- ---------------------------
.20%....................of the total net assets
PFPC, as described below under "Co-Administrators", and BIMC are co-
administrators of the Fund. They may from time to time reduce their fees to
ensure that the ordinary operating expenses (excluding interest, taxes,
brokerage fees, fees paid to Service Organizations pursuant to Servicing
Agreements, and extraordinary expenses) do not exceed a specified percentage of
each Funds' average net assets.
The following chart provides information with respect to the advisory
fees paid and advisory fees waived during the fiscal years of each Fund ended in
1996, 1997 and 1998:
-47-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FUND 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
ADVISORY ADVISORY ADVISORY ADVISORY ADVISORY ADVISORY
FEES FEES FEES FEES FEES FEES
PAID WAIVED PAID WAIVED PAID WAIVED
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TempFund
- ------------------------------------------------------------------------------------------------------------------
TempCash
- ------------------------------------------------------------------------------------------------------------------
FedFund
- ------------------------------------------------------------------------------------------------------------------
T-Fund
- ------------------------------------------------------------------------------------------------------------------
Federal Trust
Fund
- ------------------------------------------------------------------------------------------------------------------
Treasury Trust
Fund
- ------------------------------------------------------------------------------------------------------------------
MuniFund
- ------------------------------------------------------------------------------------------------------------------
MuniCash
- ------------------------------------------------------------------------------------------------------------------
California
Money
- ------------------------------------------------------------------------------------------------------------------
New York
Money
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
________________________
The Funds' fiscal year ends are as follows: October 31: TempFund and TempCash
September 30, FedFund, T-Fund, Federal Trust Fund, Treasury Trust Fund October
31, MuniFund and MuniCash November 30, California Money Fund January 31 and
New York Money Fund July 31.
CO-ADMINISTRATORS
BIMC and PFPC serve as the Fund's co-administrators. PFPC has its
principal business address at 400 Bellevue Parkway, Wilmington, Delaware 19809
and is an indirect, wholly-owned subsidiary of PNC Bank Corp. and is an
affiliate of BIMC As the Funds' co-administrators, BIMC and PFPC have agreed to
provide the following services: (i) assist generally in supervising the Funds'
operations, including providing a Wilmington, Delaware order-taking facility
with toll-free IN-WATS telephone lines, providing for the preparing, supervising
and mailing of purchase and redemption order confirmations to shareholders of
record, providing and supervising the operation of an automated data processing
system to process purchase and redemption orders, maintaining a back-up
procedure to reconstruct lost purchase and redemption data, providing
information concerning the Funds to their shareholders of record, handling
shareholder problems, providing the services of employees to preserve and
strengthen shareholder relations and monitoring the arrangements pertaining to
the Funds' agreements with Service Organizations; (ii) assure that persons are
available to receive and transmit purchase and redemption orders; (iii)
participate in the periodic updating of the Funds' prospectuses; (iv) assist in
the Funds' Wilmington, Delaware office; (v) accumulate information for and
coordinate the preparation of reports to the Funds' shareholders and the SEC;
(vi)
-48-
<PAGE>
maintain the registration of the Funds' shares for sale under state securities
laws; (vii) review and provide advice with respect to all sales literature of
the Funds; and (viii) assist in the monitoring of regulatory and legislative
developments which may affect the Company, participate in counseling and
assisting the Company in relation to routine regulatory examinations and
investigations, and work with the Company's counsel in connection with
regulatory matters and litigation.
For their administrative services, the co-administrators are entitled
jointly to receive fees, computed daily and payable monthly, as described above
determined in the same manner as BIMC's advisory fee set forth above. For
information regarding the administrators' obligation to reimburse the Funds in
the event their expenses exceed certain prescribed limits, see "Investment
Adviser" above. Any fees waived by the administrators with respect to a
particular fiscal year are not recoverable.
The following chart provides information with respect to the
administration fees paid and administration fees waived during the fiscal year
end for each Fund ended in 1996, 1997 and 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FUND 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
ADMINISTRATION ADMINISTRATION ADMINISTRATION ADMINISTRATION ADMINISTRATION ADMINISTRATION
FEES PAID FEES WAIVED FEES PAID FEES WAIVED FEES PAID FEES WAIVED
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TempFund
- ------------------------------------------------------------------------------------------------------------------
TempCash
- ------------------------------------------------------------------------------------------------------------------
FedFund
- ------------------------------------------------------------------------------------------------------------------
T-Fund
- ------------------------------------------------------------------------------------------------------------------
Federal Trust
Fund
- ------------------------------------------------------------------------------------------------------------------
Treasury Trust
Fund
- ------------------------------------------------------------------------------------------------------------------
MuniFund
- ------------------------------------------------------------------------------------------------------------------
MuniCash
- ------------------------------------------------------------------------------------------------------------------
California
Money
- ------------------------------------------------------------------------------------------------------------------
New York
Money
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The Funds' fiscal year ends are as follows: October 31: TempFund and TempCash
September 30, FedFund, T-Fund, Federal Trust Fund, Treasury Trust Fund October
31, MuniFund and MuniCash November 30, California Money Fund January 31, and
New York Money Fund July 31.
DISTRIBUTOR
Provident Distributors, Inc. ("PDI") PDI acts as the distributor of
the Fund's shares. PDI is a Delaware corporation and has its principal business
address at Four Falls Corporate Center, 6th Floor, West Conshohocken,
Pennsylvania 19428. Each Fund's shares are sold on a continuous basis by the
-49-
<PAGE>
distributor as agent, although it is not obliged to sell any particular amount
of shares. The distributor pays the cost of printing and distributing
prospectuses to persons who are not shareholders of the Funds (excluding
preparation and printing expenses necessary for the continued registration of
the Fund shares). The distributor prepares or reviews, provides advice with
respect to, and files with the federal and state agencies or other organizations
as required by federal, state or other applicable laws and regulations, all
sales literature (advertisements, brochures and shareholder communications) for
each of the Funds and any class or subclass thereof. No compensation is payable
by the Fund to the distributor for its distribution services.
CUSTODIAN AND TRANSFER AGENT
Pursuant to a Custodian Agreement, PNC Bank, an affiliate of the
Adviser, serves as each Fund's custodian, holding a Fund's portfolio securities,
cash and other property. PNC Bank has its principal offices at 1600 Market
Street, Philadelphia, PA 19103. Under the Custodian Agreement, PNC Bank has
agreed to provide the following services: (i) maintain a separate account or
accounts in the name of a Fund; (ii) hold and disburse portfolio securities on
account of a Fund; (iii) collect and make disbursements of money on behalf of a
Fund; (iv) collect and receive all income and other payments and distributions
on account of a Fund's portfolio securities; and (v) make periodic reports to
the Board of Trustees concerning a Fund's operations.
PNC Bank is also authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of a Fund, provided that PNC Bank
shall remain responsible for the performance of all of its duties under the
Custodian Agreement and shall hold each Fund harmless from the acts and
omissions of any bank or trust company serving as sub-custodian chosen by PNC
Bank.
Under the Custodian Agreement, each Fund pays PNC Bank an annual fee
equal to $.25 for each $1,000 of each Fund's average daily gross assets. With
respect to TempFund, TempCash, FedFund, T-Fund, Federal Trust Fund, Treasury
Trust Fund, MuniFund and MuniCash, such fee declines as each such Fund's average
daily gross assets increase. In addition, each Fund pays the custodian certain
types of transaction charges, and reimburses the custodian for out-of-pocket
expenses incurred on behalf of the Fund.
PFPC also serves as transfer agent, registrar and dividend disbursing
agent to each Fund pursuant to a Transfer Agency Agreement. Under the
Agreement, PFPC has agreed to provide the following services: (i) maintain a
separate account or accounts in the name of a Fund; (ii) issue, transfer and
redeem Fund shares; (iii) transmit all communications by a Fund to its
shareholders of record, including reports to shareholders, dividend and
distribution notices and proxy material for its meetings of shareholders; (iv)
respond to correspondence by shareholders, security brokers and others relating
to its duties; (v) maintain shareholder accounts and sub-accounts; (vi) provide
installation and other services in connection with the Funds' computer access
program maintained to facilitate shareholder access to a Fund; (vii) send each
shareholder of record a monthly statement showing the total number of a Fund's
shares owned as of the last business day of the month (as well as the dividends
paid during the current month and year); and (viii) provide each shareholder of
record with a daily transaction report for each day on which a
-50-
<PAGE>
transaction occurs in the shareholder's Master Account with a Fund. Further, an
institution establishing sub-accounts with PFPC is provided with a daily
transaction report for each day on which a transaction occurs in a sub-account
and, as of the last calendar day of each month, a report which sets forth the
share balances for the sub-accounts at the beginning and end of the month and
income paid or reinvested during the month. Finally, PFPC provides each
shareholder of record with copies of all information relating to dividends and
distributions which is required to be filed with the Internal Revenue Service
and other appropriate taxing authorities.
For transfer agency and dividend disbursing services, each Fund pays
PFPC fees at the annual rate of $12.00 per account and sub-account maintained by
PFPC plus $1.00 for each purchase or redemption transaction by an account (other
than a purchase transaction made in connection with the automatic reinvestment
of dividends). Payments to PFPC for sub-accounting services provided by others
are limited to the amount which PFPC pays to others for such services. In
addition, each Fund reimburses PNC Bank and PFPC for out-of-pocket expenses
related to such services.
BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company engaged continuously in the issuance of
its shares, and prohibit banks generally from issuing, underwriting, selling or
distributing securities such as Fund shares. Such banking laws and regulations
do not prohibit such a holding company or affiliate or banks generally from
acting as investment adviser, transfer agent or custodian to such an investment
company, or from purchasing shares of such a company for or upon the order of
customers.
BIMC, PNC Bank and PFPC believe that they may perform the services for
the Funds contemplated by their respective agreements, Prospectuses and this
Statement of Additional Information without violation of applicable banking laws
or regulations. It should be noted, however, that future changes in legal
requirements relating to the permissible activities of banks and their
affiliates, as well as further interpretations of present requirements, could
prevent BIMC and PFPC from continuing to perform such services for the Funds.
If BIMC and PFPC were prohibited from continuing to perform such services, it is
expected that the Company's Board of Trustees would recommend that the Funds
enter into new agreements with other qualified firms. Any new advisory
agreement would be subject to shareholder approval.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
SERVICE ORGANIZATIONS
Each of the Funds enter into agreements with institutional investors
("Service Organizations") requiring them to provide support services to their
customers who beneficially own Dollar Shares and, with respect to T-Fund,
MuniFund, TempFund, NY Money Fund and California Money Fund, Plus Shares, in
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<PAGE>
consideration of .25% (on an annualized basis) of the average daily net asset
value of the Dollar and Plus Shares held by the Service Organizations for the
benefit of their customers. Such services include: (i) aggregating and
processing purchase and redemption requests from customers and placing net
purchase and redemption orders with the transfer agent; (ii) providing customers
with a service that invests the assets of their accounts in Dollar or Plus
Shares; (iii) processing dividend payments from the Fund on behalf of customers;
(iv) providing information periodically to customers showing their positions in
Dollar and Plus Shares; (v) arranging for bank wires; (vi) responding to
customer inquiries relating to the services performed by the Service
Organizations; (vii) providing sub-accounting with respect to Dollar and Plus
Shares beneficially owned by customers or the information necessary for sub-
accounting; (viii) forwarding shareholder communications from the Fund (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to customers, if required by law; and
(ix) other similar services if requested by the Fund. In addition,
broker/dealers purchasing Plus shares provide from time to time assistance (such
as the forwarding of sales literature and advertising to customers) in
connection with the distribution of Plus shares.
TempFund, T-Fund, MuniFund and California MoneyFund may also enter
into agreements with Service Organizations requiring them to provide support
services to their customers who beneficially own Administration Shares, in
consideration of .10% (on an annualized basis) of the average daily net asset
value of the Administration Shares held by the Service Organization for the
benefit of their customers. Such services include, but not limited to: (i)
answering shareholder inquiries regarding account status and history, the manner
in which purchases, exchanges and redemptions of shares may be effected and
certain other matters pertaining to the shareholders' investments; and (ii)
assisting shareholders in designating and changing dividend options, account
designations and addresses.
TempFund, T-Fund, MuniFund and California MoneyFund may also enter
into agreements with Service Organizations requiring them to provide support
services to their customers who beneficially own Cash Reserve Shares, in
consideration of .40% (on an annualized basis) of the average net asset value of
the Cash Reserve Shares held by the Service Organization for the benefit of
their customers. Such services include all services provided to Administration
Shares and Dollar Shares as well as the following (i) providing
the necessary computer hardware and software which links the Service Agent's DDA
system to an account management system; (ii) providing the software that
aggregates the customers orders and establishes an order to purchase or redeem
shares of the Fund; (iii) establishing target levels for the shareholders'
demand deposit accounts; (iv) providing periodic statements showing a
customer's account balance and, to the extent practicable, integrating such
information with other customer transactions otherwise effected through or with
a Service Agent; and (v) furnishing (either separately or an integrated basis
with other reports sent to a shareholder by a Service Agent) monthly and year-
end statements and confirmations of purchases, exchanges and redemptions.
TempFund, T-Fund, MuniFund and California MoneyFund may also enter
into agreements with Service Organizations requiring them to provide support
services to their customers who beneficially own Cash Management Shares, in
consideration of .50% (on an annualized basis) of the average net asset value of
the Cash Management Shares held by the Service Organization for the benefit of
their customers. Such services include all services provided to Cash Reserve
Shares as well as the following (i) implementation of marketing and
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<PAGE>
promotional activities, including direct mail promotions for sweep services,
(ii) expenditures for marketing support services such as for telephone
facilities and in-house telemarketing, (iii) distribution of literature
promoting sweep services, (iv) travel, equipment, printing, delivery and mailing
costs overhead and other office expenses attributable to the marketing of sweep
services.
The Fund's agreements with Service Organizations are governed by Plans
(called "non-12b-1 Shareholder Services Plan" for the Dollar, Administration,
Cash Reserves and Cash Management Shares and "12b-1 Services Plan" for the Plus
shares), which have been adopted by the Fund's Board of Trustees pursuant to
applicable rules and regulations of the SEC. Pursuant to the Plans, the Board of
Trustees reviews, at least quarterly, a written report of the amounts expended
under the Fund's agreements with Service Organizations and the purposes for
which the expenditures were made. In addition, the Fund's arrangements with
Service Organizations must be approved annually by a majority of the Fund's
trustees, including a majority of the trustees who are not "interested persons"
of the Fund as defined in the 1940 Act and have no direct or indirect financial
interest in such arrangements.
The Board of Trustees have approved the Funds' arrangements with
Service Organizations based on information provided to the Boards that there is
a reasonable likelihood that the arrangements will benefit the Class of Shares
of the Fund charged with such fees and its shareholders. Any material amendment
to the Funds' arrangements with Service Organizations must be made in a manner
approved by a majority of the Funds' Board of Trustees (including a majority of
the Non-Interested Trustees), and any amendment to increase materially the costs
under the 12b-1 Services Plan adopted by the Board with respect to Plus shares
must be approved by the holders of a majority of the outstanding Plus shares.
(It should be noted that while the annual service fee with respect to Plus
shares is currently set at .25%, the Plans adopted by the Board of Trustees
permits the Board to increase this fee to .40% without shareholder approval.)
So long as the Funds' arrangements with Service Organizations are in effect, the
selection and nomination of the members of the Funds' Board of Trustees who are
not "interested persons" (as defined in the 1940 Act) of the Fund will be
committed to the discretion of such non-interested directors.
The following chart provides information with respect to the fees paid
to Service Organizations , including the amounts paid to affiliates of BIMC
during the fiscal year for each Fund ended in 1996, 1997 and 1998.
-53-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
FUND 1998 1997 1996
- -----------------------------------------------------------------------------------------------
Total Fee/Fees to Total Fees/Fees to Total Fees/Fees to
Affiliates Affiliates Affiliates
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TempFund Dollar
- -----------------------------------------------------------------------------------------------
TempCash Dollar
- -----------------------------------------------------------------------------------------------
FedFund Dollar
- -----------------------------------------------------------------------------------------------
T-Fund Dollar
- -----------------------------------------------------------------------------------------------
Treasury Trust Dollar
- -----------------------------------------------------------------------------------------------
Federal Trust Dollar
- -----------------------------------------------------------------------------------------------
MuniFund Dollar
- -----------------------------------------------------------------------------------------------
MuniCash Dollar
- -----------------------------------------------------------------------------------------------
California Money Dollar
- -----------------------------------------------------------------------------------------------
California Money Plus
- -----------------------------------------------------------------------------------------------
New York Money Dollar
- -----------------------------------------------------------------------------------------------
New York Money Plus
- -----------------------------------------------------------------------------------------------
</TABLE>
______________________________________
The Funds' fiscal year ends are as follows: October 31: TempFund and
TempCash September 30, FedFund, T-Fund, Federal Trust Fund, Treasury Trust
Fund October 31, MuniFund and MuniCash November 30, California Money Fund
January 31, and New York Money Fund July 31.
EXPENSES
- --------
A Fund's expenses include taxes, interest, fees and salaries of the
Company's Trustees and officers who are not Trustees, officers or employees of
the Company's service contractors, SEC fees, state securities registration fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to shareholders, advisory and administration fees, charges of the
custodian and of the transfer and dividend disbursing agent, Service
Organization fees, costs of the Funds' computer access program, certain
insurance premiums, outside auditing and legal expenses, costs of shareholder
reports and shareholder meetings and any extraordinary expenses. A Fund also
pays for brokerage fees and commissions (if any) in connection with the purchase
and sale of portfolio securities.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations
generally affecting all Funds and their shareholders that are not described in
the Funds' Prospectuses. No attempt is made to present a detailed explanation
of the tax treatment of a Fund or its shareholders or possible legislative
changes, and the discussion here and in the applicable Prospectuses is not
intended as a substitute for careful tax planning.
-54-
<PAGE>
As stated in each Prospectus, each Fund is treated as a separate
corporate entity under the Internal Revenue Code of 1986, as amended (the
"Code") and intends to qualify each year as a regulated investment company under
the Code. In order to so qualify for a taxable year, a Fund must satisfy the
distribution requirement described in the Prospectuses, derive at least 90% of
its gross income for the year from certain qualifying sources and comply with
certain diversification requirements.
A 4% nondeductible excise tax is imposed on regulated investment
companies that fail currently to distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income (excess
of capital gains over capital losses). Each Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
If for any taxable year a Fund does not qualify for tax treatment as a
regulated investment company, all of that Fund's taxable income will be subject
to tax at regular corporate rates without any deduction for distributions to
Fund shareholders. In such event, dividend distributions to shareholders would
be taxable as ordinary income to the extent of that Fund's earnings and profits
and would be eligible for the dividends received deduction in the case of
corporate shareholders.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or 31% of gross proceeds paid to a
shareholder who has failed to provide a correct tax identification number in the
manner required, is subject to withholding by the Internal Revenue Service for
failure properly to include on his return payments of taxable interest or
dividends, or has failed to certify to the Fund that he is not subject to backup
withholding when required to do so or that it is an "exempt recipient."
Although each Fund expects to qualify as a regulated investment
company and to be relieved of all or substantially all federal income tax,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, a Fund may
be subject to the tax laws of such states or localities. In addition, in those
states and localities that have income tax laws, the treatment of the Fund and
its shareholders under such laws may differ from the treatment under federal
income tax laws. Shareholders are advised to consult their tax advisors
concerning the application of state and local taxes.
The following is applicable to MuniFund, MuniCash, California Money
Fund and New York Money Fund only:
As described above and in the Funds' Prospectuses, each Fund is
designed to provide institutions with current tax-exempt interest income.
Neither Fund is intended to constitute a balanced investment program nor is
designed for investors seeking capital appreciation or maximum tax-exempt income
irrespective of fluctuations in principal. Shares of a Fund would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and individual
-55-
<PAGE>
retirement accounts because such plans and accounts are generally tax-exempt
and, therefore, not only would not gain any additional benefit from a Fund's
dividends being tax-exempt but also such dividends would be taxable when
distributed to the beneficiary. In addition, a Fund may not be an appropriate
investment for entities which are "substantial users" of facilities financed by
private activity bonds or "related persons" thereof. "Substantial user" is
defined under U.S. Treasury Regulations to include a non-exempt person who
regularly uses a part of such facilities in his or her trade or business and
whose gross revenues derived with respect to the facilities financed by the
issuance of bonds are more than 5% of the total revenues derived by all users of
such facilities, or who occupies more than 5% of the usable area of such
facilities or for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its
partners, and an S Corporation and its shareholders.
In order for a Fund to pay exempt-interest dividends for any taxable
year, at the close of each quarter of its taxable year at least 50% of the
aggregate value of that Fund's assets must consist of exempt-interest
obligations. After the close of its taxable year, each Fund will notify its
shareholders of the portion of the dividends paid by that Fund which constitutes
an exempt-interest dividend with respect to such taxable year. However, the
aggregate amount of dividends so designated by a Fund cannot exceed the excess
of the amount of interest exempt from tax under Section 103 of the Code received
by that Fund for the taxable year over any amounts disallowed as deductions
under Sections 265 and 171(a)(2) of the Code. The percentage of total dividends
paid by a Fund with respect to any taxable year which qualifies as federal tax
exempt-interest dividends will be the same for all shareholders of such Fund
receiving dividends for such year.
Interest on indebtedness incurred by a shareholder to purchase or
carry a Fund's shares generally is not deductible for federal income tax
purposes if that Fund distributes exempt-interest dividends during the
shareholder's taxable year.
Although each Fund does not expect to realize long-term capital gains,
any net realized long-term capital gains will be distributed at least annually.
A Fund will generally have no tax liability with respect to such gains, and the
distributions will be taxable to a Fund's shareholders as long-term capital
gains (20% or 28%, as applicable), regardless of how long a shareholder has held
a Fund's shares. Such distributions will be designated as a capital gain
dividend in a written notice mailed by a Fund to its shareholders not later than
60 days after the close of the Fund's taxable year.
Similarly, although each Fund does not expect to earn any investment
company taxable income, taxable income earned by a Fund will be distributed to
its shareholders. In general, a Fund's investment company taxable income will
be its taxable income (for example, any short-term capital gains) subject to
certain adjustments and excluding the excess of any net long-term capital gain
for the taxable year over the net short-term capital loss, if any, for such
year. Each Fund will be taxed on any undistributed investment company taxable
income of that Fund. To the extent such income is distributed
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<PAGE>
by a Fund (whether in cash or additional shares), it will be taxable to such
Fund's shareholders as ordinary income.
The foregoing discussion is based on federal tax laws and regulations
which are in effect on the date of this Statement of Additional Information.
Such laws and regulations may be changed by legislative or administrative
action.
DIVIDENDS
GENERAL
- -------
Each Fund's net investment income for dividend purposes consists of
(i) interest accrued and original issue discount earned on that Fund's assets,
(ii) plus the amortization of market discount and minus the amortization of
market premium on such assets and (iii) less accrued expenses directly
attributable to that Fund and the general expenses (e.g. legal, accounting and
Trustees' fees) of the Company prorated to such Fund on the basis of its
relative net assets. Any realized short-term capital gains may also be
distributed as dividends to Fund shareholders. In addition, a Fund's Dollar
Shares and/or Plus Shares bear exclusively the expense of fees paid to Service
Organizations. (See "Management of the Funds -- Service Organizations.")
As stated, the Company uses its best efforts to maintain the net asset
value per share of each Fund at $1.00. As a result of a significant expense or
realized or unrealized loss incurred by either Fund, it is possible that the
Fund's net asset value per share may fall below $1.00.
ADDITIONAL YIELD INFORMATION
The "yields" and "effective yields" are calculated separately for each
Fund. The seven-day yield for each class or sub-class of shares in a Fund is
calculated by determining the net change in the value of a hypothetical pre-
existing account in a Fund having a balance of one share of the class involved
at the beginning of the period, dividing the net change by the value of the
account at the beginning of the period to obtain the base period return, and
multiplying the base period return by 365/7. The net change in the value of an
account in a Fund includes the value of additional shares purchased with
dividends from the original share and dividends declared on the original share
and any such additional shares, net of all fees charged to all shareholder
accounts in proportion to the length of the base period and the Fund's average
account size, but does not include gains and losses or unrealized appreciation
and depreciation. In addition, the effective annualized yield may be computed
on a compounded basis (calculated as described above) by adding 1 to the base
period return, raising the sum to a power equal to 365/7, and subtracting 1 from
the result. Similarly, based on the calculations described above, 30-day (or
one-month) yields and effective yields may also be calculated.
-57-
<PAGE>
The following chart provides information with respect to the yields as
of December 31, 1998. *
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
7 DAY 30 DAY
- --------------------------------------------------------------------------------------------------------------
YIELD COMPOUNDED YIELD COMPOUNDED
EFFECTIVE EFFECTIVE
YIELD YIELD
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TempFund
- --------------------------------------------------------------------------------------------------------------
TempFund Dollar
- --------------------------------------------------------------------------------------------------------------
TempCash
- --------------------------------------------------------------------------------------------------------------
TempCash Dollar
- --------------------------------------------------------------------------------------------------------------
FedFund
- --------------------------------------------------------------------------------------------------------------
FedFund Dollar
- --------------------------------------------------------------------------------------------------------------
T-Fund
- --------------------------------------------------------------------------------------------------------------
T-Fund Dollar
- --------------------------------------------------------------------------------------------------------------
Federal Trust Fund
- --------------------------------------------------------------------------------------------------------------
Federal Trust Dollar
- --------------------------------------------------------------------------------------------------------------
Treasury Trust Fund
- --------------------------------------------------------------------------------------------------------------
Treasury Trust Dollar
- --------------------------------------------------------------------------------------------------------------
MuniFund
- --------------------------------------------------------------------------------------------------------------
MuniFund Dollar
- --------------------------------------------------------------------------------------------------------------
MuniCash
- --------------------------------------------------------------------------------------------------------------
MuniCash Dollar
- --------------------------------------------------------------------------------------------------------------
California Money Fund
- --------------------------------------------------------------------------------------------------------------
California Money Dollar
- --------------------------------------------------------------------------------------------------------------
California Money Plus
- --------------------------------------------------------------------------------------------------------------
New York Money Fund
- --------------------------------------------------------------------------------------------------------------
New York Money Dollar
- --------------------------------------------------------------------------------------------------------------
New York Money Plus
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* No information is provided regarding the yields with respect to the
Administration, Cash Reserves and Cash Management Classes of TempFund, MuniFund,
T-Fund and California Money Fund and the Plus Shares of T-Fund, MuniFund and
TempFund because such Classes had no Shares outstanding on December 31, 1998.
From time to time, in reports to shareholders or otherwise, a Fund's
yield may be quoted and compared to that of other money market funds or accounts
with similar investment objectives, to stock or other relevant indices and to
other reports or analyses that relate to yields, interest rates, total return,
market performance, etc. For example, the yield of the Fund may be compared to
the IBC/Donoghue's Money Fund Average, which is an average compiled by
----- ---- -------
IBC/Donoghue's MONEY FUND REPORT(R) of Holliston, MA 01746, a widely recognized
independent publication that monitors the performance of money market funds, or
to the average yields reported by the Bank Rate Monitor from money market
---- ---- -------
deposit accounts offered by the 50 leading banks and thrift institutions in the
top five standard metropolitan statistical areas.
YIELD WILL FLUCTUATE, AND ANY QUOTATION OF YIELD SHOULD NOT BE
CONSIDERED AS REPRESENTATIVE OF THE FUTURE PERFORMANCE OF THE FUND. Since
yields fluctuate, yield data cannot necessarily be used to compare an investment
in a Fund's shares with bank deposits, savings accounts, and similar investment
alternatives which often provide an agreed or
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<PAGE>
guaranteed fixed yield for a stated period of time. Shareholders should remember
that performance and yield are generally functions of the kind and quality of
the investments held in a fund, portfolio maturity, operating expenses and
market conditions. Any fees charged by banks with respect to customer accounts
in investing in shares of a Fund will not be included in yield calculations;
such fees, if charged, would reduce the actual yield from that quoted.
The Funds may also from time to time include in advertisements, sales
literature, communications to shareholders and other materials ("Materials"),
discussions or illustrations of the effects of compounding. "Compounding"
refers to the fact that, if dividends or other distributions on an investment
are reinvested by being paid in additional Portfolio shares, any future income
or capital appreciation of a Fund would increase the value, not only of the
original investment, but also of the additional shares received through
reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distributions had been paid in cash.
In addition, the Funds may also include in Materials discussions
and/or illustrations of the potential investment goals of a prospective investor
(including materials that describe general principles of investing,
questionnaires designed to help create a personal financial profile, worksheets
used to project savings needs based on certain assumptions and action plans
offering investment alternatives), investment management strategies, techniques,
policies or investment suitability of a Fund, economic and political conditions,
the relationship between sectors of the economy and the economy as a whole,
various securities markets, the effects of inflation and historical performance
of various asset classes, including but not limited to, stocks, bonds and
Treasury securities, and hypothetical investment returns based on certain
assumptions. From time to time, Materials may summarize the substance of
information contained in shareholder reports (including the investment
composition of a Fund), as well as the views of the advisers as to current
market, economic, trade and interest rate trends, legislative, regulatory and
monetary developments, investment strategies and related matters believed to be
of relevance to a Fund. In addition, selected indices may be used to illustrate
historical performance of select asset classes. The Funds may also include in
Materials charts, graphs or drawings which compare the investment objective,
return potential, relative stability and/or growth possibilities of the Funds
and/or other mutual funds, or illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to, stocks,
bonds, Treasury securities and shares of a Fund and/or other mutual funds.
Materials may include a discussion of certain attributes or benefits to be
derived by an investment in a Fund and/or other mutual funds (such as value
investing, market timing, dollar cost averaging, asset allocation, constant
ratio transfer, automatic accounting rebalancing and the advantages and
disadvantages of investing in tax-deferred and taxable investments), shareholder
profiles and hypothetical investor scenarios, timely information on financial
management, tax and retirement planning and investment alternatives to
certificates of deposit and other financial instruments, designations assigned a
Fund by various rating or ranking organizations, and Fund identifiers (such as
CUSIP numbers or NASDAQ symbols). Such Materials may include symbols, headlines
or other material which highlight or summarize the information discussed in more
detail therein.
Materials may include lists of representative clients of the Funds'
investment adviser, may include discussions of other products or services, may
contain information
-59-
<PAGE>
regarding average weighted maturity or other maturity characteristics, and may
contain information regarding the background, expertise, etc. of the investment
adviser or of a Fund's portfolio manager.
From time to time in advertisements, sales literature and
communications to shareholders, the Funds may compare their total returns to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, such
data is found in IBC/Donoghue's Money Fund Report and reports prepared by Lipper
Analytical Services, Inc. Total return is the change in value of an investment
in a Fund over a particular period, assuming that all distributions have been
reinvested. SUCH RANKINGS REPRESENT THE FUNDS' PAST PERFORMANCE AND SHOULD NOT
BE CONSIDERED AS REPRESENTATIVE OF FUTURE RESULTS.
The following information has been provided by the Funds' distributor:
In managing each Fund's portfolio, the investment adviser utilizes a "pure and
simple" approach, which may include disciplined research, stringent credit
standards and careful management of maturities.
ADDITIONAL DESCRIPTION CONCERNING SHARES
The Company was organized as a Delaware business trust on October 21,
1998. The Company's Declaration of Trust authorizes the Board of Trustees to
issue an unlimited number of full and fractional shares of beneficial interest
in the Company and to classify or reclassify any unissued shares into one or
more series of shares. Pursuant to such authority, the Board of Trustees has
authorized the issuance of ten series of shares designated as TempFund,
TempCash, FedFund, T-Fund, Federal Trust Fund, Treasury Trust Fund, MuniFund,
MuniCash, California Money Fund and New York Money Fund. The Declaration of
Trust further authorizes the trustees to classify or reclassify any series of
shares into one or more classes. Currently, the classes authorized are Dollar,
Plus, Administration, Cash Reserves and Cash Management.
The Company does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. Upon
the written request of shareholders owning at least 25% of the Company's shares,
the Company will call for a meeting of shareholders to consider the removal of
one or more Trustees and other certain matters. To the extent required by law,
the Company will assist in shareholder communication in such matters.
Holders of shares in a Fund in the Company will vote in the aggregate
and not by class or sub-class on all matters, except as described above, and
except that only a Fund's Dollar Shares, will and with respect to California
Money Fund and New York Money Fund, Plus Shares, be entitled to vote on matters
submitted to a vote of shareholders pertaining to that Fund's arrangements with
Service Organizations. (See "Management of the Funds -- Service
Organizations.") Further, shareholders of each of the Company's portfolios will
vote in the aggregate and not by portfolio except as otherwise required by law
or when the Board of Trustees determines that the matter to be voted upon
affects only the interests of the shareholders
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<PAGE>
of a particular portfolio. Rule 18f-2 under the 1940 Act provides that any
matter required to be submitted by the provisions of such Act or applicable
state law, or otherwise, to the holders of the outstanding securities of an
investment company such as the Company shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each portfolio affected by the matter. Rule 18f-2 further
provides that a portfolio shall be deemed to be affected by a matter unless it
is clear that the interests of each portfolio in the matter are identical or
that the matter does not affect any interest of the portfolio. Under the Rule,
the approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a portfolio
only if approved by the holders of a majority of the outstanding voting
securities of such portfolio. However, the Rule also provides that the
ratification of the selection of independent accountants, the approval of
principal underwriting contracts, and the election of Trustees are not subject
to the separate voting requirements and may be effectively acted upon by
shareholders of the investment company voting without regard to portfolio.
Notwithstanding any provision of Delaware law requiring a greater vote
of shares of the Company's Common Stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above) or by the Company's Charter, the Company
may take or authorize such action upon the favorable vote of the holders of more
than 50% of all of the outstanding shares of Common Stock voting without regard
to class (or portfolio).
COUNSEL
Drinker Biddle & Reath LLP, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107-3496, of which W. Bruce
McConnel, III, Secretary of the Company, is a partner, will pass upon the
legality of the shares offered hereby.
AUDITORS
PricewaterhouseCoopers LLP, with offices at 2400 Eleven Penn Center,
Philadelphia, Pennsylvania 19103 has been selected as the independent
accountants of each Fund for the fiscal year ended October 31 1999.
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<PAGE>
MISCELLANEOUS
SHAREHOLDER VOTE
As used in this Statement of Additional Information, a "majority of
the outstanding shares" of a Fund or of a particular portfolio means, with
respect to the approval of an investment advisory agreement, a distribution plan
or a change in a fundamental investment policy, the lesser of (1) 67% of that
Fund's shares (irrespective of class or subclass) or of the portfolio
represented at a meeting at which the holders of more than 50% of the
outstanding shares of that Fund or portfolio are present in person or by proxy,
or (2) more than 50% of the outstanding shares of a Fund (irrespective of class
or subclass) or of the portfolio.
SECURITIES HOLDINGS OF BROKERS
As of the end of each Predecessor Company's most recent fiscal year as
noted above under "General Information", the value of each Fund's aggregate
holdings of the securities of each of its regular brokers or dealers or their
parents was:
CERTAIN RECORD HOLDERS
On November __ 1998, the name address and percentage of ownership of
each shareholders that owned beneficially 5% or more of the outstanding shares
of each Fund is as follows:
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<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's ("S&P") commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. The following summarizes the applicable rating categories used
by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that the
obligor's capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet its financial commitment on
these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually senior debt obligations not having an original maturity in
excess of one year, unless explicitly noted. The following summarizes the
applicable rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics: leading market
positions in well-established industries; high rates of return on funds
employed; conservative capitalization structure 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.
"Prime-2" - Issuers (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
The applicable rating categories of Duff & Phelps for commercial paper and
short-term debt are "D-1" and "D-2." Duff & Phelps employs three designations,
"D-1+," "D-1" and "D-1-," within the highest rating category. The following
summarizes the rating categories used by Duff & Phelps for commercial paper:
A-1
<PAGE>
"D-1+" - Debt possesses the highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors.
Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection factors. Risk factors
are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.
Thomson BankWatch short-term ratings assess the likelihood of an untimely
payment of principal and interest of debt instruments with original maturities
of one year or less. The following summarizes the applicable ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest category and
indicates a very high likelihood that principal and interest will be paid on a
timely basis.
"TBW-2" - This designation represents Thomson BankWatch's second-highest
category and indicates that while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1."
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the applicable ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
PLUS (+) OR MINUS (-) - The rating "AA" may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
The following summarizes the applicable ratings used by Moody's for corporate
and municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edged."
Interest payments are protected
A-2
<PAGE>
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
visualized are most unlikely to impair the fundamentally strong position of such
issues.
"Aa" - Bonds 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 best bonds because margins of protection may not
be as large as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the long-
term risk appear somewhat larger than the "Aaa" securities.
Note: Moody's applies numerical modifiers 1, 2, and 3 in the generic rating
classification "Aa". The modifier 1 indicates that the obligation ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end of its generic
rating category.
The following summarizes the long-term debt ratings used by Duff & Phelps for
corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
To provide more detailed indications of credit quality, the "AA," and "A,"
ratings may be modified by the addition of a plus (+) or minus (-) sign to show
relative standing within these major categories.
The following summarizes the applicable ratings used by Fitch IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest credit
quality. These ratings denote the lowest expectation of credit risk and are
assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
To provide more detailed indications of credit quality, the Fitch IBCA ratings
"AA" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standing within these major rating categories.
A-3
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation indicates that the ability to repay principal and
interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay principal and
interest on a timely basis, with limited incremental risk compared to issues
rated in the highest category.
PLUS (+) OR MINUS (-) - The ratings may include a plus or minus sign
designation which indicates where within the respective category the issue is
placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and market access
risks unique to notes due in three years or less. The following summarizes the
ratings used by Standard & Poor's Ratings Group for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong capacity to pay
principal and interest. Those issues determined to possess very strong
characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest, with some vulnerability to adverse financial and
economic changes over the term of the notes.
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade ("MIG") and variable rate demand obligations
are designated Variable Moody's Investment Grade ("VMIG"). Such ratings
recognize the differences between short-term credit risk and long-term risk.
The following summarizes the ratings by Moody's Investors Service, Inc. for
short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins of
protection that are ample although not so large as in the preceding group.
Fitch IBCA and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-4
<PAGE>
TRUST FOR FEDERAL SECURITIES
PART C
OTHER INFORMATION
Item 23. Exhibits:
(a) Amended and Restated Declaration of Trust dated as of
August 9, 1993, relating to its FedFund, T-Fund,
Federal Trust Fund and Treasury Trust Fund Portfolios
is incorporated herein by reference to Exhibit (1) of
Post-Effective Amendment No. 39 to Registrant's
Registration Statement on Form N-1A filed with the SEC
on January 28, 1994.
(b) Amended and Restated By-laws dated as of August 9,
1993, relating to its FedFund, T-Fund, T-Cash, Federal
Trust Fund and Treasury Trust Fund Portfolios is
incorporated herein by reference to Exhibit (2) of
Post-Effective Amendment No. 39 to Registrant's
Registration Statement on Form N-1A filed with the SEC
on January 28, 1994.
(c) (1) Specimen copy of share certificate for FedFund
shares of beneficial interest in the FedFund
portfolio is incorporated herein by reference to
Exhibit (4)(a) of Post-Effective Amendment No. 26
to Registrant's Registration Statement on Form N-
1A filed with the SEC on December 2, 1987.
(2) Specimen copy of share certificate for FedFund
Dollar shares of beneficial interest in the
FedFund portfolio is incorporated herein by
reference to Exhibit (4)(b) of Post-Effective
Amendment No. 26 to Registrant's Registration
Statement on Form N-1A filed with the SEC on
December 2, 1987.
(3) Specimen copy of share certificate for T-Fund
shares of beneficial interest in the T-Fund
portfolio is incorporated herein by reference to
Exhibit (4)(c) of Post-Effective Amendment No. 26
to Registrant's Registration Statement on Form N-
1A filed with the SEC on December 2, 1987.
(4) Specimen copy of share certificate for T-Fund
Dollar shares of beneficial interest in the T-Fund
portfolio is incorporated herein by reference to
Exhibit (4)(d) of Post-Effective Amendment No. 26
to Registrant's Registration Statement on Form N-
1A filed with the SEC on December 2, 1987.
C-1
<PAGE>
(5) Specimen copy of share certificate for Treasury
Trust shares of beneficial interest in the
Treasury Trust Fund portfolio is incorporated
herein by reference to Exhibit (4)(g) of Post-
Effective Amendment No. 31 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on May 26, 1989.
(6) Specimen copy of share certificate for Treasury
Trust Dollar shares of beneficial interest in the
Treasury Trust Fund portfolio is incorporated
herein by reference to Exhibit (4)(h) of Post-
Effective Amendment No. 31 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on May 26, 1989.
(7) Specimen copy of share certificate for Federal
Trust shares of beneficial interest in the Federal
Trust Fund portfolio is incorporated by reference
to Exhibit (4)(o) of Post-Effective Amendment No.
34 to Registrant's Registration Statement on Form
N-1A filed with the SEC on September 28, 1990.
(8) Specimen copy of share certificate for Federal
Trust Dollar shares of beneficial interest in the
Federal Trust Fund portfolio is incorporated by
reference to Exhibit (4)(p) of Post-Effective
Amendment No. 34 to Registrant's Registration
Statement on Form N-1A filed with the SEC on
September 28, 1990.
(9) See Article V of the Amended and Restated
Declaration of Trust Incorporated by reference to
Exhibit 1 of Post-Effective Amendment No. 39 to
Registrant's Registration Statement on Form N-1A
filed with the SEC on January 28, 1994 with regard
to T-Fund Plus Shares of beneficial interest in
the T-Fund portfolio.
(d) (1) Investment Advisory Agreement dated March 11, 1987
between Registrant and BlackRock Institutional
Management Corporation (formerly known as PNC
Institutional Management Corporation, "BIMC")
relating to its FedFund and T-Fund portfolios is
incorporated herein by reference to Exhibit (5)(a)
of Post-Effective Amendment No. 26 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on December 2, 1987.
C-2
<PAGE>
(2) Addendum No. 1 to Investment Advisory Agreement
dated June 30, 1988 between Registrant and BIMC
relating to its Treasury Trust Fund portfolio is
incorporated herein by reference to Exhibit (5)(b)
of Post-Effective Amendment No. 30 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on January 25, 1989.
(3) Addendum No. 2 to Investment Advisory Agreement
dated September 7, 1988 between Registrant and
BIMC relating to its Intermediate Government and
Long Government Fund portfolios is incorporated
herein by reference to Exhibit (5)(c) of Post-
Effective Amendment No. 30 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on January 25, 1989.
(4) Addendum No. 3 to Investment Advisory Agreement
dated as of November 1, 1990 between Registrant
and BIMC relating to its Federal Trust Fund
portfolio is incorporated herein by reference to
Exhibit (5)(d) of Post-Effective Amendment No. 35
to Registrant's Registration Statement on Form N-
1A filed with the SEC on February 28, 1991.
(5) Addendum No. 4 to Investment Advisory Agreement
dated May 9, 1991 between Registrant and BIMC
relating to its FedCash and T-Cash portfolios is
incorporated herein by reference to Exhibit (5)(e)
of Post-Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on November 21, 1991.
(6) Sub-Advisory Agreement dated March 11, 1987
between BIMC and PNC Bank, National Association
("PNC Bank") relating to Registrant's FedFund and
T-Fund portfolios is incorporated herein by
reference to Exhibit (5)(c) of Post-Effective
Amendment No. 26 to Registrant's Registration
Statement on Form N-1A filed with the SEC on
December 2, 1987.
(7) Addendum No. 1 to Sub-Advisory Agreement dated
June 30, 1988 between BIMC and PNC Bank relating
to Registrant's Treasury Trust Fund portfolio is
C-3
<PAGE>
incorporated herein by reference to Exhibit (5)(e)
of Post-Effective Amendment No. 30 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on January 25, 1989.
(8) Addendum No. 2 to Sub-Advisory Agreement dated
September 7, 1988 between BIMC and PNC Bank
relating to Registrant's Intermediate Government
and Long Government Fund portfolios is
incorporated herein by reference to Exhibit (5)(f)
of Post-Effective Amendment No. 30 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on January 25, 1989.
(9) Addendum No. 3 to Sub-Advisory Agreement dated as
of November 1, 1990 between BIMC and PNC Bank
relating to its Federal Trust Fund portfolio is
incorporated herein by reference to Exhibit (5)(h)
of Post-Effective Amendment No. 35 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on February 28, 1991.
(10) Addendum No. 4 to Sub-Advisory Agreement dated May
9, 1991 between BIMC and PNC Bank relating to
Registrant's FedCash and T-Cash portfolios is
incorporated herein by reference to Exhibit (5)(j)
of Post Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on November 21, 1991.
(e) (1) Distribution Agreement dated January 31, 1994
between Registrant and Provident Distributors,
Inc. relating to its FedFund, T-Fund, FedCash, T-
Cash, Federal Trust Fund and Treasury Trust Fund
portfolios is incorporated herein by reference to
Exhibit (6) of Post-Effective Amendment No. 39 to
Registrant's Registration Statement on Form N-1A
filed with the SEC on January 28, 1994.
(2) Addendum No. 1 to Distribution Agreement dated
March 22, 1996 between Registrant and Provident
Distributors, Inc. relating to Plus Shares in its
T-Fund Portfolio is incorporated herein by
reference to Exhibit (6)(b) of Post-Effective
Amendment No. 43 to Registrant's Registration
Statement on Form N-1A filed with the SEC on April
1, 1996.
C-4
<PAGE>
(f) None.
(g) (1) Custodian Fee Agreement dated May 9, 1991 between
Registrant and PNC Bank relating to its FedFund,
T-Fund, FedCash, T-Cash, Federal Trust Fund and
Treasury Trust Fund portfolios is incorporated
herein by reference to Exhibit (8)(b) of Post-
Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on November 21, 1991.
(2) Custodian Agreement dated June 1, 1989 between
Registrant and PNC Bank relating to its FedFund,
T-Fund and Treasury Trust Fund portfolios is
incorporated herein by reference to Exhibit (8) of
Post-Effective Amendment No. 32 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on November 21, 1991.
(3) Addendum No. 1 to Custodian Fee Agreement dated
November 1, 1990 between Registrant and PNC Bank
relating to its Federal Trust Fund portfolio is
incorporated herein by reference to Exhibit (8)(d)
of Post-Effective Amendment No. 35 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on November 21, 1991.
(4) Addendum No. 2 to Custodian Fee Agreement dated
May 9, 1991 between Registrant and PNC Bank
relating to its FedCash and T-Cash portfolios is
incorporated herein by reference to Exhibit (8)(e)
of Post-Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on November 21, 1991.
(5) Addendum No. 3 to Custodian Fee Agreement dated
March 22, 1996 between Registrant and PNC Bank
relating to Plus Shares in its T-Fund portfolios
is incorporated herein by reference to Exhibit
(8)(e) of Post-Effective Amendment No. 43 to
Registrant's Registration Statement on Form N-1A
filed with the SEC on April 1, 1996.
(h) (1) Administration Agreement dated January 18, 1993
between Registrant and PFPC Inc. and Provident
Distributors, Inc.
C-5
<PAGE>
as co-administrators, relating to its FedFund, T-
Fund, FedCash, T-Cash, Federal Trust Fund and
Treasury Trust Fund portfolios is incorporated
herein by reference to Exhibit (9)(a) of Post-
Effective Amendment No. 39 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on January 28, 1994.
(2) Addendum No. 1 to the Administration Agreement
dated March 22, 1996 between the Registrant, PFPC
Inc. and Provident Distributors, Inc. relating to
the Plus Shares in its T-Fund portfolios
incorporated by reference to Exhibit (9)(b) of
Post-Effective Amendment No. 43 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on April 1, 1996.
(3) Transfer Agency Fee Agreement dated May 9, 1991
between Registrant and PFPC Inc. relating to its
FedFund, T-Fund, FedCash, T-Cash, Federal Trust
Fund and Treasury Trust Fund portfolios is
incorporated herein by reference to Exhibit (9)(e)
of Post-Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on November 21, 1991.
(4) Transfer Agency Agreement dated June 1, 1989
between Registrant and PFPC Inc. relating to its
FedFund, T-Fund and Treasury Trust Fund portfolios
is incorporated herein by reference to Exhibit
(9)(e) of Post-Effective Amendment No. 33 to
Registrant's Registration Statement on Form N-1A
filed with the SEC on January 15, 1990.
(5) Addendum No. 1 to Transfer Agency Agreement dated
as of November 1, 1990 between the Registrant and
PFPC Inc. relating to its Federal Trust Fund
portfolio is incorporated herein by reference to
Exhibit (9)(i) of Post-Effective Amendment No. 35
to Registrant's Registration Statement on Form N-
1A filed with the SEC on February 28, 1991.
(6) Addendum No. 2 to Transfer Agency Agreement dated
May 9, 1991 between the Registrant and PFPC Inc.
relating to its FedCash and T-Cash portfolios is
incorporated herein by reference to Exhibit (9)(h)
of Post-Effective Amendment No. 37 to Registrant's
Registration Statement on Form N-1A filed with the
SEC on November 21, 1991.
C-6
<PAGE>
(7) Addendum No. 3 to Transfer Agency Agreement dated
March 22, 1996 between the Registrant and PFPC
Inc. relating to Plus Shares in its T-Fund
Portfolios is incorporated herein by reference to
Exhibit (9)(g) of Post-Effective Amendment No. 43
to Registrant's Registration Statement on Form N-
1A filed with the SEC on April 1, 1996.
(8) Restated Shareholder Services Plan including form
of Servicing Agreement reapproved by the Board of
Trustees on November 18, 1992 is incorporated
herein by reference to Exhibit 9(h) of Post-
Effective Amendment No. 44 to Registrant's
Registration Statement on Form N1-A filed with the
SEC on February 28, 1997.
(9) Revised Shareholder Servicing Agreement is
incorporated herein by reference to Exhibit 9(i)
of Post-Effective Amendment No. 45 to the
Registrant's Registration Statement on Form N-1A,
as filed with the SEC on February 27, 1998.
(i) Opinion and Consent of Drinker Biddle & Reath LLP is
incorporated herein by reference to Exhibit 10 of Post-
Effective Amendment No. 45 to Registrant's Registration
Statement on Form N-1A filed with the SEC on February
27, 1998.
(j) To be filed by amendment.
(k) None.
(l) None.
(m) Form of Distribution and Service Plan and accompanying
Agreement dated March 22, 1996 for Plus Shares in its
T-Fund Portfolio is incorporated herein by reference to
Exhibit (15) of Post-Effective Amendment No. 43 to
Registrant's Registration Statement on Form N-1A filed
with the SEC on April 1, 1996.
(n) To be filed by amendment.
(o) Plan pursuant to Rule 18f-3 dated March 22, 1996
relating to operation of a Multi-Class System by
Registrant is incorporated herein by reference to
Exhibit (18) of Post-Effective Amendment No. 43 to
Registrant's Registration Statement on Form N-1A filed
on April 1, 1996.
C-7
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees. Each of
Registrant's trustees serves on the board of directors/trustees of certain other
registered investment companies. See "Management of the Fund - Trustees and
Officers" in Part B hereof.
ITEM 25. INDEMNIFICATION
Indemnification of Registrant's Principal Underwriter, Custodian and
Transfer Agent against certain stated liabilities is provided for in Section 6
of the Distribution Agreement, included herein by reference as Exhibit (6), and
in Section 22 of the Custodian Agreement and in Section 17 of the Transfer
Agency Agreement, incorporated herein by reference as Exhibits (8)(b) and
(9)(e), respectively.
Registrant has obtained from a major insurance carrier a directors'
and officers' liability policy covering certain types of errors and omissions.
In addition, Section 2 of Article X of Registrant's Amended and
Restated Declaration of Trust dated August 9, 1994 incorporated herein by
reference as Exhibit (l), provides for the indemnification of Registrant's
trustees and officers.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
BIMC performs investment advisory services for Registrant and certain
other investment companies and accounts. The information required by this Item
26 with respect to each director, officer and partner of BIMC is incorporated by
reference to Schedules A and D of Form ADV filed by BIMC with the Securities and
Exchange Commission pursuant to the Investment Advisers Act of 1940 (SEC File
No. 801-13304).
C-8
<PAGE>
Prior to March 1998, PNC Bank acted as sub-adviser to the Registrant.
Subsequently, the sub-advisory function was assumed by BIMC. Effective January
__, 1999, PNC Bank will not be a sub-adviser for the Registrant.
ITEM 27. PRINCIPAL UNDERWRITER
(a) Provident Distributors, Inc. currently acts as distributor for, in
addition to the Company, Temporary Investment Fund, Inc., Municipal Fund for
Temporary Investment, Municipal Fund for California Investors, Inc., Municipal
Fund for New York Investors, Inc and the RBB Fund.
(b) The information required by this Item 27(b) with respect to each
director, officer or partner of Provident Distributors, Inc. is incorporated by
reference to Schedule A of FORM BD filed by Provident Distributors, Inc. with
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934 (SEC File No. 8-46564).
(c) The following represents all commissions and other compensation
received by each principal underwriter who is not an affiliated person of the
registrant:
<TABLE>
<CAPTION>
NAME OF NET UNDERWRITING COMPENSATION ON
PRINCIPAL DISCOUNTS AND REDEMPTION AND BROKERAGE OTHER
UNDERWRITER COMMISSIONS REPURCHASE COMMISSIONS COMPENSATION
- -------------------- ---------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Provident
Distributors, Inc. -0- -0- -0- -0-
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
(1) PNC Bank, National Association, 200 Stevens Drive, Suite 440,
Lester, Pennsylvania 19113 (records relating to its function as
custodian).
(2) BlackRock Institutional Management Corporation, Bellevue Park
Corporate Center, 400 Bellevue Parkway, 4th Floor, Wilmington,
Delaware 19809 (records relating to its functions as investment
adviser and co-administrator).
(3) Provident Distributors, Inc., Four Falls Corporate Center, 6th
Floor, West Conshohocken, Pennsylvania 19428 (relating to its
function as distributor).
(4) PFPC Inc., Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809 (records relating to its functions as
co-administrator, transfer agent, registrar and dividend
disbursing agent).
C-9
<PAGE>
(5) Drinker Biddle & Reath LLP, Philadelphia National Bank Building,
1345 Chestnut Street, Philadelphia, Pennsylvania 19107-3496
(Registrant's Declaration of Trust, Bylaws and Minutes Books).
ITEM 29. MANAGEMENT SERVICES
None.
ITEM 30. UNDERTAKINGS
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to
shareholders upon request and without charge.
C-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment No. 46 to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Wilmington,
and State of Delaware, on December 1, 1998.
Trust for Federal Securities
/s/ Thomas H. Nevin
------------------------------------------
Thomas H. Nevin
President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 46 to Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- ---------- ------ ----
* G. Nicholas Beckwith, III Trustee December 1, 1998
- -----------------------------
G. Nicholas Beckwith, III
* Philip E. Coldwell Trustee December 1, 1998
- -----------------------------
Philip E. Coldwell
* Robert R. Fortune Trustee December 1, 1998
- -----------------------------
Robert R. Fortune
* Jerrold B. Harris Trustee December 1, 1998
- -----------------------------
Jerrold B. Harris
* Rodney D. Johnson Trustee December 1, 1998
- -----------------------------
Rodney D. Johnson
* G. Willing Pepper Chairman of December 1, 1998
- ----------------------------- the Board
G. Willing Pepper
/s/ Thomas H. Nevin
- --------------------------- President December 1, 1998
Thomas H. Nevin
/s/ Lisa M. Buono Treasurer December 1, 1998
- --------------------------- (Principal Financial
Lisa M. Buono and Accounting Officer)
*By:/s/ W. Bruce McConnel
-----------------------
W. Bruce McConnel, III
Attorney-in-Fact
<PAGE>
TRUST FOR FEDERAL SECURITIES
POWER OF ATTORNEY
I hereby appoint W. Bruce McConnel, III or Vernon Stanton, Jr.
attorney for me, with full power of substitution, and in my name and on my
behalf as a director to sign any Registration Statement or Amendment thereto of
TRUST FOR FEDERAL SECURITIES (Registration No. 2-53808) to be filed with the
Securities and Exchange Commission under the Securities Act of 1933, and
generally to do and perform all things necessary to be done in that connection.
I have signed this Power of Attorney on February 9, 1998.
/s/ G. Nicholas Beckwith, III
------------------------------------
G. Nicholas Beckwith, III
<PAGE>
TRUST FOR FEDERAL SECURITIES
POWER OF ATTORNEY
I hereby appoint W. Bruce McConnel, III or Vernon Stanton, Jr.
attorney for me, with full power of substitution, and in my name and on my
behalf as a director to sign any Registration Statement or Amendment thereto of
TRUST FOR FEDERAL SECURITIES (Registration No. 2-53808) to be filed with the
Securities and Exchange Commission under the Securities Act of 1933, and
generally to do and perform all things necessary to be done in that connection.
I have signed this Power of Attorney on February 7, 1998.
/s/ Philip E. Coldwell
---------------------------------
Philip E. Coldwell
/*/ With the understanding that all amendments will be sent to me in advance.
<PAGE>
TRUST FOR FEDERAL SECURITIES
POWER OF ATTORNEY
I hereby appoint W. Bruce McConnel, III or Vernon Stanton, Jr.
attorney for me, with full power of substitution, and in my name and on my
behalf as a director to sign any Registration Statement or Amendment thereto of
TRUST FOR FEDERAL SECURITIES (Registration No. 2-53808) to be filed with the
Securities and Exchange Commission under the Securities Act of 1933, and
generally to do and perform all things necessary to be done in that connection.
I have signed this Power of Attorney on February 5, 1998.
/s/ Jerrold B. Harris
----------------------------------------
Jerrold B. Harris
<PAGE>
TRUST FOR FEDERAL SECURITIES
POWER OF ATTORNEY
I hereby appoint W. Bruce McConnel, III or Vernon Stanton, Jr.
attorney for me, with full power of substitution, and in my name and on my
behalf as a director to sign any Registration Statement or Amendment thereto of
TRUST FOR FEDERAL SECURITIES (Registration No. 2-53808) to be filed with the
Securities and Exchange Commission under the Securities Act of 1933, and
generally to do and perform all things necessary to be done in that connection.
I have signed this Power of Attorney on February 10, 1998.
/s/ Rodney D. Johnson
---------------------
Rodney D. Johnson
<PAGE>
TRUST FOR FEDERAL SECURITIES
POWER OF ATTORNEY
I hereby appoint W. Bruce McConnel, III or Vernon Stanton, Jr.
attorney for me, with full power of substitution, and in my name and on my
behalf as a director to sign any Registration Statement or Amendment thereto of
TRUST FOR FEDERAL SECURITIES (Registration No. 2-53808) to be filed with the
Securities and Exchange Commission under the Securities Act of 1933, and
generally to do and perform all things necessary to be done in that connection.
I have signed this Power of Attorney on February 10, 1998.
/s/ Robert R. Fortune
---------------------------------------
Robert R. Fortune
<PAGE>
TRUST FOR FEDERAL SECURITIES
POWER OF ATTORNEY
I hereby appoint W. Bruce McConnel, III or Vernon Stanton, Jr.
attorney for me, with full power of substitution, and in my name and on my
behalf as a director to sign any Registration Statement or Amendment thereto of
TRUST FOR FEDERAL SECURITIES (Registration No. 2-53808) to be filed with the
Securities and Exchange Commission under the Securities Act of 1933, and
generally to do and perform all things necessary to be done in that connection.
I have signed this Power of Attorney on February 8, 1998.
/s/ G. Willing Pepper
---------------------------------------
G. Willing Pepper
