<PAGE> 1
As filed with the Securities and Exchange Commission on May 31, 1996
Registration Nos. 2-79510 and 811-3574
- ----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
POST-EFFECTIVE AMENDMENT NO. 17 /x/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
AMENDMENT NO. 18 /x/
--------------------------------------
MUNICIPAL FUND FOR CALIFORNIA INVESTORS, INC.
(California Money Fund and California Intermediate Municipal Fund Portfolios)
(Exact Name of Registrant As Specified In Charter)
Bellevue Park Corporate Center
400 Bellevue Parkway, Suite 100
Wilmington, Delaware 19809
(Address of Principal Executive Offices)
Registrant's Telephone Number: (302) 792-2555
EDWARD J. ROACH
Bellevue Park Corporate Center
400 Bellevue Parkway, Suite 100
Wilmington, Delaware 19809
(Name and Address of Agent for Service)
Copies to:
MORGAN R. JONES
Drinker Biddle & Reath
1345 Chestnut Street, Suite 1100
Philadelphia, Pennsylvania 19107
It is proposed that this filing will become effective (check
appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 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.
<PAGE> 2
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
-------------------------
<PAGE> 3
CALCULATION OF REGISTRATION FEE UNDER
THE SECURITIES ACT OF 1933(1)
<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Title of Securities Maximum Aggregate
Being Registered Amount Being Offering Price Offering Amount of
Fee Registered(2) Per Unit(2) Price(3) Registration Fee
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares of beneficial
interest in Class A
Common Stock,
$.001 Par Value 708,933,322 $ 1.00
- -------------------------------------------------------------------------------------------------
Class B Common Stock,
$.001 Par Value 459,799 $10.34
- -------------------------------------------------------------------------------------------------
Total Class A and
Class B Common Stock 709,392,121 $290,000 $100
</TABLE>
(1) Registrant has registered an indefinite number of shares of its Class
A and Class B Common Stock under the Securities Act of 1933 pursuant to
Rule 24f-2 under the Investment Company Act of 1940 (the "1940 Act").
Registrant's Rule 24f-2 Notice for the fiscal year ended January 31,
1996 for Registration No. 2-79510 was filed on March 22, 1996.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 24e-2 under the 1940 Act and Rule 457(c) under the
Securities Act of 1933, based on an offering price of $10.34 with
respect to its Class B Common Stock on May 24, 1996.
(3) The maximum aggregate offering price for Registrant's Class A and Class
B Common Stock is calculated pursuant to Rule 24e-2 under the 1940 Act.
During the fiscal year ended January 31, 1996, Registrant redeemed a
total of 1,694,851,631 shares of its Class A Common Stock and 591,434
shares of its Class B Common Stock. Of these redeemed shares,
986,206,372 Class A shares and 131,052 Class B shares were used for
reductions pursuant to paragraph (c) of Rule 24f-2 in Registrant's Rule
24f-2 Notice dated March 22, 1996 for the year ended January 31, 1996,
and none of the redeemed shares were used for reductions pursuant to
Rule 24e-2 in previous post-effective amendments. As a result,
708,645,259 redeemed shares of Class A Common Stock and 459,612 shares
of Class B Common Stock are being used to reduce, pursuant to paragraph
(a) of Rule 24e-2, the number of shares for which the registration fee
is payable with respect to this Post-Effective Amendment.
<PAGE> 4
CALIFORNIA MONEY FUND
An Investment Portfolio Offered by
Municipal Fund for California Investors, Inc.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form N-1A Item Prospectus Caption
-------------- ------------------
<S> <C> <C>
1. Cover Page......................................................... Cover Page
2. Synopsis........................................................... Background and
Expense Information
3. Condensed Financial Information.................................... Financial Highlights
4. General Description of
Registrant....................................................... Financial
Highlights;
Investment Objective
and Policies
5. Management of the Fund............................................. Management of the
Fund
6. Capital Stock and Other
Securities....................................................... Cover Page;
Financial
Highlights;
Dividends; Taxes;
Description of
Shares and
Miscellaneous; Yield
7. Purchase of Securities Being
Offered.......................................................... Management of the
Fund; Purchase of
Shares; Redemption
of Shares
8. Redemption or Repurchase........................................... Redemption of Shares
9. Legal Proceedings.................................................. Inapplicable
</TABLE>
<PAGE> 5
CALIFORNIA MONEY FUND
An Investment Portfolio Offered by
Municipal Fund for California Investors, Inc.
<TABLE>
<S> <C>
Bellevue Park Corporate Center For purchase and redemption orders call:
400 Bellevue Parkway 800-441-7450 (in Delaware: 302-791-5350).
Suite 100 For current yield information call:
Wilmington, Delaware 19809 800-821-6006.
(Code: California Money-52; California Money
Dollar-57; California Money Plus-58).
For other information call: 800-821-7432.
</TABLE>
Municipal Fund for California Investors, Inc. (the "Company") is a no-load,
open-end investment company currently offering shares in two separate investment
portfolios: California Money Fund and California Intermediate Municipal Fund.
The shares offered by this Prospectus represent interests in the California
Money Fund portfolio (the "Fund"). The Fund is a non-diversified investment
company that is designed primarily to provide California institutional investors
and their customers with as high a level of current interest income that is
exempt from Federal income tax and, to the extent possible, from California
state personal income tax as is consistent with the preservation of capital and
relative stability of principal. Portfolio securities held by the Fund will
generally have remaining maturities of 13 months or less and will be determined
by the investment adviser to have minimal credit risk. The Fund has a
distribution and service plan applicable to one series of its shares and a
service plan applicable to another series of its shares under which certain
service organizations are entitled to receive a fee at the rate of .25% per
annum for their provision of distribution and/or support services to the
beneficial owners of such shares.
PFPC Inc. ("PFPC") and Provident Distributors, Inc. ("PDI") serve as the
Fund's administrators. PNC Institutional Management Corporation ("PIMC") and PNC
Bank, National Association ("PNC Bank") serve as the Fund's adviser and
sub-adviser, respectively. PDI also serves as the Fund's distributor. Shares may
not be purchased by individuals directly but, as indicated above, institutional
investors, such as banks and broker-dealers, may purchase shares for accounts
maintained by individuals.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES OF THE
FUND ARE NOT FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE
SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF
THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL
AMOUNT INVESTED. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information currently dated May 31,
1996, has been filed with the Securities and Exchange Commission, and is
available to investors without charge by calling the Fund at 800-821-7432. The
Statement of Additional Information, as amended from time to time, is
incorporated by reference in its entirety into this Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
May 31, 1996
<PAGE> 6
BACKGROUND AND EXPENSE INFORMATION
The Company was organized as a Maryland corporation on September 20, 1982
and currently offers shares in two separate investment portfolios: the Fund and
California Intermediate Municipal Fund ("California Intermediate"). The Fund
currently offers three separate series of shares--California Money ("Money"),
California Money Dollar ("Dollar") and California Money Plus ("Plus"). The
public offering of Money shares commenced on February 28, 1983 and the public
offering of Dollar and Plus shares commenced on September 30, 1985. Shares of
each series represent equal pro rata interests in a single portfolio of high
quality, short-term, tax-exempt obligations maintained by the Fund (see
"Investment Objective and Policies"), except that Dollar and Plus shares bear
service fees payable by the Fund (at the rate of .25% per annum) to
institutional investors ("Service Organizations") for distribution and/or
support services they provide to the beneficial owners of such shares. (See
"Management of the Fund--Service Organizations.") Because of the service fees
borne by the Dollar and Plus shares, the net yield on such shares can be
expected, at any given time, to be approximately .25% lower than the net yield
on Money shares.
EXPENSE SUMMARY
<TABLE>
<CAPTION>
MONEY DOLLAR PLUS
SHARES SHARES SHARES
---------- ---------- ----------
(ESTIMATED)
<S> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (net of waivers)................................. .06% .06% .06%
12b-1 Fees....................................................... -- -- .25%
Other Expenses................................................... .14% .39% .14%
Administration Fees (net of waivers)........................... .06% .06% .06%
Non-12b-1 Fees................................................. -- .25% --
Other.......................................................... .08% .08% .08%
===== ===== =====
Total Fund Operating Expenses (net of waivers)................... .20% .45% .45%
</TABLE>
- ---------------
EXAMPLE
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) an hypothetical 5% annual
return and (2) redemption at the end of each time period
with respect to the following shares:
Money Shares.......................................... $ 2 $ 6 $ 11 $ 26
Dollar Shares......................................... $ 5 $ 14 $ 25 $ 57
Plus Shares (estimated)............................... $ 5 $ 14 $ 25 $ 57
</TABLE>
The foregoing Expense Summary and Example are intended to assist investors
in understanding the various costs and expenses that an investor in the Fund
will bear directly or indirectly. In addition, institutional investors may
charge their customers fees for providing services in connection with
investments in the Fund's Dollar and Plus shares. (For more complete
descriptions of the various costs and expenses, see "Management of the Fund" in
the Prospectus and Statement of Additional Information and the Financial
Statements and related notes incorporated by reference into the Statement of
Additional Information.) The investment adviser and administrators have agreed
to waive the advisory and administration fees otherwise payable to them and to
reimburse the Fund for its operating expenses to the extent necessary to ensure
that the annual operating expense ratio of the Fund (excluding fees paid to
Service Organizations pursuant to Servicing Agreements) does not exceed .20% of
the Fund's average daily net assets for the year ended January 31, 1997. Absent
fee waivers for the year ended January 31, 1996, "Total Fund Operating Expenses"
for the Fund's Money, Dollar and Plus shares would have been .48%, .73%, and
.73% (estimated), respectively, of the Fund's average daily net assets. During
the year ended January 31, 1996, no Plus shares had been sold. The foregoing
table has not been audited by the Fund's independent accountants.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE> 7
FINANCIAL HIGHLIGHTS
The tables of "Financial Highlights" below are derived from the Fund's
financial statements contained in the Statement of Additional Information, and
set forth certain information concerning the historic investment results for
Money, Dollar and Plus shares. The financial highlights for the fiscal years
ended January 31, 1996, 1995, 1994, 1993 and 1992 have been audited by Coopers &
Lybrand L.L.P., the Fund's independent accountants whose report thereon is
incorporated by reference in the Statement of Additional Information along with
the financial statements. This information should be read in conjunction with
the financial statements and notes incorporated by reference into the Statement
of Additional Information. The Fund's financial statements and more information
about the performance of the Fund is also contained in the Annual Report to
Shareholders, which may be obtained without charge by calling 800-821-7432.
FINANCIAL HIGHLIGHTS
(For a Fund share outstanding throughout each period)
<TABLE>
<CAPTION>
MONEY SHARES
----------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED YEAR ENDED
01/31/96 01/31/95 01/31/94 01/31/93 01/31/92 01/31/91
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year.............. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- -------- -------- ----------
Income from Investment Operations:
Net Investment Income........................ 0.0356 0.0281 0.0223 0.0251 0.0375 0.0509
-------- -------- -------- -------- -------- ----------
Less Distributions:
Dividends to Shareholders From Net
Investment Income............................ (0.0356) (0.0281) (0.0223) (0.0251) (0.0375) (0.0509)
-------- -------- -------- -------- -------- ----------
Net Asset Value, End of Year.................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
========== ========== ========== ========== ========== ===========
Total Return.................................... 3.62% 2.84% 2.25% 2.54% 3.82% 5.21%
Ratios/Supplemental Data:
Net Assets, End of Year $(000)................. 389,883 385,824 356,501 359,193 490,141 629,001
Ratio of Expenses to Average Net Assets(1)..... .20% .20% .20% .30% .30% .29%
Ratio of Net Investment Income to Average
Net Assets................................... 3.55% 2.79% 2.23% 2.52% 3.75% 5.10%
<CAPTION> MONEY SHARES
----------------------------------------------
YEAR YEAR YEAR
YEAR ENDED ENDED ENDED ENDED
01/31/90 01/31/89 01/31/88 01/31/87
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year.............. $1.00 $1.00 $1.00 $1.00
---------- -------- -------- --------
Income from Investment Operations:
Net Investment Income........................ 0.0578 0.0500 0.0440 0.0415
---------- -------- -------- --------
Less Distributions:
Dividends to Shareholders From Net
Investment Income............................ (0.0578) (0.0500) (0.0440) (0.0415)
---------- -------- -------- --------
Net Asset Value, End of Year.................... $1.00 $1.00 $1.00 $1.00
=========== ========== ========== ==========
Total Return.................................... 5.93% 5.12% 4.51% 4.23%
Ratios/Supplemental Data:
Net Assets, End of Year $(000)................. 1,046,590 1,105,956 828,103 492,447
Ratio of Expenses to Average Net Assets(1)..... .30% .30% .30% .34%
Ratio of Net Investment Income to Average
Net Assets................................... 5.78% 5.01% 4.47% 4.12%
</TABLE>
- ---------------
(1) Annualized operating expense ratios before waivers of Investment Adviser and
Administrator fees for Money shares for the years ended January 31, 1996,
1995, 1994, 1993, 1992, 1991, 1990, 1989, 1988 and 1987 were .48%, .48%,
.49%, .48%, .48%, .46%, .47%, .47%, .48% and .50%, respectively.
3
<PAGE> 8
FINANCIAL HIGHLIGHTS
(For a Fund share outstanding throughout each period)
<TABLE>
<CAPTION>
DOLLAR SHARES
----------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR 01/09/91(1)
ENDED ENDED ENDED ENDED ENDED TO
01/31/96 01/31/95 01/31/94 01/31/93 01/31/92 01/31/91
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period..................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- -------- -------- --------
Income From Investment Operations:
Net Investment Income................................ 0.0331 0.0256 0.0198 0.0226 0.0350 0.0024
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends to Shareholders from Net Investment Income... (0.0331) (0.0256) (0.0198) (0.0226) (0.0350) (0.0024)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period........................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== ======== ========
Total Return............................................. 3.37% 2.59% 2.00% 2.29% 3.57% 3.87%(2)
Ratios/Supplemental Data:
Net Assets, End of Period $(000)....................... 31,163 11,026 19,098 11,750 6,599 1,126
Ratio of Expenses to Average Net Assets(3)............. 0.45% 0.45% .45% .55% .55% .54%(2)
Ratio of Net Investment Income to Average Net Assets... 3.30% 2.54% 1.98% 2.27% 3.50% 3.85%(2)
</TABLE>
- ---------------
(1) Commencement of operations.
(2) Annualized.
(3) Annualized operating expense ratios before waivers of Investment Adviser and
Administrator fees for Dollar shares for the years ended January 31, 1996,
1995, 1994, 1993 and 1992 were .73%, .73%, .74%, .73% and .73%,
respectively, and for the period ended January 31, 1991 was .71%.
<TABLE>
<CAPTION>
PLUS SHARES
--------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
01/31/96 01/31/95 01/31/94(1) 01/31/93(1) 01/31/92 01/31/91 01/31/90 01/31/89 01/31/88 01/31/87
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year.... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
Investment
Operations:
Net Investment
Income........... -- -- -- 0.0191 0.0350 0.0484 0.0553 0.0475 0.0415 0.0390
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends to
Shareholders from
Net Investment
Income............. -- -- ( -- ) (0.0191) (0.0350) (0.0484) (0.0553) (0.0475) (0.0415) (0.0390)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value,
End of Year.......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total Return........... -- -- -- 1.93% 3.57% 4.96% 5.68% 4.87% 4.26% 3.98%
Ratios/Supplemental
Data:
Net Assets, End of
Year $(000)........ -- -- -- -- 27,656 19,872 26,769 15,961 8,181 0.1
Ratio of Expenses to
Average Net
Assets(2).......... -- -- -- .55% .55% .54% .55% .55% .55% .59%
Ratio of Net
Investment Income
to Average Net
Assets............. -- -- -- 2.27% 3.50% 4.85% 5.53% 4.76% 4.22% 3.87%
</TABLE>
- ---------------
(1) Only 100 Plus shares were outstanding during the period from December 1,
1992 to July 12, 1995. As of July 13, 1995, no Plus shares were outstanding.
(2) Annualized operating expense ratios before waiver of Investment Adviser and
Administrator fees for Plus shares for the years ended January 31, 1993,
1992, 1991, 1990, 1989, 1988 and 1987 were .64%, .73%, .71%, .72%, .72%,
.73% and .75%, respectively.
4
<PAGE> 9
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund is a no-load, open-end, non-diversified investment company which
has an investment objective to provide investors with as high a level of current
interest income that is exempt from Federal income tax and, to the extent
possible, from California state personal income tax as is consistent with the
preservation of capital and relative stability of principal. There can be, of
course, no assurance that the Fund will achieve its investment objective. The
Fund has a distribution plan applicable to one series of its shares and a
service plan applicable to another series of its shares. See "Service
Organizations."
Substantially all of the Fund's assets are invested in debt obligations
issued by or on behalf of the State of California and other states, territories
and possessions of the United States, the District of Columbia and their
respective authorities, agencies, instrumentalities and political sub-divisions
and tax-exempt derivatives such as tender option bonds, participations,
beneficial interests in trusts and partnership interests ("Municipal
Obligations"). Dividends paid by the Fund that are derived from interest on
bonds that is exempt from taxation under the Constitution or statutes of
California ("California Municipal Obligations") are exempt from regular Federal
income tax and California state personal income tax. California Municipal
Obligations include municipal securities issued by the State of California and
its political sub-divisions, as well as certain other governmental issuers such
as the Commonwealth of Puerto Rico. Dividends derived from interest on municipal
obligations other than California Municipal Obligations are exempt from regular
Federal income tax but may be subject to California state personal income tax.
(See, however, "Taxes" below concerning treatment of exempt-interest dividends
paid by the Fund for purposes of the Federal alternative minimum tax applicable
to particular classes of investors.) The Fund expects that, except during
temporary defensive periods or when acceptable securities are unavailable for
investment by the Fund, the Fund's assets will be invested primarily in
California Municipal Obligations. At least 50% of the Fund's assets must be
invested in obligations which, when held by an individual, the interest
therefrom is exempt from California personal income taxation (i.e., California
Municipal Obligations and certain U.S. Government obligations) at the close of
each quarter of its taxable year so as to permit the Fund to pay dividends that
are exempt from California state personal income tax. Dividends, regardless of
their source, may be subject to local taxes.
The Fund will not knowingly purchase securities the interest on which is
subject to regular Federal income tax; however, the Fund may hold uninvested
cash reserves pending investment during temporary defensive periods or, if in
the opinion of the Fund's investment adviser, suitable tax-exempt obligations
are unavailable. Uninvested cash reserves will not earn income.
The Fund invests in Municipal Obligations that are determined by the Fund's
investment adviser to present minimal credit risks pursuant to guidelines
approved by the Company's Board of Directors pursuant to Rule 2a-7 under the
Investment Company Act of 1940, as amended (the "1940 Act"). Pursuant to these
guidelines, the Fund is authorized to purchase instruments that (i) are rated at
the time of purchase in one of the top two rating categories by two unaffiliated
nationally recognized statistical rating organizations ("NRSROs"), (ii)
instruments rated in one of the top two rating categories by one such NRSRO (if
only one such organization rates the instrument), (iii) instruments issued by
issuers with short-term debt having such ratings, and (iv) unrated instruments
determined by the investment adviser, pursuant to procedures approved by the
Board of Directors, to be of comparable quality. The Appendix to the Statement
of Additional Information includes a description of applicable NRSRO ratings.
5
<PAGE> 10
The Fund intends to use its best efforts to maintain its net asset value at
$1.00 per share, and computes its net asset value using the amortized cost
method. In connection with its use of this valuation method, the Fund limits the
dollar-weighted average maturity of its portfolio to not more than 90 days and
the remaining maturity of each portfolio security to not more than 13 months
(with certain exceptions).
The Fund's investment objective and the policies described herein may be
changed by its Board of Directors without the affirmative vote of the holders of
a majority of the Fund's outstanding shares, except that the Fund may not change
the following investment limitations without such a vote of shareholders.
THE FUND MAY NOT:
1. Invest less than 80% of its assets in securities the interest on
which is exempt from Federal income taxes, except during defensive periods.
2. 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 (a) up to 50% of the value of the Fund's assets
may be invested without regard to this 5% limitation; provided that no more
than 25% of the value of the Fund's assets are invested in the securities
of any one issuer and (b) this 5% limitation does not apply to securities
issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities. For purposes of this limitation, a security is
considered to be issued by the governmental entity (or entities) whose
assets and revenues back the security, or, with respect to a private
activity bond that is backed only by the assets and revenues of a non-
governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an
issuer in connection with such guarantee.
3. Borrow money except from banks for temporary purposes and then in
amounts not in excess of 10% of the value of the Fund's assets at the time
of such borrowing; or mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's
assets at the time of such borrowing. (This borrowing provision is not
intended for investment leverage, but solely to facilitate management of
the Fund's portfolio by enabling the Fund to meet redemption requests when
the liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient, and hence the Fund may not purchase any portfolio securities
while its borrowings are outstanding.)
4. Invest more than 10% of the value of the Fund's total assets in
illiquid securities (including illiquid variable rate demand notes) which
may be illiquid due to legal or contractual restrictions on resale or the
absence of readily available market quotations.
5. Purchase any securities which would cause more than 25% of the
value of the Fund's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in
the same industry; provided that this limitation shall not apply to
Municipal Obligations or governmental guarantees of Municipal Obligations;
and provided, further, that for the purpose of this limitation only,
industrial development bonds that are considered to be issued by
non-governmental users (see the second investment limitation above) shall
not be deemed to be Municipal Obligations.
6
<PAGE> 11
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax (and, with respect to
California Municipal Obligations, to the exemption of interest thereon from
California state personal income tax) are rendered by bond counsel to the
respective issuers at the time of issuance, and opinions relating to the
validity of and the tax-exempt status of payments received by the Fund from
tax-exempt derivatives are rendered by counsel to the respective sponsors of
such derivatives. Neither the Fund nor its investment adviser will review the
proceedings relating to the issuance of Municipal Obligations, the creation of
any tax-exempt derivatives, or the bases for such opinions.
TYPES OF MUNICIPAL OBLIGATIONS
The two principal classifications of Municipal Obligations which may be
held by the Fund 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 may include private activity bonds.
Such bonds may be issued by or on behalf of public authorities to finance
various privately operated facilities, and are not payable from the unrestricted
revenues of the issuer. As a result, the credit quality of private activity
bonds is frequently related directly to the credit standing of private
corporations or other entities.
The Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities 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.
OTHER INVESTMENT PRACTICES
Municipal Obligations purchased by the Fund may include variable and
floating rate instruments, which provide for adjustments in the interest rate on
certain reset dates or whenever a specified interest rate index changes,
respectively. Variable and floating rate instruments are subject to the credit
quality standards described above. In some cases the Fund 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 397 days 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, the Fund may be
entitled to principal on demand and may be able to resell such instruments in
the dealer market.
The Fund may also purchase Municipal Obligations on a "when-issued" basis.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield. 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 basis are recorded as an asset and are
subject to changes in value based upon changes in the general level of interest
rates. The Fund expects that commitments to purchase when-issued securities will
not exceed 25% of the value of its total assets absent unusual market
conditions, and that a commitment by the Fund to purchase when-issued securities
will not exceed 45 days. The Fund does not intend to purchase when-issued
securities for speculative purposes but only in furtherance of its investment
objective.
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In addition, the Fund may acquire "stand-by commitments" with respect to
Municipal Obligations held in its portfolio. Under a stand-by commitment, a
dealer agrees to purchase at the Fund's option specified Municipal Obligations
at a price equal to their amortized cost value plus accrued interest. The Fund
will acquire stand-by commitments solely to facilitate portfolio liquidity and
does not intend to exercise its rights thereunder for trading purposes.
RISK FACTORS
The Fund intends to follow the diversification standards set forth in the
1940 Act except to the extent, in the investment adviser's judgment, that
non-diversification is appropriate in order to maximize the percentage of the
Fund's assets that are California Municipal Obligations. The investment return
on a non-diversified portfolio typically is dependent upon the performance of a
smaller number of issuers relative to the number of issuers held in a
diversified portfolio. In the event of changes in the financial condition or in
the market's assessment of certain issuers, the Fund's maintenance of large
positions in the obligations of a small number of issuers may affect the value
of the Fund's portfolio to a greater extent than that of a diversified
portfolio.
Although the Fund does not presently intend to do so on a regular basis, it
may invest more than 25% of its assets in Municipal Obligations the interest on
which is paid solely from revenues on similar projects if such investment is
deemed necessary or appropriate by the Fund's investment adviser. To the extent
that the Fund's assets are concentrated in Municipal Obligations payable from
revenues on similar projects, the Fund will be subject to the particular risks
presented by such projects to a greater extent than it would be if the Fund's
assets were not so concentrated.
The Fund's ability to achieve its investment objective is dependent upon
various factors, including the ability of the issuers of California Municipal
Obligations to timely meet their continuing payment obligations with respect to
the municipal obligations. Any reductions in the credit worthiness of issuers of
California Municipal Obligations could adversely affect the market values and
marketability of California Municipal Obligations, and, consequently, the net
asset value of the Fund's portfolio.
On July 15, 1994 and July 15, 1994, respectively, Standard and Poor's
Ratings Group and Moody's Investors Service, Inc., citing the State of
California's deteriorating financial position, lowered their ratings of the
State's general obligation bonds from A+ and Aa, respectively, to A and A1,
respectively.
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could result
in certain adverse consequences affecting California Municipal Obligations.
Significant financial and other considerations relating to the Fund's
investments in California Municipal Obligations are summarized in the Statement
of Additional Information.
PURCHASE OF SHARES
The Fund's shares are sold to institutional investors at the net asset
value per share next determined after receipt of a purchase order by PFPC, the
Fund's transfer agent.
Purchase orders for shares will be accepted by the Fund only on a day on
which both the New York Stock Exchange and the Federal Reserve Bank of
Philadelphia are open for business (a "Business Day"), and must be transmitted
to PFPC by telephone at 800-441-7450 (in Delaware call 302-791-5350) or through
the Fund's computer access program. Orders received by PFPC by Noon, Eastern
time (9:00 A.M., Pacific time) will be executed the same day if PNC Bank, the
Fund's custodian, has received payment by 4:00 P.M., Eastern time (1:00 P.M.,
Pacific time) that day. Orders received at
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other times, and orders for which payment has not been received by 4:00 P.M.,
Eastern time (1:00 P.M., Pacific 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 by PNC Bank to
the sending institution.
Payment for shares may be made only in Federal funds or other funds
immediately available to PNC Bank. The minimum initial investment is $5,000;
however, broker-dealers and other institutional investors may set a higher
minimum for their customers. There is no minimum subsequent investment. The Fund
may in its discretion reject any purchase order for shares.
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 Dollar or Plus shares. Institutions, including banks regulated by the
Comptroller of the Currency and investment advisers and other money managers
subject to the jurisdiction of the Securities and Exchange Commission, the
Department of Labor or state securities commissions, should consult legal
counsel before investing in Dollar or Plus shares. (See also "Management of the
Fund--Banking Laws.")
REDEMPTION OF SHARES
REDEMPTION PROCEDURES
Redemption orders must be transmitted to PFPC by telephone in the manner
described under "Purchase of Shares." Shares are redeemed at the net asset value
per share next determined after receipt of the redemption order by PFPC. While
the Fund intends to use its best efforts to maintain the net asset value per
share of each of its series at $1.00, the proceeds paid upon redemption may be
more or less than the amount invested depending upon a share's net asset value
at the time of redemption.
Payment for redeemed shares for which a redemption order is received by
PFPC prior to Noon, Eastern time (9:00 A.M., Pacific time) on a Business Day is
normally made in Federal funds wired to the redeeming shareholder on the same
business day. Payment for redeemed shares for which a redemption order is
received by PFPC after Noon, Eastern time (9:00 A.M., Pacific time) on such a
business day or on a day that PNC Bank is closed is normally made in Federal
funds wired to the redeeming shareholder on the next business day that PNC Bank
is open. The Fund reserves the right to wire redemption proceeds within 7 days
after receiving the redemption order if, in the judgment of the Fund's
administrator, an earlier payment could adversely affect the Fund.
The Fund may suspend the right of redemption or postpone the date of
payment upon redemption (as well as suspend or postpone the recordation of the
transfer of its shares) for such periods as are permitted under the 1940 Act.
The Fund reserves the right to redeem the shares of the Fund owned by a
shareholder at their net asset value if the value of such shares is less than
$500. Any such shareholder will be notified in writing that its shares have a
value of less than $500 and will be allowed 60 days to make an additional
investment before the redemption is processed by the Fund. The Fund may also
redeem shares involuntarily (and restrict the transfer of its shares) under
certain special circumstances described in the Statement of Additional
Information under "Additional Purchase and Redemption Information."
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<PAGE> 14
OTHER MATTERS
The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by PIMC as of Noon and 4:00 P.M., Eastern time
(9:00 A.M. and 1:00 P.M., Pacific time) on each Business Day (excluding those
holidays on which either the New York Stock Exchange or the Federal Reserve Bank
of Philadelphia is closed). Currently, the holidays which the New York Stock
Exchange or the Federal Reserve Bank of Philadelphia observes are New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and
Christmas Day. The net asset value per share of each of the Fund's series is the
same and is calculated by adding the value of all of the Fund's portfolio
securities and other assets, subtracting liabilities and dividing the results by
the number of the Fund's outstanding shares (irrespective of series). The net
asset value for purposes of pricing purchase and redemption orders for Fund
shares is determined independently of the net asset value per share of the
Company's other investment portfolio. Portfolio securities are valued on the
basis of amortized cost. Under this method, the Fund values a portfolio security
at cost on the date of purchase and thereafter assumes a constant amortization
of any discount or premium until maturity of the security. As a result, the
value of the 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
periods during which values, as determined by amortized cost, are higher or
lower than the amount the Fund would receive if it sold the securities.
Shares of each of the Fund's series are sold and redeemed without charge by
the Fund, although Service Organizations (see below) and other institutional
investors purchasing or holding Fund shares for their customers' accounts may
charge customers for cash management and other services provided in connection
with their accounts including, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income. Such charges will reduce the yield of the Fund to such
customers. A customer should therefore read this Prospectus in light of the
terms governing its account with a Service Organization (or other 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 agreements with its customers.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the direction of the
Company's Board of Directors. The directors of the Company are as follows:
G. Willing Pepper, Chairman of the Board and President of the Company,
is a former President of Scott Paper Company.
Rodney D. Johnson is President of Fairmount Capital Advisors, Inc.
William R. Howell is a former Vice Chairman, Union Bank, Los Angeles.
Rudolph A. Peterson is Honorary Director, President and Chief
Executive Officer (Ret.) of BankAmerica Corporation.
Anthony M. Santomero is the Richard K. Mellon Professor of Finance at
The Wharton School, University of Pennsylvania.
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INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly-owned subsidiary of PNC Bank, serves as the Fund's
investment adviser. PIMC was organized in 1977 by PNC Bank to perform advisory
services for investment companies and has its principal offices at, 400 Bellevue
Parkway, Wilmington, Delaware 19809. PNC Bank serves as the Fund's sub-adviser.
PNC Bank is one of the largest bank managers of investments for individuals in
the United States, and together with its predecessors has been in the business
of managing the investments of fiduciary and other accounts since 1847. PNC Bank
is a wholly-owned, indirect subsidiary of PNC Bank Corp. and has its principal
offices at Broad and Chestnut Streets, Philadelphia, Pennsylvania 19102. PNC
Bank Corp. is a multi-bank holding company. PIMC and PNC Bank also serve as
adviser and sub-adviser, respectively, to the Company's California Intermediate
portfolio.
PNC Bank Corp., headquartered in Pittsburgh, Pennsylvania, is one of the
largest financial services organizations in the United States with banking
subsidiaries in Pennsylvania, New Jersey, Delaware, Ohio, Kentucky, Indiana,
Massachusetts and Florida. Its major businesses include corporate banking,
consumer banking, mortgage banking and asset management.
PNC Financial Services Group is PNC Bank Corp.'s mutual fund complex,
headquartered in Wilmington, Delaware. This group includes PIMC, PFPC, and PNC
Bank. In 1973, Provident National Bank (predecessor to PNC Bank) commenced
advising the first institutional money market mutual fund -- a U.S.
dollar-denominated constant net asset value fund -- offered in the United
States.
The PNC Financial Services Group is one of the largest U.S. bank managers
of mutual funds with assets currently under management in excess of $30 billion.
This group, through PFPC Inc. and PFPC International Ltd., is also a leading
mutual fund service provider having contractual relationships with approximately
370 mutual funds with 3.5 million shareholders and in excess of $101 billion in
assets, including some $2 billion in non-U.S. assets. This group, through its
PNC Institutional Investment Service, provides investment research to some 250
financial institutions located in the United States and abroad. PNC Bank
provides custodial services for approximately $210 billion in assets, including
$160 billion in mutual fund assets.
As adviser, PIMC manages the Fund's portfolio and is responsible for all
purchases and sales of the Fund's portfolio securities. PIMC also maintains
certain of the Fund's financial accounts and records and computes the Fund's net
asset value and net income. For the advisory services provided and expenses
assumed by it, PIMC is entitled to receive a fee, computed daily and payable
monthly based on the Fund's average net assets. PIMC and the administrators may
from time to time reduce the advisory and administration fees otherwise payable
to them or may reimburse the Fund for its operating expenses. For the fiscal
year ended January 31, 1996, the Fund paid advisory fees to PIMC (after fee
waivers) of .06% of the Fund's average daily net assets.
As sub-adviser, PNC Bank provides research, credit analysis and
recommendations with respect to the Fund's investments and supplies PIMC with
certain computer facilities, personnel and other services. For its sub-advisory
services, PNC Bank is entitled to receive from PIMC an amount equal to 75% of
the advisory fee paid by the Fund to PIMC (subject to adjustment in certain
circumstances). The sub-advisory fees paid by PIMC to PNC Bank have no effect on
the advisory fees payable by the Fund to PIMC. PNC Bank also serves as the
Fund's custodian. The services provided by PNC Bank and PIMC and the fees
payable by the Fund for these services are described further in the Statement of
Additional Information under "Management of the Company."
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ADMINISTRATORS
PFPC, whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809 and PDI, whose principal business address is 259 Radnor-Chester
Road, Suite 120, Radnor, Pennsylvania 19087, serve as administrators. PFPC is an
indirect wholly-owned subsidiary of PNC Bank Corp. A majority of the outstanding
stock of PDI is owned by its officers. The administrative services provided by
the administrators, which are described more fully in the Statement of
Additional Information, include providing and supervising the operation of an
automated data processing system to process purchase and redemption orders;
assisting in maintaining the Fund's Wilmington, Delaware office; performing
administrative services in connection with the Fund's computer access program
maintained to facilitate shareholder access to the Fund; accumulating
information for and coordinating the preparation of reports to the Fund's
shareholders and the SEC; and maintaining the registration or qualification of
the Fund's shares for sale under state securities laws. PFPC and PDI are each
responsible for carrying out the duties undertaken pursuant to the
Administration Agreement with the Fund.
For their administrative services, the administrators are entitled jointly
to receive a fee computed daily and payable monthly. (For information regarding
the administrators' waivers, see "Investment Adviser and Sub-Adviser" above.)
The Fund also reimburses each administrator for its reasonable out-of-pocket
expenses incurred in connection with the Fund's computer access program. For the
fiscal year ended January 31, 1996, the Fund paid PFPC and PDI administrative
fees (after fee waivers) aggregating .06% of its average daily net assets.
PFPC also serves as transfer agent, registrar and dividend disbursing
agent. PFPC's address is P.O. Box 8950, Wilmington, Delaware 19885-9628. The
services provided by PFPC and PDI and the fees payable by the Fund for these
services are described further in the Statement of Additional Information under
"Management of the Company."
DISTRIBUTOR
PDI serves as distributor of the Fund's shares. Its principal offices are
located at 259 Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087. Fund
shares are sold on a continuous basis by the distributor as agent. The
distributor pays the cost of printing and distributing prospectuses to persons
who are not shareholders of the Fund (excluding preparation and printing
expenses necessary for the continued registration of the Fund's shares) and of
printing and distributing all sales literature. No compensation is payable by
the Fund to the distributor for its distribution services.
SERVICE ORGANIZATIONS
As stated above, Service Organizations may purchase Dollar or Plus shares
offered by the Fund. Dollar shares are sold to institutions other than
broker/dealers, and Plus shares are sold to broker/ dealers, which, in each
case, enter into servicing agreements with the Fund requiring them to provide
support services to their customers who are the beneficial owners of such shares
in consideration for .25% (on an annualized basis) of the average daily net
asset value of the Dollar or Plus shares held by the Service Organizations for
the benefit of their 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
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<PAGE> 17
Dollar or Plus shares; and providing sub-accounting not provided by the transfer
agent with respect to shares beneficially owned by customers or the information
necessary for sub-accounting. In addition, broker/dealers purchasing Plus shares
may be requested to provide from time to time assistance (such as the forwarding
of sales literature and advertising to their customers) in connection with the
distribution of Plus shares. Under the terms of the agreements, Service
Organizations are required to provide to their customers a schedule of any fees
that they may charge to their customers relating to the investment of their
customers' assets in Dollar or Plus shares. Money shares offered by the Fund may
be purchased by any type of institutional investor (including banks and
broker/dealers) which does not wish to enter into such servicing agreements with
the Fund in connection with its investments.
EXPENSES
Except as noted above and in the Statement of Additional Information, the
Fund's service contractors bear all expenses in connection with the performance
of their services. Similarly, the Fund bears the expenses incurred in its
operations. The ratios of the Fund's expenses to its average daily net assets
for the fiscal year ended January 31, 1996 for the Fund's Money, Dollar and Plus
shares were .20%, .45% and .45% (estimated), respectively (such ratios would
have been .48%, .73% and .73% (estimated) for the Fund's Money, Dollar and Plus
shares, respectively, without the waiver of advisory and administration fees
described above).
BANKING LAWS
Banking laws and regulations currently 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. PNC Bank, PIMC, PFPC, as well as certain Service Organizations are
subject to such banking laws and regulations, but believe they may perform the
services for the Fund contemplated by their respective agreements, this
Prospectus and Statement of Additional Information without violating applicable
banking laws or regulations.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of bank Service Organizations in connection with the
provision of support services to their customers, the Fund might be required to
alter or discontinue its arrangements with Service Organizations and change its
method of operations. It is not anticipated, however, that any change in the
Fund's method of operations would affect its net asset value per share or result
in a financial loss to any customer.
DIVIDENDS
The Fund's net income is declared daily as a dividend to the holders of
record of each of the Fund's series of shares at the close of business on the
day of declaration. Dividends for each series are equal to the net income
available for each series and are determined in the same manner. Net income
available for dividends on the Dollar shares is after deduction of all the
expense of fees paid to Service Organizations for their services with respect to
Dollar shares, and for the Plus shares is after deduction
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<PAGE> 18
of all the expense of fees paid to Service Organizations with respect to Plus
shares. (See "Management of the Fund--Service Organizations.") Shares of each
series begin accruing dividends on the day the purchase order for the shares is
executed and continue to accrue dividends through, and including, the day before
the redemption order for the shares is executed. Dividends are paid monthly by
check, or by wire transfer if requested in writing by the shareholder, within 5
business days after the end of the month or within 5 business days of the
redemption of all of a shareholder's shares of a series. The Fund does not
expect to realize net long-term capital gains.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same series with respect to which
dividends are declared valued at their net asset value on the payment date.
Reinvested dividends receive the same tax treatment as dividends paid in cash.
Such election, or any revocation thereof, must be made in writing to PFPC, and
will become effective with respect to dividends paid after its receipt by PFPC.
TAXES
The Fund is treated as a separate corporation for Federal tax purposes. It
is intended that each Portfolio will separately qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification generally relieves the Fund of liability for Federal
income and California franchise and income taxes to the extent the Fund's
earnings are distributed in accordance with the Code.
The Fund's policy is to pay its shareholders with respect to each taxable
year dividends equal to at least the sum of 90% of its exempt-interest income
(net of certain deductions) and 90% of its investment company taxable income (if
any) for such year. Dividends derived from exempt-interest income (known as
"exempt-interest dividends") may be treated by the Fund's shareholders as items
of interest excludable from their gross income under Section 103(a) of the Code,
unless under the circumstances applicable to the particular shareholder
exclusion would be disallowed. (See Statement of Additional Information under
"Additional Information Concerning Taxes.")
If the Fund should hold certain private activity bonds issued after August
7, 1986, shareholders must include, as an item of tax preference, the portion of
dividends paid by the Fund that is attributable to interest on such bonds in
their Federal alternative minimum taxable income for purposes of determining
liability (if any) for the 26-28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax applicable to corporations.
Corporate shareholders also must take all exempt-interest dividends into account
in determining certain adjustments for alternative minimum tax purposes.
Shareholders receiving Social Security benefits or Railroad Retirement Act
benefits should note that all exempt-interest dividends will be taken into
account in determining the taxability of such benefits.
Dividends that are paid by the Fund to non-corporate shareholders and are
derived from interest on California Municipal Obligations or certain U.S.
Government obligations are also exempt from California state personal income
tax. However, dividends paid to corporate shareholders subject to California
state franchise tax or California state corporate income tax will be taxed as
ordinary income to such shareholders, notwithstanding that all or a portion of
such dividends is exempt from California state personal income tax. Moreover, to
the extent that the Fund's dividends are derived from interest on debt
obligations other than California Municipal Obligations or certain U.S.
Government obligations such dividends will be subject to California state
personal income tax, even though such dividends may be exempt for Federal income
tax purposes.
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Exempt-interest dividends derived from U.S. Government obligations
generally will be exempt from state and local tax as well. However, except as
noted with respect to California state personal income tax, in some situations
distributions of net investment income may be taxable to investors under state
or local law as dividend income even though all or a portion of such
distributions may be derived from interest on tax-exempt obligations which, if
realized directly, would be exempt from such income taxes. To the extent, if
any, that dividends paid to shareholders are derived from taxable interest or
from long-term or short-term capital gains, such dividends will not be exempt
from Federal income tax or California state personal income tax.
Shareholders will be advised at least annually as to the Federal and
California state personal income tax consequences of distributions made each
year.
The foregoing is only a brief summary of some of the important 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 advisers with specific reference to their own
tax situations.
DESCRIPTION OF SHARES AND MISCELLANEOUS
The Company's Charter authorizes the Board of Directors to issue up to
three billion full and fractional shares of capital stock, $.001 par value per
share, and to classify or reclassify any unissued shares of the Fund into one or
more classes or series by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. Pursuant to such authority, the Board of Directors has classified
2.3 billion of its shares as California Money shares (Class A Common Stock), 300
million of its shares as California Money Dollar shares (Class A Common
Stock-Special Series 1), 300 million of its shares as California Money Plus
shares (Class A Common Stock-Special Series 2), 80 million of its shares as
California Intermuni shares (Class B Common Stock), 10 million of its shares as
California Intermuni Dollar shares (Class B Common Stock-Special Series 1) and
10 million of its shares as California Intermuni Plus shares (Class B Common
Stock-Special Series 2). As of May 20, 1996, Bank of America National Trust &
Savings Association held, on behalf of its underlying accounts, approximately
28.8% of the Company's shares that were outstanding on that date. The 1940 Act
states that the beneficial owner of more than 25% of the voting securities of a
company is presumed to control the company. Under this definition, Bank of
America National Trust & Savings Association may be deemed to be a controlling
person of the Company.
THIS PROSPECTUS RELATES PRIMARILY TO THE FUND AND DESCRIBES ONLY THE
INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO THE FUND. INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING
CALIFORNIA INTERMEDIATE MAY OBTAIN A SEPARATE PROSPECTUS DESCRIBING THAT
PORTFOLIO BY CALLING THE DISTRIBUTOR AT 800-998-7633.
Each Money, Dollar and Plus share represents an equal proportionate
interest in the assets of the Fund. Shareholders of each series are entitled to
participate equally in any dividend or distribution declared by the Company's
Board of Directors (except as provided under "Dividends") and in the net
distributable assets of the Fund on liquidation. Fund shares have no pre-emptive
rights and only such conversion and exchange rights as the Board may grant in
its discretion. When issued for payment as described in this Prospectus, the
Fund's shares will be fully paid and non-assessable. Further,
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<PAGE> 20
shareholders of each series are entitled to one vote for each full share held
and proportionate fractional votes for fractional shares held, and will vote in
the aggregate and not by series, except where otherwise required by law and
except that only Dollar shares will be entitled to vote on matters submitted to
a vote of shareholders pertaining to the Fund's arrangements with Service
Organizations with respect to Dollar shares, and Plus shares will enjoy similar
voting rights on matters pertaining to the Fund's arrangements with Service
Organizations with respect to Plus shares. (See "Management of the Fund--Service
Organizations.") Shares of the Company have non-cumulative voting rights and,
accordingly, the holders of more than 50% of the Company's outstanding shares
(irrespective of class or series) may elect all of the directors.
For information concerning the redemption of Fund shares and possible
restrictions on their transferability, see "Redemption of Shares."
YIELD
From time to time the Fund may advertise the "yields," "effective yields"
and "tax-equivalent yields" of its Money, Dollar and Plus shares. Yield figures
are based on historical earnings and are not intended to indicate future
performance. The "yield" for each series of Fund shares refers to the income
generated by an investment in the shares of such series over a seven-day period
(which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a series
of Fund shares is assumed to be reinvested in shares of that series. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. The "tax-equivalent yield"
shows the level of taxable yield necessary to produce an after-tax yield
equivalent to the Fund's tax-free yield. It is calculated by increasing the
Fund's yield (calculated as above) by the amount necessary to reflect the
payment of Federal and California income taxes at a stated tax rate. The
"tax-equivalent yield" will always be higher than the "yield."
For the seven-day period ended January 31, 1996 the yields on Money and
Dollar shares were 2.98% and 2.73%, respectively, the compounded effective
yields on Money and Dollar shares were 3.02% and 2.77%, respectively, and the
tax-equivalent yields on Money and Dollar shares were 4.85% and 4.45%,
respectively. These tax-equivalent yields assume a Federal income tax rate of
31.0% and a California income tax rate of 11.0%. Because actual income tax rates
may vary considerably from those assumptions, each investor should consider
their own tax rate in evaluating yields. During this seven-day period, the
Fund's Adviser and Administrators voluntarily waived 70.04% of the advisory and
administration fees payable by the Fund; without such waivers each of the
above-quoted yields would have been 9.40% lower. The yield of any investment is
generally a function of portfolio quality and maturity, type of investment and
operating expenses. The yield on Money, as well as Dollar and Plus, shares will
fluctuate and is not necessarily representative of future results. Any fees
charged by broker-dealers, banks or others directly to their customers in
connection with investments in the Fund are not reflected in the yields on the
Fund's shares, and such fees, if charged, will reduce the actual return received
by customers on their investments. Investors may call 800-821-6006 to obtain the
current yields on each series of the Fund's shares.
16
<PAGE> 21
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE> 22
NO PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION
INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN
OFFERING BY THE FUND OR BY
THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE
MADE.
---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Background and Expense
Information.................. 2
Financial Highlights........... 3
Investment Objective and
Policies..................... 5
Purchase of Shares............. 8
Redemption of Shares........... 9
Management of the Fund......... 10
Dividends...................... 13
Taxes.......................... 14
Description of Shares and
Miscellaneous................ 15
Yield.......................... 16
</TABLE>
PIF-P-011
CALIFORNIA
MONEY FUND
AN INVESTMENT PORTFOLIO
OFFERED BY
MUNICIPAL FUND FOR
CALIFORNIA INVESTORS, INC.
[PROVIDENT INSTITUTIONAL FUNDS LOGO]
Prospectus
May 31, 1996
<PAGE> 23
CALIFORNIA MONEY FUND
(Dollar Shares)
An Investment Portfolio Offered by
Municipal Fund for California Investors, Inc.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form N-1A Item Prospectus Caption
- -------------- ------------------
<S> <C> <C>
1. Cover Page......................................................... Cover Page
2. Synopsis........................................................... Background and
Expense Information
3. Condensed Financial Information.................................... Financial Highlights
4. General Description of
Registrant....................................................... Financial
Highlights;
Investment Objective
and Policies
5. Management of the Fund............................................. Management of the
Fund
6. Capital Stock and Other
Securities....................................................... Cover Page;
Financial
Highlights;
Dividends; Taxes;
Description of
Shares and
Miscellaneous; Yield
7. Purchase of Securities Being
Offered.......................................................... Management of the
Fund; Purchase of
Shares; Redemption
of Shares
8. Redemption or Repurchase........................................... Redemption of Shares
9. Legal Proceedings.................................................. Inapplicable
</TABLE>
<PAGE> 24
- --------------------------------------------------------------------------------
PROSPECTUS
California Money Fund
(Dollar Shares)
AN INVESTMENT PORTFOLIO OFFERED BY MUNICIPAL FUND FOR CALIFORNIA INVESTORS, INC.
BELLEVUE PARK CORPORATE CENTER FOR PURCHASE AND REDEMPTION ORDERS CALL:
400 BELLEVUE PARKWAY MORGAN GUARANTY TRUST COMPANY OF NEW YORK AT
SUITE 100 (800) 521-5411.
WILMINGTON, DELAWARE 19809
Municipal Fund for California Investors, Inc. (the "Company") is a no-load,
open-end investment company currently offering shares in two separate investment
portfolios: California Money Fund and California Intermediate Municipal Fund.
This Prospectus offers one series of shares ("Dollar Shares") in the California
Money Fund portfolio (the "Fund"). The Fund is a non-diversified investment
company that is designed primarily to provide California institutional investors
and their customers with as high a level of current interest income that is
exempt from Federal income tax and, to the extent possible, from California
state personal income tax as is consistent with the preservation of capital and
relative stability of principal. Portfolio securities held by the Fund will
generally have remaining maturities of 13 months or less and will be determined
by the investment adviser to have minimal credit risk.
PFPC Inc. ("PFPC") and Provident Distributors, Inc. ("PDI") serve as the Fund's
administrators. PDI also serves as the Fund's distributor. PNC Institutional
Management Corporation ("PIMC") and PNC Bank, National Association ("PNC Bank")
serve as the Fund's adviser and sub-adviser, respectively. Morgan Guaranty Trust
Company of New York will act as Service Organization on behalf of its customers
and customers of its affiliates with respect to all Shares offered by this
Prospectus. The customers, which may include individuals, trusts, partnerships
and corporations, must maintain accounts (such as demand deposit, custody, trust
or escrow accounts) with the Service Organization.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED, OR
ENDORSED BY, ANY BANK INCLUDING MORGAN GUARANTY TRUST COMPANY OF NEW YORK, PNC
BANK, NATIONAL ASSOCIATION AND SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY,
GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. THERE CAN BE NO ASSURANCE THAT
THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information currently dated May 31,
1996, has been filed with the Securities and Exchange Commission and is
available to investors without charge by calling 800-821-7432. The Statement of
Additional Information, as amended from time to time, is incorporated by
reference in its entirety into this Prospectus.
----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------------
May 31, 1996
<PAGE> 25
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
Background and Expense Information..................... 1
Financial Highlights................................... 2
Investment Objective and Policies...................... 4
Purchase of Shares..................................... 7
Redemption of Shares................................... 8
PAGE
<S> <C>
Management of the Fund................................. 9
Dividends.............................................. 11
Taxes.................................................. 12
Description of Shares and Miscellaneous................ 13
Yield.................................................. 14
</TABLE>
<PAGE> 26
BACKGROUND AND EXPENSE INFORMATION
The Company was organized as a Maryland corporation on September 20, 1982 and
currently offers shares in two separate investment portfolios: the Fund and
California Intermediate Municipal Fund ("California Intermediate"). The Fund
currently offers three separate series of shares--California Money ("Money"),
California Money Dollar ("Dollar") and California Money Plus ("Plus"). The
public offering of Money shares commenced on February 28, 1983 and the public
offering of Dollar and Plus shares commenced on September 30, 1985.
Shares of each series represent equal pro rata interests in a single
portfolio of high quality, short-term, tax-exempt obligations maintained by the
Fund (see "Investment Objective and Policies"), except that Dollar and Plus
shares bear the additional expense of service fees payable by the Fund (at the
rate of .25% per annum) to Service Organizations for support and/or distribution
services they provide to the beneficial owners of such shares. (See "Management
of the Fund-- Service Organizations.")
EXPENSE SUMMARY
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C> <C>
Management Fees (net of waivers)............................ .06%
Other Expenses.............................................. .39%
Administration Fees (net of waivers)...................... .06%
Non-12b-1 Fees............................................ .25%
Other..................................................... .08%
--
--
Total Fund Operating Expenses (net of waivers).............. .45%
</TABLE>
EXAMPLE
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming (1) a hypothetical 5% annual return
and (2) redemption at the end of each time period with
respect to the Dollar Shares: $5 $14 $25 $57
</TABLE>
The foregoing Expense Summary and Example are intended to assist investors
in understanding the various costs and expenses that an investor in the Fund
will bear directly or indirectly. In addition, institutional investors may
charge their customers fees for providing services in connection with
investments in the Fund's Dollar and Plus shares. (For more complete
descriptions of the various costs and expenses, see "Management of the Fund" in
the Prospectus and Statement of Additional Information and the financial
statements and related notes incorporated by reference into the Statement of
Additional Information.) The investment adviser and administrators have agreed
to waive the advisory and administration fees otherwise payable to them and to
reimburse the Fund for its operating expenses to the extent necessary to ensure
that the annual operating expense ratio of the Fund (excluding fees paid to
Service Organizations pursuant to Servicing Agreements) does not exceed .20% of
the Fund's average daily net assets for the year ended January 31, 1997. Absent
fee waivers for the year ended January 31, 1996, "Total Fund Operating Expenses"
for the Fund's Dollar Shares were .73% of the Fund's average daily net assets.
The foregoing table has not been audited by the Fund's independent accountants.
THE EXAMPLE SHOWN ON THE PRIOR PAGE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL
INVESTMENT RETURN AND OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
1
<PAGE> 27
FINANCIAL HIGHLIGHTS
The table of "Financial Highlights" below is derived from the Fund's financial
statements incorporated by reference into the Statement of Additional
Information and sets forth certain information concerning the historic
investment results for Money, Dollar and Plus shares. The Financial Highlights
for the fiscal years ended January 31, 1996, 1995, 1994, 1993 and 1992 have been
audited by Coopers & Lybrand L.L.P., the Fund's independent accountants whose
report thereon is incorporated by reference into the Statement of Additional
Information along with the financial statements. This information should be read
in conjunction with the financial statements and notes in the Statement of
Additional Information. The Fund's financial statements and more information
about the performance of the Fund is also contained in the Annual Report to
Shareholders, which may be obtained without charge by calling 800-521-5411.
FINANCIAL HIGHLIGHTS
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MONEY SHARES
--------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
01/31/96 01/31/95 01/31/94 01/31/93 01/31/92
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year.......................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Income from Investment Operations:
Net Investment Income........................... 0.0356 0.0281 0.0223 0.0251 0.0375
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends to Shareholders From Net Investment
Income......................................... (0.0356) (0.0281) (0.0223) (0.0251) (0.0375)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Year...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Return...................................... 3.62% 2.84% 2.25% 2.54% 3.82%
Ratios/Supplemental Data:
Net Assets, End of Year $(000).................. 389,883 385,824 356,501 359,193 490,141
Ratio of Expenses to Average Net Assets(1)...... .20% .20% .20% .30% .30%
Ratio of Net Investment Income to Average Net
Assets......................................... 3.55% 2.79% 2.23% 2.52% 3.75%
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
01/31/91 01/31/90 01/31/89 01/31/88 01/31/87
---------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year.......................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ------------ ------------ ---------- ----------
Income from Investment Operations:
Net Investment Income........................... 0.0509 0.0578 0.0500 0.0440 0.0415
---------- ------------ ------------ ---------- ----------
Less Distributions:
Dividends to Shareholders From Net Investment
Income......................................... (0.0509) (0.0578) (0.0500) (0.0440) (0.0415)
---------- ------------ ------------ ---------- ----------
Net Asset Value, End of Year...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ============ ============ ========== ==========
Total Return...................................... 5.21% 5.93% 5.12% 4.51% 4.23%
Ratios/Supplemental Data:
Net Assets, End of Year $(000).................. 629,001 1,046,590 1,105,956 828,103 492,447
Ratio of Expenses to Average Net Assets(1)...... .29% .30% .30% .30% .34%
Ratio of Net Investment Income to Average Net
Assets......................................... 5.10% 5.78% 5.01% 4.47% 4.12%
</TABLE>
- ---------
(1) Annualized operating expense ratios before waivers of Investment Adviser and
Administrator fees for Money shares for the years ended January 31, 1996,
1995, 1994, 1993, 1992, 1991, 1990, 1989, 1988 and 1987 were .48%, .48%,
.49%, .48%, .48%, .46%, .47%, .47%, .48% and .50%, respectively.
2
<PAGE> 28
<TABLE>
<CAPTION>
DOLLAR SHARES
-------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR 01/09/91(1)
ENDED ENDED ENDED ENDED ENDED TO
01/31/96 01/31/95 01/31/94 01/31/93 01/31/92 01/31/91
-------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -----------
Income From Investment Operations:
Net Investment Income.............................. 0.0331 0.0256 0.0198 0.0226 0.0350 0.0024
-------- -------- -------- -------- -------- -----------
Less Distributions:
Dividends to Shareholders from Net Investment
Income.............................................. (0.0331) (0.0256) (0.0198) (0.0226) (0.0350) (0.0024)
-------- -------- -------- -------- -------- -----------
Net Asset Value, End of Period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ===========
Total Returns.......................................... 3.37% 2.59% 2.00% 2.29% 3.57% 3.87%(2)
Ratios/Supplemental Data:
Net Assets, End of Period $(000)..................... 31,163 11,026 19,098 11,750 6,599 1,126
Ratio of Expenses to Average Net Assets(3)........... .45% .45% .45% .55% .55% .54%(2)
Ratio of Net Investment Income to Average Net
Assets.............................................. 3.30% 2.54% 1.98% 2.27% 3.50% 3.85%(2)
</TABLE>
- ---------
(1) Commencement of operations.
(2) Annualized.
(3) Annualized operating expense ratios before waivers of Investment Adviser and
Administrator fees for Dollar Shares for the years ended January 31, 1996,
1995, 1994, 1993 and 1992 were .73%, .73%, .74%, .73% and .73%,
respectively, and for the period ended January 31, 1991 was .71%.
<TABLE>
<CAPTION>
PLUS SHARES
-----------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
01/31/96 01/31/95 01/31/94(2) 01/31/93(2) 01/31/92
-------- -------- ----------- ----------- ---------
<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.............................. -- -- -- 0.0191 0.0350
-------- -------- ----- ----------- ---------
Less Distributions:
Dividends to Shareholders from Net Investment
Income.............................................. -- -- (--) (0.0191) (0.0350)
-------- -------- ----- ----------- ---------
Net Asset Value, End of Year........................... $1.00 $1.00 $1.00 $ 1.00 $ 1.00
======== ======== ===== =========== =========
Total Returns.......................................... -- -- -- 1.93% 3.57%
Ratios/Supplemental Data:
Net Assets, End of Year $(000)....................... -- -- -- -- 27,656
Ratio of Expenses to Average Net Assets(1)........... -- -- -- .55% .55%
Ratio of Net Investment Income to Average Net
Assets.............................................. -- -- -- 2.27% 3.50%
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
01/31/91 01/31/90 01/31/89 01/31/88 01/31/87
--------- --------- --------- --------- ---------
<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.............................. .0484 0.0553 0.0475 0.0415 0.0390
--------- --------- --------- --------- ---------
Less Distributions:
Dividends to Shareholders from Net Investment
Income.............................................. (0.0484) (0.0553) (0.0475) (0.0415) (0.0390)
--------- --------- --------- --------- ---------
Net Asset Value, End of Year........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total Returns.......................................... 4.96% 5.68% 4.87% 4.26% 3.98%
Ratios/Supplemental Data:
Net Assets, End of Year $(000)....................... 19,872 26,769 15,961 8,181 0.1
Ratio of Expenses to Average Net Assets(1)........... .54% .55% .55% .55% .59%
Ratio of Net Investment Income to Average Net
Assets.............................................. 4.85% 5.53% 4.76% 4.22% 3.87%
</TABLE>
- ---------
(1) Annualized operating expense ratios before waivers of Investment Adviser and
Administrator fees for Plus shares for the years ended January 31, 1993,
1992, 1991, 1990, 1989, 1988 and 1987 were .64%, .73%, .71%, .72%, .72%,
.73% and .75%, respectively.
(2) Only 100 Plus shares were outstanding during the period from December 1,
1992 to July 12, 1995. As of July 31, 1995, no Plus shares were outstanding.
3
<PAGE> 29
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL. The Fund is a no-load, open-end non-diversified investment company
which has an investment objective to provide investors with as high a level of
current interest income that is exempt from Federal income tax and, to the
extent possible, from California state personal income tax as is consistent with
the preservation of capital and relative stability of principal. There can be,
of course, no assurance that the Fund will achieve its investment objective. The
Fund has a service plan applicable to the Dollar Shares. See "Service
Organizations."
Substantially all of the Fund's assets are invested in debt obligations
issued by or on behalf of the State of California and other states, territories
and possessions of the United States, the District of Columbia and their
respective authorities, agencies, instrumentalities and political subdivisions
and tax-exempt derivatives such as tender option bonds, participations,
beneficial interests in trusts and partnership interests ("Municipal
Obligations"). Dividends paid by the Fund that are derived from interest on
bonds that is exempt from taxation under the Constitution or statutes of
California ("California Municipal Obligations") are exempt from regular Federal
income tax and California state personal income tax. California Municipal
Obligations include municipal securities issued by the State of California and
its political subdivisions, as well as certain other governmental issuers such
as the Commonwealth of Puerto Rico. Dividends derived from interest on municipal
obligations other than California Municipal Obligations are exempt from regular
Federal income tax but may be subject to California state personal income tax.
(See, however, "Taxes" below concerning treatment of exempt-interest dividends
paid by the Fund for purposes of the Federal alternative minimum tax applicable
to particular classes of investors.) The Fund expects that, except during
temporary defensive periods or when acceptable securities are unavailable for
investment by the Fund, the Fund's assets will be invested primarily in
California Municipal Obligations. At least 50% of the Fund's assets must be
invested in obligations which, when held by an individual, the interest
therefrom is exempt from California personal income taxation (i.e., California
Municipal Obligations and certain U.S. Government obligations) at the close of
each quarter of its taxable year so as to permit the Fund to pay dividends that
are exempt from California state personal income tax. Dividends, regardless of
their source, may be subject to local taxes.
The Fund will not knowingly purchase securities the interest on which is
subject to regular Federal income tax; however, the Fund may hold uninvested
cash reserves pending investment during temporary defensive periods or, if in
the opinion of the Fund's investment adviser, suitable tax-exempt obligations
are unavailable. Uninvested cash reserves will not earn income.
The Fund invests in Municipal Obligations that are determined by the Fund's
investment adviser to present minimal credit risks pursuant to guidelines
approved by the Company's Board of Directors pursuant to Rule 2a-7 under the
Investment Company Act of 1940, as amended (the "1940 Act"). Pursuant to these
guidelines, the Fund is authorized to purchase instruments that (i) are rated at
the time of purchase in one of the top two rating categories by two unaffiliated
nationally recognized statistical rating organizations ("NRSROs"), (ii)
instruments rated in one of the top two rating categories by one such NRSRO (if
only one such organization rates the instrument), (iii) instruments issued by
issuers with short-term debt having such ratings, and (iv) unrated instruments
determined by the adviser, pursuant to procedures approved by the Board of
Directors, to be of comparable quality. The Appendix to the Statement of
Additional Information includes a description of applicable NRSRO ratings.
The Fund intends to use its best efforts to maintain its net asset value at
$1.00 per share, and computes its net asset value using the amortized cost
method. In connection with its use of this valuation method, the Fund limits the
dollar-weighted average maturity of its portfolio to not more than 90 days and
the remaining maturity of each portfolio security to not more than 13 months
(with certain exceptions).
4
<PAGE> 30
The Fund's investment objective and the policies described herein may be
changed by its Board of Directors without the affirmative vote of the holders of
a majority of the Fund's outstanding shares, except that the Fund may not change
the following investment limitations without such a vote of shareholders.
THE FUND MAY NOT:
1. Invest less than 80% of its assets in securities the interest on which is
exempt from Federal income taxes, except during defensive periods.
2. 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 (a) up to 50% of the value of the Fund's assets may be
invested without regard to this 5% limitation; provided that no more than
25% of the value of the Fund's assets are invested in the securities of any
one issuer and (b) this 5% limitation does not apply to securities issued or
guaranteed by the U.S. Government, or its agencies or instrumentalities. For
purposes of this limitation, a security is considered to be issued by the
governmental entity (or entities) whose assets and revenues back the
security, or, with respect to a private activity bond that is backed only by
the assets and revenues of a non-governmental user, by such non-governmental
user. In certain circumstances, the guarantor of a guaranteed security may
also be considered to be an issuer in connection with such guarantee.
3. Borrow money except from banks for temporary purposes and then in amounts
not in excess of 10% of the value of the Fund's assets at the time of such
borrowing; or mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's
assets at the time of such borrowing. (This borrowing provision is not
intended for investment leverage, but solely to facilitate management of the
Fund's portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient, and hence the Fund may not purchase any portfolio securities
while its borrowings are outstanding.)
4. Invest more than 10% of the value of the Fund's total assets in illiquid
securities (including illiquid variable rate demand notes) which may be
illiquid due to legal or contractual restrictions on resale or the absence
of readily available market quotations.
5. Purchase any securities which would cause more than 25% of the value of the
Fund's total assets at the time of purchase to be invested in the securities
of issuers conducting their principal business activities in the same
industry; provided that this limitation shall not apply to Municipal
Obligations or governmental guarantees of Municipal Obligations; and
provided, further, that for the purpose of this limitation only, industrial
development bonds that are considered to be issued by non-governmental users
(see the second investment limitation above) shall not be deemed to be
Municipal Obligations.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax (and, with respect to
California Municipal Obligations, to the exemption of interest thereon from
California state personal income tax) are rendered by bond counsel to the
respective issuers at the time of issuance, and opinions relating to the
validity of and the tax-exempt status of payments received by the Fund from
tax-exempt derivatives are rendered by counsel to the respective sponsors of
such derivatives. Neither the Fund nor its investment adviser will review the
proceedings relating to the issuance of Municipal Obligations, the creation of
any tax-exempt derivatives or the bases for such opinions.
5
<PAGE> 31
TYPES OF MUNICIPAL OBLIGATIONS. The two principal classifications of Municipal
Obligations which may be held by the Fund 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 may include
private activity bonds. Such bonds may be issued by or on behalf of public
authorities to finance various privately operated facilities, and are not
payable from the unrestricted revenues of the issuer. As a result, the credit
quality of private activity bonds is frequently related directly to the credit
standing of private corporations or other entities.
The Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities 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.
OTHER INVESTMENT PRACTICES. Municipal Obligations purchased by the Fund may
include variable and floating rate demand instruments, which provide for
adjustments in the interest rate on certain reset dates or whenever a specified
interest rate index changes, respectively. Variable and floating rate
instruments are subject to the credit quality standards described above. In some
cases the Fund 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 397 days 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, the Fund may be entitled to
principal on demand and may be able to resell such instruments in the dealer
market.
The Fund may also purchase Municipal Obligations on a "when-issued" basis.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield. 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 basis are recorded as an asset and are
subject to changes in value based upon changes in the general level of interest
rates. The Fund expects that commitments to purchase when-issued securities will
not exceed 25% of the value of its total assets absent unusual market
conditions, and that a commitment by the Fund to purchase when-issued securities
will not exceed 45 days. The Fund does not intend to purchase when-issued
securities for speculative purposes but only in furtherance of its investment
objective.
In addition, the Fund may acquire "stand-by commitments" with respect to
Municipal Obligations held in its portfolio. Under a stand-by commitment, a
dealer agrees to purchase at the Fund's option specified Municipal Obligations
at a price equal to their amortized cost value plus accrued interest. The Fund
will acquire stand-by commitments solely to facilitate portfolio liquidity and
does not intend to exercise its rights thereunder for trading purposes.
RISK FACTORS. The Fund intends to follow the diversification standards set forth
in the 1940 Act except to the extent, in the investment adviser's judgment, that
non-diversification is appropriate in order to maximize the percentage of the
Fund's assets that are California Municipal Obligations. The investment return
on a non-diversified portfolio typically is dependent upon the performance of a
smaller number of issuers relative to the number of issuers held in a
diversified portfolio. In the event of changes in the financial condition or in
the market's assessment of certain issuers, the Fund's maintenance of large
positions in the obligations of a small number of issuers may affect the value
of the Fund's portfolio to a greater extent than that of a diversified
portfolio.
Although the Fund does not presently intend to do so on a regular basis, it
may invest more than 25% of its assets in Municipal Obligations the interest on
which is paid solely from revenues on similar projects if such investment is
deemed necessary or appropriate by the Fund's investment adviser.
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<PAGE> 32
To the extent that the Fund's assets are concentrated in Municipal
Obligations payable from revenues on similar projects, the Fund will be subject
to the particular risks presented by such projects to a greater extent than it
would be if the Fund's assets were not so concentrated.
The Fund's ability to achieve its investment objective is dependent upon
various factors, including the ability of the issuers of California Municipal
Obligations to timely meet their continuing payment obligations with respect to
the municipal obligations. Any reductions in the creditworthiness of issuers of
California Municipal Obligations could adversely affect the market values and
marketability of California Municipal Obligations, and consequently, the net
asset value of the Fund's portfolio.
On July 15, 1994 and July 6, 1994, respectively, Standard and Poor's
Corporation and Moody's Investors Service, Inc. citing the State of California's
deteriorating financial position, lowered their ratings of the State's general
obligation bonds from A+ and Aa, respectively, to A and A1, respectively.
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could result
in certain adverse consequences affecting California Municipal Obligations.
Significant financial and other considerations relating to the Fund's
investments in California Municipal Obligations are summarized in the Statement
of Additional Information.
PURCHASE OF SHARES
Dollar Shares are sold to Service Organizations acting on behalf of their
customers. Morgan Guaranty Trust Company of New York ("Morgan") will act as
Service Organization for its customers and customers of its affiliates with
respect to all shares offered by this Prospectus. Purchase orders are
transmitted by Morgan directly to PFPC, the Fund's transfer agent. All such
transactions are effected through a customer's account through procedures
established in connection with the requirements of the account. Shares are sold
at the net asset value per share next determined after receipt of a purchase
order by PFPC.
Purchase orders for shares will be accepted by the Fund only on a day on
which both the New York Stock Exchange and the Federal Reserve Bank of
Philadelphia are open for business (a "Business Day"), and must be transmitted
by Morgan to PFPC by telephone. Orders received by PFPC by Noon, Eastern time
(9:00 A.M., Pacific time) will be executed the same day if PNC Bank, the Fund's
Custodian, has received payment by 4:00 P.M., Eastern time (1:00 P.M., Pacific
time) that day. Orders received at other times, and orders for which payment has
not been received by 4:00 P.M., Eastern time (1:00 P.M., Pacific 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 by PNC Bank to the sending institution.
Payment for shares may be made only in Federal Funds or other funds
immediately available to PNC Bank. The minimum initial investment is $5,000 and
there is no minimum subsequent investment; however, Service Organizations such
as Morgan may set a higher minimum initial investment and minimum subsequent
investment for their customers. The Fund may in its discretion reject any
purchase order for shares.
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 Dollar Shares. Institutions, including banks regulated by the
Comptroller of the Currency and investment advisers and other money managers
subject to the jurisdiction of the Securities and Exchange Commission, the
Department of Labor or state securities commissions, should consult legal
counsel before investing in Dollar Shares. (See also "Management of the
Fund--Banking Laws.")
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<PAGE> 33
REDEMPTION OF SHARES
REDEMPTION PROCEDURES
Redemption orders must be transmitted by Morgan to PFPC by telephone in the
manner described under "Purchase of Shares." Shares are redeemed at the net
asset value per share next determined after receipt of the redemption order by
PFPC. While the Fund intends to use its best efforts to maintain the net asset
value per share of each of its series at $1.00, the proceeds paid upon
redemption may be more or less than the amount invested depending upon a share's
net asset value at the time of redemption.
Payment for redeemed shares for which a redemption order is received by PFPC
prior to Noon, Eastern time (9:00 A.M., Pacific time) on a Business Day is
normally made in Federal Funds wired to the redeeming shareholder on the same
Business Day. Payment for redeemed shares for which a redemption order is
received by PFPC after Noon, Eastern time (9:00 A.M., Pacific time) on such a
Business Day is normally made in Federal Funds wired to the redeeming
shareholder on the next business day that PNC Bank is open. The Fund reserves
the right to wire redemption proceeds within 7 days after receiving the
redemption order if, in the judgment of the Fund's administrator, an earlier
payment could adversely affect the Fund.
The Fund may suspend the right of redemption or postpone the date of payment
upon redemption (as well as suspend or postpone the recordation of the transfer
of its shares) for such periods as are permitted under the 1940 Act. The Fund
reserves the right to redeem the shares of the Fund owned by a shareholder at
their net asset value if the value of such shares is less than $500. Any such
shareholder will be notified in writing that its shares have a value of less
than $500 and will be allowed 60 days to make an additional investment before
the redemption is processed by the Fund. Service Organizations such as Morgan
may require that customers maintain share accounts with minimum balances in
excess of $500. The Fund may also redeem shares involuntarily (and restrict the
transfer of its shares) under certain special circumstances described in the
Statement of Additional Information under "Additional Purchase and Redemption
Information."
OTHER MATTERS
The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by PIMC as of Noon and 4:00 P.M., Eastern time
(9:00 A.M. and 1:00 P.M., Pacific time) on each Business Day. Currently, the
holidays which the New York Stock Exchange or the Federal Reserve Bank of
Philadelphia observe are New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day. The net asset
value per share of each of the Fund's series is the same and is calculated by
adding the value of all of the Fund's portfolio securities and other assets,
subtracting liabilities and dividing the results by the number of the Fund's
outstanding shares (irrespective of series). The net asset value for purposes of
pricing purchase and redemption orders for Fund shares is determined
independently of the net asset value per share of the Company's other investment
portfolio. Portfolio securities are valued on the basis of amortized cost. Under
this method, the Fund values a portfolio security at cost on the date of
purchase and thereafter assumes a constant amortization of any discount or
premium until maturity of the security. As a result, the value of the 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 periods during which values,
as determined by amortized cost, are higher or lower than the amount the Fund
would receive if it sold the securities.
Shares of the Fund are sold and redeemed without charge by the Fund,
although Service Organizations (see below) purchasing or holding Fund shares for
their customers' accounts may charge customers for cash management and other
services provided in connection with their accounts including, for example,
account maintenance fees, compensating balance requirements or fees based upon
account transactions, assets or income. Such charges will reduce the yield of
the
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<PAGE> 34
Fund to such customers. A customer should therefore read this Prospectus in
light of the terms governing its account with a Service Organization 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 agreements with its customers.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the direction of the
Company's Board of Directors. The directors of the Company are as follows:
G. Willing Pepper, Chairman of the Board and President of the Company,
is a former President of Scott Paper Company.
Rodney D. Johnson is President of Fairmount Capital Advisors, Inc.
William R. Howell is a former Vice Chairman, Union Bank, Los Angeles.
Rudolph A. Peterson is Honorary Director, President and Chief Executive
Officer (Ret.) of BankAmerica Corporation.
Anthony M. Santomero is the the Richard K. Mellon Professor of Finance
at The Wharton School, University of Pennsylvania.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly-owned subsidiary of PNC Asset Management Group, Inc., which is in
turn a wholly-owned subsidiary of PNC Bank, serves as the Fund's investment
adviser. 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. PNC Asset Management
Group, Inc.'s principal business address is 1835 Market Street, Philadelphia,
Pennsylvania 19102. PNC Bank serves as the Fund's sub-adviser. PNC Bank and its
predecessors have been in the business of managing the investments of fiduciary
and other accounts in the Philadelphia area since 1847. PNC Bank is an indirect,
wholly-owned subsidiary of PNC Bank Corp., and its principal business address is
located at Broad and Chestnut Streets, Philadelphia, Pennsylvania 19102. PNC
Bank Corp. is a multi-bank holding company. PIMC and PNC Bank also serve as
adviser and sub-adviser, respectively, to the Company's California Intermediate
portfolio.
In its advisory agreement with the Fund, PIMC has agreed to manage the
Fund's portfolio and to be responsible for, make decisions with respect to and
place orders for all purchases and sales of the Fund's portfolio securities.
PIMC also computes the Fund's net asset value and maintains the Fund's financial
accounts and records. For the services provided and expenses assumed pursuant to
the advisory agreement, PIMC is entitled to receive a fee from the Fund,
computed daily and payable monthly, at the annual rate of .20% of the Fund's
average daily net assets. PIMC and the administrators have agreed to reduce the
advisory and administration fees otherwise payable to them and to reimburse the
Fund for its operating expenses to the extent necessary to ensure that its
annual operating expense ratio (excluding fees paid to Service Organizations
pursuant to Servicing Agreements) does not exceed .20% of the Fund's average
daily net assets. For the fiscal year ended January 31, 1996, the Fund paid
advisory fees to PIMC (after fee waivers) of .06% of the Fund's average daily
net assets.
As sub-adviser, PNC Bank has agreed to: (i) provide investment research and
credit analysis concerning the Fund's investments; (ii) make recommendations
with respect to the Fund's continuous investment program; (iii) supply PIMC with
computer facilities and operating personnel; and (iv) provide PIMC with such
statistical services as PIMC may from time
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<PAGE> 35
to time reasonably request. As compensation therefore, PIMC has agreed to pay
PNC Bank an amount equal to 75% of the advisory fee paid by the Fund to PIMC, as
adjusted quarterly to ensure that PIMC has income before taxes from all sources
of at least $22,500 during each quarter.
ADMINISTRATORS
PFPC, whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809 and PDI, whose principal business address is 259 Radnor-Chester
Road, Suite 120, Radnor, Pennsylvania 19087, serve as co-administrators. PFPC is
an indirect wholly-owned subsidiary of PNC Bank Corp. A majority of the
outstanding stock of PDI is owned by its officers.
As administrators, PFPC and PDI have agreed to: assist in maintaining office
facilities for the Fund; furnish the Fund with statistical and research data and
clerical and certain other services required by the Fund; perform administrative
services in connection with the Fund's computer access program maintained to
facilitate shareholder access to the Fund; monitor the arrangements pertaining
to the Fund's agreements with Service Organizations; prepare semi-annual reports
to the Securities and Exchange Commission, Federal and state tax returns and
filings with state securities commissions; arrange for and bear the cost of
processing share purchase and redemption orders; and generally assist in the
Fund's operations.
For their administrative services, the administrators are entitled jointly
to receive a fee, computed daily and payable monthly, determined in the same
manner as PIMC's advisory fee described above. (For information regarding the
administrators' obligations to waive administrative fees otherwise payable to
them and to reimburse the Fund for operating expenses, see "Investment Adviser
and Sub-Adviser" above.) For the fiscal year ended January 31, 1996, the Fund
paid PFPC and PDI administrative fees (after fee waivers) aggregating .06% of
its average net assets. The Fund also reimburses each administrators for
reasonable out-of-pocket expenses incurred in connection with the Fund's
computer access program.
DISTRIBUTOR
PDI serves as distributor of the Fund's shares. Its principal offices are
located at 259 Radnor-Chester Road, Suite 120, Radnor, Pennsylvania 19087. Fund
shares are sold on a continuous basis by the Distributor as agent. The
Distributor pays the cost of printing and distributing prospectuses to persons
who are not shareholders of the Fund (excluding preparation and printing
expenses necessary for the continued registration of the Fund's shares) and of
printing and distributing all sales literature. No compensation is payable by
the Fund to the distributor for its distribution services.
CUSTODIAN AND TRANSFER AGENT
PNC Bank serves as the custodian of the Fund's assets, and PFPC serves as the
Fund's transfer and dividend disbursing agent. The Fund compensates PNC Bank and
PFPC for their services, and reimburses PFPC for its out-of-pocket expenses
incurred in connection with its transfer agency and dividend disbursing
services. Communications to PFPC, including any election to reinvest dividends
in additional shares of the Fund, should be directed to PFPC Inc., P.O. Box
8950, Wilmington, Delaware 19899.
SERVICE ORGANIZATIONS
As stated above, Service Organizations may purchase Dollar Shares offered by the
Fund. Morgan Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New
York 10036, will act as the Service Organization for the Dollar Shares offered
by this Prospectus.
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<PAGE> 36
Dollar Shares are sold to institutions other than broker/dealers which enter
into servicing agreements with the Fund requiring them to provide support
services to their customers who are the beneficial owners of such shares in
consideration for .25% (on an annualized basis) of the average daily net asset
value of the Dollar Shares held by the Service Organizations for the benefit of
their 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 not provided by the transfer agent with respect to
shares beneficially owned by customers or the information necessary for
sub-accounting. Under the terms of the agreements, Service Organizations are
required to provide to their customers a schedule of any fees that they may
charge to their customers relating to the investment of their customers' assets
in Dollar Shares. (However, customers of Morgan and its affiliates will not be
subject to such charges.)
EXPENSES
Except as noted above, the Fund's service contractors bear all expenses in
connection with the performance of their services. Similarly, the Fund bears the
expenses incurred in its operations. The ratio of the Fund's expenses to its
average daily net assets for the fiscal year ended January 31, 1996 was .45%
(such ratio would have been .73% without the waiver of advisory and
administration fees described above).
BANKING LAWS
Banking laws and regulations currently 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, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities, but 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 as
agent for and upon the order of such a customer. PNC Bank, PIMC, PFPC, as well
as certain Service Organizations (i.e., banks), are subject to such banking laws
and regulations, but believe they may perform the services for the Fund
contemplated by their respective agreements, this Prospectus and Statement of
Additional Information without violating applicable banking laws or regulations.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of bank Service Organizations in connection with the
provision of support services to their customers, the Fund might be required to
alter or discontinue its arrangements with Service Organizations generally and
change its method of operations. It is not anticipated, however, that any change
in the Fund's method of operations would affect its net asset value per share or
result in a financial loss to any customer.
DIVIDENDS
The Fund's net income is declared daily as a dividend to the holders of record
of each of the Fund's series of shares at the close of business on the day of
declaration. Dividends for each series are equal to the net income available for
each series and are determined in the same manner. Net income available for
dividends on the Dollar Shares is after deduction of all the expense of fees
paid to Service Organizations for their services with respect to Dollar Shares,
and for the Plus shares is after deduction of all the expense of fees paid to
Service Organizations with respect to Plus shares. (See
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<PAGE> 37
"Management of the Fund--Service Organizations.") Shares of each series begin
accruing dividends on the day the purchase order for the shares is executed and
continue to accrue dividends through, and including, the day before the
redemption order for the shares is executed.
Dividends are paid monthly by check, or by wire transfer if requested in
writing by the shareholder, within 5 business days after the end of the month or
within 5 business days of the redemption of all of a shareholder's shares of a
series. The Fund does not expect to realize net long-term capital gains.
Institutional shareholders may elect to have their dividends reinvested in
additional full and fractional shares of the same series with respect to which
dividends are declared valued at their net asset value on the payment date.
Reinvested dividends receive the same tax treatment as dividends paid in cash.
Such election, or any revocation thereof, must be made in writing to PFPC, and
will become effective with respect to dividends paid after its receipt by PFPC.
TAXES
The Fund is treated as a separate corporation for Federal tax purposes. It is
intended that the Fund will separately qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification generally relieves the Fund of liability for Federal income and
California franchise and income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
The Fund's policy is to pay its shareholders with respect to each taxable
year dividends equal to at least the sum of 90% of its exempt interest income
(net of certain deductions) and 90% of its investment company taxable income (if
any) for such year. Dividends derived from exempt-interest income (known as
"exempt-interest dividends") may be treated by the Fund's shareholders as items
of interest excludable from their gross income under Section 103(a) of the Code,
unless under the circumstances applicable to the particular shareholder
exclusion would be disallowed. (See the Statement of Additional Information
under "Additional Information Concerning Taxes.")
If the Fund should hold certain private activity bonds issued after August
7, 1986, shareholders must include, as an item of tax preference, the portion of
dividends paid by the Fund that is attributable to interest on such bonds in
their Federal alternative minimum taxable income for purposes of determining
liability (if any) for the 26-28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax applicable to corporations.
Corporate shareholders must also take all exempt-interest dividends into account
in determining certain adjustments for alternative minimum tax purposes.
Shareholders receiving Social Security benefits or Railroad Retirement Act
benefits should note that all exempt-interest dividends will be taken into
account in determining the taxability of such benefits.
Dividends that are paid by the Fund to non-corporate shareholders and are
derived from interest on California Municipal Obligations (as defined above) or
certain U.S. Government obligations are also exempt from California state
personal income tax. However, dividends paid to corporate shareholders subject
to California state franchise tax or California state corporate income tax will
be taxed as ordinary income to such shareholders, notwithstanding that all or a
portion of such dividends is exempt from California state personal income tax.
Moreover, to the extent that the Fund's dividends are derived from interest on
debt obligations other than California Municipal Obligations or certain U.S.
Government obligations, such dividends will be subject to California state
personal income tax, even though such dividends may be exempt for Federal income
tax purposes.
Exempt-interest dividends derived from U.S. Government obligations generally
will be exempt from state and local tax as well. However, except as noted with
respect to California state personal income tax, in some situations
distributions of
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<PAGE> 38
net investment income may be taxable to investors under state or local law as
dividend income even though all or a portion of such distributions may be
derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income taxes. To the extent, if any, that dividends
paid to shareholders are derived from taxable interest or from long-term or
short-term capital gains, such dividends will not be exempt from Federal income
tax or California state personal income tax.
Shareholders will be advised at least annually as to the Federal and
California state personal income tax consequences of distributions made each
year.
The foregoing is only a brief summary of some of the important 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 advisers with specific reference to their own
tax situations.
DESCRIPTION OF SHARES AND MISCELLANEOUS
The Company's Charter authorizes the Board of Directors to issue up to three
billion full and fractional shares of capital stock, $.001 par value per share,
and to classify or reclassify any unissued shares of the Fund into one or more
classes or series by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions or
redemption. Pursuant to such authority, the Board of Directors has classified
2.3 billion of its shares as California Money shares (Class A Common Stock), 300
million of its shares as California Money Dollar shares (Class A Common
Stock--Special Series 1), 300 million of its shares as California Money Plus
shares (Class A Common Stock--Special Series 2), 80 million of its shares as
California Intermuni shares (Class B Common Stock), 10 million of its shares as
California Intermuni Dollar shares (Class B Common Stock--Special Series 1) and
10 million of its shares as California Intermuni Plus shares (Class B Common
Stock--Special Series 2). As of May 20, 1996, Bank of America National Trust &
Savings Association held, on behalf of its underlying accounts, approximately
28.8% of the Company's shares that were outstanding on that date. The 1940 Act
states that the beneficial owner of more than 25% of the voting securities of a
company is presumed to control the company. Under this definition, Bank of
America National Trust & Savings Association may be deemed to be a controlling
person of the Company.
THIS PROSPECTUS RELATES PRIMARILY TO THE DOLLAR SHARES OF THE FUND AND
DESCRIBES ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND
OTHER MATTERS RELATING TO THE FUND. INVESTORS WISHING TO OBTAIN SIMILAR
INFORMATION REGARDING THE FUND'S OTHER SERIES OF SHARES OR CALIFORNIA
INTERMEDIATE MAY OBTAIN SEPARATE PROSPECTUSES BY CALLING 800-821-7432.
Each Money, Dollar and Plus share represents an equal proportionate interest
in the assets of the Fund. Shareholders of each series are entitled to
participate equally in any dividend or distribution declared by the Company's
Board of Directors (except as provided under "Dividends") and in the net
distributable assets of the Fund on liquidation. Fund shares have no pre-emptive
rights and only such conversion and exchange rights as the Board may grant in
its discretion. When issued for payment as described in this Prospectus, the
Fund's shares will be fully paid and non-assessable. Further, shareholders of
each series are entitled to one vote for each full share held and proportionate
fractional vote for fractional shares held, and will vote in the aggregate and
not by series, except where otherwise required by law and except that only
Dollar Shares will be entitled to vote on matters submitted to a vote of
shareholders pertaining to the Fund's arrangements with Service Organizations
with respect to Dollar Shares, and Plus shares will enjoy similar voting rights
on matters
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<PAGE> 39
pertaining to the Fund's arrangements with Service Organizations with respect to
Plus shares. (See "Management of the Fund--Service Organizations.") Shares of
the Company have non-cumulative voting rights and, accordingly, the holders of
more than 50% of the Company's outstanding shares (irrespective of class or
series) may elect all of the directors.
For information concerning the redemption of Fund shares and possible
restrictions on their transferability, see "Redemption of Shares."
YIELD
From time to time the Fund may advertise the "yields," "effective yields" and
"tax-equivalent yields" of its Money, Dollar and Plus shares. YIELD FIGURES ARE
BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. The "yield" for each series of Fund shares refers to the income
generated by an investment in the shares of such series over a seven-day period
(which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a series
of Fund shares is assumed to be reinvested in shares of that series. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. The "tax-equivalent yield"
shows the level of taxable yield necessary to produce an after-tax yield
equivalent to the Fund's tax-free yield. It is calculated by increasing the
Fund's yield (calculated as above) by the amount necessary to reflect the
payment of Federal and California income taxes at a stated tax rate. The
"tax-equivalent yield" will always be higher than the "yield."
For the seven-day period ended January 31, 1996 the yield on Dollar shares
was 2.73%, the compounded effective yield on Dollar shares was 2.77%, and the
tax-equivalent yield on Dollar shares was 4.45%. These tax-equivalent yields
assume a Federal income tax rate of 31.0% and a California income tax rate of
11.0%. Because actual income tax rates may vary considerably from those
assumptions, each investor should consider their own tax rate in evaluating
yields. During this seven-day period, the Fund's Adviser and Administrators
voluntarily waived 70.04% of the advisory and administration fees payable by the
Fund; without such waivers each of the above-quoted yields would have been 9.40%
lower. The yield of any investment is generally a function of portfolio quality
and maturity, type of investment and operating expenses. The yield on all shares
will fluctuate and is not necessarily representative of future results. Any fees
charged by broker-dealers, banks or others directly to their customers in
connection with investments in the Fund are not reflected in the yields on the
Fund's shares, and such fees, if charged, will reduce the actual return received
by customers on their investments. Investors may call 800-821-6006 to obtain the
current yields on each series of the Fund's shares.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
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--------------------------------------
<TABLE>
<S> <C>
THE PIERPONT MONEY MARKET FUND The
THE PIERPONT TAX EXEMPT MONEY MARKET FUND Pierpont
THE PIERPONT CALIFORNIA MONEY ACCOUNT California Money
IN THE CALIFORNIA MONEY FUND Account
THE PIERPONT TREASURY MONEY MARKET FUND
THE PIERPONT SHORT TERM BOND FUND
THE PIERPONT BOND FUND
THE PIERPONT TAX EXEMPT BOND FUND
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
THE PIERPONT DIVERSIFIED FUND
THE PIERPONT EQUITY FUND
THE PIERPONT CAPITAL APPRECIATION FUND
THE PIERPONT INTERNATIONAL EQUITY FUND
THE PIERPONT EMERGING MARKETS EQUITY FUND
THE PIERPONT EUROPEAN EQUITY FUND
THE PIERPONT JAPAN EQUITY FUND
THE PIERPONT ASIA GROWTH FUND
</TABLE>
<TABLE>
<S> <C>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS in the California Money Fund
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR (Dollar Shares)
TO MAKE ANY REPRESENTATION, OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFER CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY THE TRUST OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY PROSPECTUS
ANY OF THE SECURITIES OFFERED HEREBY IN ANY MAY 31, 1996
JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL FOR THE TRUST OR THE DISTRIBUTOR
TO MAKE SUCH OFFER IN SUCH JURISDICTION.
</TABLE>
<PAGE> 41
CALIFORNIA INTERMEDIATE MUNICIPAL FUND
An Investment Portfolio Offered by
Municipal Fund for California Investors, Inc.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form N-1A Item Prospectus Caption
- -------------- ------------------
<S> <C> <C>
1. Cover Page......................................................... Cover Page
2. Synopsis........................................................... Background and
Expense Information
3. Condensed Financial Information.................................... Financial Highlights
4. General Description of
Registrant....................................................... Financial
Highlights;
Investment Objective
and Policies
5. Management of the Fund............................................. Management of the
Fund
6. Capital Stock and Other
Securities....................................................... Cover Page;
Financial
Highlights;
Dividends; Taxes;
Description of
Shares and
Miscellaneous; Yield
7. Purchase of Securities Being
Offered.......................................................... Management of the
Fund; Purchase of
Shares; Redemption
of Shares
8. Redemption or Repurchase........................................... Redemption of Shares
9. Legal Proceedings.................................................. Inapplicable
</TABLE>
<PAGE> 42
California Intermediate
Municipal Fund
An Investment Portfolio Offered by
Municipal Fund for California Investors, Inc.
<TABLE>
<S> <C>
Bellevue Park Corporate Center For purchase and redemption orders call:
400 Bellevue Parkway 800-441-7450 (in Delaware: 302-791-5350). For
Suite 100 current yield information call: 800-821-6006
Wilmington, DE 19809 (California Intermuni shares code: 64;
California Intermuni Dollar shares code: 65;
California Intermuni Plus shares code: 66).
For other information call: 800-821-7432.
</TABLE>
Municipal Fund for California Investors, Inc. (the "Company") is a no-load,
open-end investment company currently offering shares in two separate investment
portfolios: California Money Fund and California Intermediate Municipal Fund.
The shares offered by this Prospectus represent interests in the California
Intermediate Municipal Fund portfolio (the "Fund"). The Fund is a
non-diversified investment company that is designed primarily to provide
California institutional investors and their customers with a high level of
current interest income which is exempt from Federal income tax and, to the
extent possible, from California state personal income tax. The Fund has a
distribution and service plan applicable to one series of its shares and a
service plan applicable to another series of its shares under which certain
service organizations are entitled to receive a fee at the rate of .25% per
annum for their provision of distribution and/or support services to the
beneficial owners of such shares.
The Fund invests substantially all of its assets in tax-exempt obligations
having remaining maturities of ten years or less. The Fund does not invest in
obligations subject to regular Federal income tax and may hold uninvested cash
reserves pending investment, during temporary defensive periods or when suitable
tax-exempt obligations are unavailable. The Fund's net asset value per share
will fluctuate as the value of its portfolio changes in response to changing
market rates of interest and other factors.
PNC Institutional Management Corporation ("PIMC"), PNC Bank, National
Association ("PNC Bank"), PFPC Inc. ("PFPC") and Provident Distributors, Inc.
("PDI") serve as the Fund's adviser, sub-adviser and administrators,
respectively. PDI also serves as the Fund's distributor. Shares may not be
purchased by individuals directly but, as indicated above, institutional
investors, such as banks and broker-dealers, may purchase shares for accounts
maintained by individuals.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY, GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
This Prospectus briefly sets forth certain information about the Fund that
investors should know before investing. Investors are advised to read this
Prospectus and retain it for future reference. Additional information about the
Fund, contained in a Statement of Additional Information currently dated May 31,
1996, has been filed with the Securities and Exchange Commission and is
available to investors without charge by calling the Fund at 800-821-7432. The
Statement of Additional Information, as amended from time to time, is
incorporated by reference in its entirety into this Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
May 31, 1996
<PAGE> 43
BACKGROUND AND EXPENSE INFORMATION
The Company was organized as a Maryland corporation on September 20, 1982,
and currently offers shares in two separate investment portfolios: California
Money Fund ("California Money") and the Fund. The Fund currently offers three
separate series of shares--California Intermuni ("Intermuni"), California
Intermuni Dollar ("Dollar") and California Intermuni Plus ("Plus"). The public
offering of Intermuni, Dollar and Plus shares commenced on September 12, 1988.
Shares of each series represent equal, pro rata interests in a single portfolio
of intermediate-term, tax-exempt obligations maintained by the Fund (see
"Investment Objective and Policies"), except that Dollar and Plus shares bear
certain fees payable by the Fund (at the rate of .25% per annum) to
institutional investors ("Service Organizations") for distribution and/or
support services they provide to the beneficial owners of such shares. (See
"Management of the Fund--Service Organizations.") Because of the service fees
borne by the Dollar and Plus shares, the net yield on such shares can be
expected, at any given time, to be approximately .25% lower than the net yield
on Intermuni shares.
EXPENSE SUMMARY
<TABLE>
<CAPTION>
DOLLAR PLUS
ANNUAL FUND OPERATING EXPENSES SHARES SHARES
- -------------------------------------------------------- INTERMUNI ------------ ------------
(as a percentage of average net assets) SHARES (ESTIMATED) (ESTIMATED)
------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (net of waivers)...................... .04% .04% .04%
12b-1 Fees............................................ -- -- .25%
Other Expenses........................................ .16% .41% .16%
Administration Fees (net of waivers)............... .03% .03% .03%
Non-12b-1 Fees..................................... -- .25% --
Other.............................................. .13% .13% .13%
----- ----- ----- ----- ----- -----
Total Fund Operating Expenses
(net of waivers)................................... .20% .45% .45%
==== ==== ====
</TABLE>
- ---------------
EXAMPLE
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a hypothetical 5% annual return
and (2) redemption at the end of each time period with
respect to the following shares:
Intermuni Shares..................................... $2 $ 6 $11 $ 26
Dollar Shares (estimated)............................ $5 $14 $25 $ 57
Plus Shares (estimated).............................. $5 $14 $25 $ 57
</TABLE>
The foregoing Expense Summary and Example are intended to assist investors
in understanding the various costs and expenses that an investor in the Fund
will bear directly or indirectly. In addition, institutional investors may
charge their customers fees for providing services in connection with
investments in the Fund's Dollar and Plus shares. (For more complete
descriptions of the various costs and expenses, see "Management of the Fund" in
the Prospectus and Statement of Additional Information and the financial
statements and related notes incorporated by reference into the Statement of
Additional Information.) The investment adviser and administrators have agreed
to waive the advisory and administration fees otherwise payable to them and to
reimburse the Fund for its operating expenses to the extent necessary to ensure
that the annual operating expense ratio of the Fund (excluding fees paid to
Service Organizations pursuant to Servicing Agreements) does not exceed .20% of
the Fund's average daily net assets for the year ended January 31, 1997. Absent
fee waivers for the year ended January 31, 1996, "Total Fund Operating Expenses"
for the Fund's Intermuni, Dollar and Plus shares would have been .52%, .77%
(estimated), and .77% (estimated), respectively, of the Fund's average daily net
assets. During the year ended January 31, 1996, no Dollar shares or Plus shares
had been sold. The foregoing table has not been audited by the Fund's
independent accountants.
THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RETURN OR OPERATING EXPENSES. ACTUAL INVESTMENT RETURN AND
OPERATING EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE> 44
FINANCIAL HIGHLIGHTS
The table of "Financial Highlights" below is derived from the Fund's
financial statements contained in the Statement of Additional Information and
sets forth certain information concerning the investment results for Intermuni
shares. The financial highlights for the fiscal years ended January 31, 1996,
1995, 1994, 1993 and 1992 have been audited by Coopers & Lybrand L.L.P., the
Fund's independent accountants, whose report thereon is incorporated by
reference in the Statement of Additional Information along with the financial
statements. This information should be read in conjunction with the financial
statements and notes incorporated by reference into the Statement of Additional
Information. No Dollar or Plus shares were sold during the periods presented.
The Fund's financial statements and more information about the performance of
the Fund is also contained in the Annual Report to Shareholders which may be
obtained without charge by calling 800-821-7432.
FINANCIAL HIGHLIGHTS
(For a Fund share outstanding throughout each period)
<TABLE>
<CAPTION>
INTERMUNI SHARES
---------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR 09/12/88(1)
ENDED ENDED ENDED ENDED ENDED ENDED ENDED TO
01/31/96 01/31/95 01/31/94 01/31/93 01/31/92 01/31/91 01/31/90 01/31/89
-------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $ 10.02 $ 10.85 $ 10.72 $ 10.61 $ 10.34 $ 10.05 $ 10.04 $ 10.00
Income From Investment
Operations:
Net Investment Income... 0.5164 0.5165 0.5480 0.5655 0.6070 0.6199 0.6414 0.2393
Net Realized and
Unrealized Gain/Loss
on Investments........ 0.5993 (0.7959) 0.4110 0.2219 0.3296 0.2915 0.0100 0.0400
-------- -------- -------- -------- -------- -------- -------- ----------
Total From Investment
Operations............ 1.1157 (0.2794) 0.9590 0.7874 0.9366 0.9114 0.6514 0.2793
-------- -------- -------- -------- -------- -------- -------- ----------
Less Distributions:
Dividends From Net
Investment Income....... (0.5164) (0.5165) (0.5480) (0.5655) (0.6070) (0.6199) (0.6414) (0.2393)
Distributions From Net
Capital Gains........... (0.0393) (0.0341) (0.2810) (0.1119) (0.0596) (0.0015) ( --) ( --)
-------- -------- -------- -------- -------- -------- -------- ----------
Total Distributions....... (0.5557) (0.5506) (0.8290) (0.6774) (0.6666) (0.6214) (0.6414) (0.2393)
-------- -------- -------- -------- -------- -------- -------- ----------
Net Asset Value, End of
Period.................... $ 10.58 $ 10.02 $ 10.85 $ 10.72 $ 10.61 $ 10.34 $ 10.05 $ 10.04
======== ======== ======== ======== ======== ======== ======== =========
Total Return................ 11.36% (2.51)% 9.26% 7.68% 9.34% 9.40% 6.70% 7.41%(3)
Ratios/Supplemental Data
Net Assets, End of
Period $(000)........... 14,926 17,432 20,061 17,318 19,516 14,131 10,687 8,191
Ratio of Expenses to
Average Net Assets(2)..... .20% .20% .20% .30% .30% .30% .21% .23%(3)
Ratio of Net Investment
Income to Average
Net Assets.............. 4.97% 5.06% 5.06% 5.31% 5.80% 6.14% 6.42% 6.19%(3)
Portfolio Turnover Rate... 26% 3% 23% 52% 63% 39% 43% 118%(3)
</TABLE>
- ---------------
1 Commencement of operations.
2 Annualized operating expense ratios before waivers of Investment Adviser and
Administrator fees for the years ended January 31, 1996, 1995, 1994, 1993,
1992, 1991 and 1990 and for the period ended January 31, 1989 were .52%, .53%,
.51%, .48%, .53%, .57%, .61% and .63%, respectively.
3 Annualized.
3
<PAGE> 45
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund is a no-load, open-end, non-diversified investment company which
has an investment objective to provide investors with a high level of current
interest income which is exempt from Federal income tax and, to the extent
possible, from California state personal income tax. There can be, of course, no
assurance that the Fund will achieve its investment objective. The Fund has a
distribution plan applicable to one series of its shares and a service plan
applicable to another series of its shares. See "Service Organizations."
Substantially all of the Fund's assets will be invested in debt obligations
with remaining maturities of ten years or less issued by or on behalf of the
State of California and other states, territories and possessions of the United
States, the District of Columbia and their respective authorities, agencies,
instrumentalities and political sub-divisions and tax-exempt derivatives such as
tender option bonds, participations, beneficial interests in trusts and
partnership interests ("Municipal Obligations"). Dividends paid by the Fund that
are derived from interest on obligations which is exempt from taxation under the
Constitution or statutes of California ("California Municipal Obligations") are
exempt from regular Federal income tax and California state personal income tax.
California Municipal Obligations include municipal securities issued by the
State of California and its political sub-divisions, as well as certain other
governmental issuers such as the Commonwealth of Puerto Rico. Dividends derived
from interest on Municipal Obligations other than California Municipal
Obligations are exempt from regular Federal income tax but may be subject to
California state personal income tax. (See, however, "Taxes" below concerning
treatment of exempt-interest dividends paid by the Fund for purposes of the
Federal alternative minimum tax applicable to particular classes of investors.)
The Fund expects that, except during temporary defensive periods or when
acceptable securities are unavailable for investment by the Fund, the average
weighted maturity of the Fund will be between three and ten years and 65% of the
Fund's assets will be invested in California Municipal Obligations. At least 50%
of the Fund's assets must be invested in obligations which, when held by an
individual, the interest therefrom is exempt from California personal income
taxation (i.e., California Municipal Obligations and certain U.S. Government
obligations) at the close of each quarter of its taxable year so as to permit
the Fund to pay dividends that are exempt from California state personal income
tax. Dividends, regardless of their source, may be subject to local taxes.
The Fund will not knowingly purchase securities the interest on which is
subject to regular Federal income tax; however, the Fund may hold uninvested
cash reserves pending investment during temporary defensive periods or, if in
the opinion of the Fund's investment adviser, suitable tax-exempt obligations
are unavailable. Uninvested cash reserves will not earn income.
The Fund invests in Municipal Obligations that at the time of purchase are
rated "A" or higher by Standard & Poor's Ratings Group ("S&P"), "A" or higher by
Moody's Investors Service, Inc. ("Moody's") or "A" or higher by Fitch Investors
Service, L.P. ("Fitch") in the case of bonds, rated "SP-1" by S&P, "MIG-1" by
Moody's or "F-1+" or "F-1" by Fitch in the case of notes, rated "A-1" by S&P,
"Prime-1" by Moody's or "F-1+" or "F-1" by Fitch in the case of tax-exempt
commercial paper, or rated "VMIG-1" by Moody's in the case of variable rate
demand obligations. The Fund may also purchase "high quality" California
Municipal Obligations rated "A-2" by S&P, or "Prime-2", "MIG-2" or "VMIG-2" by
Moody's or "F-2" by Fitch when acceptable California Municipal Obligations with
higher ratings are unavailable for investment by the Fund. The Fund may purchase
Municipal Obligations that are unrated at the time of purchase provided they are
determined by the investment
4
<PAGE> 46
adviser to be of comparable quality. See the Appendix to the Statement of
Additional Information for a description of applicable Municipal Obligations
ratings.
The Fund's investment objective and the policies described herein may be
changed by its Board of Directors without the affirmative vote of the holders of
a majority of the Fund's outstanding shares, except that the Fund may not change
the following investment limitations without such a vote of shareholders.
THE FUND MAY NOT:
1. Invest less than 80% of its total assets in securities the interest
on which is exempt from Federal income taxes, except during temporary
defensive periods or when acceptable securities are unavailable for
investment by the Fund.
2. 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 (a) up to 50% of the value of the Fund's assets
may be invested without regard to this 5% limitation, provided that no more
than 25% of the value of the Fund's assets are invested in the securities
of any one issuer and (b) this 5% limitation does not apply to securities
issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities. For purposes of this limitation, a security is
considered to be issued by the governmental entity (or entities) whose
assets and revenues back the security, or, with respect to a private
activity bond that is backed only by the assets and revenues of a non-
governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an
issuer in connection with such guarantee.
3. Borrow money except from banks for temporary purposes and then in
amounts not in excess of 10% of the value of the Fund's assets at the time
of such borrowing; or mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of the Fund's
assets at the time of such borrowing. (This borrowing provision is not
intended for investment leverage, but solely to facilitate management of
the Fund's portfolio by enabling the Fund to meet redemption requests when
the liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient, and hence the Fund may not purchase any portfolio securities
while its borrowings are outstanding.)
4. Invest more than 10% of the value of the Fund's total assets in
securities (including variable rate demand notes) which are illiquid due to
legal or contractual restrictions on resale or the absence of readily
available market quotations.
5. Purchase any securities which would cause 25% or more of the value
of the Fund's total assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities in the
same industry; provided that this limitation shall not apply to Municipal
Obligations or governmental guarantees of Municipal Obligations; and
provided, further, that for the purpose of this limitation only, private
activity bonds that are considered to be issued by non-governmental users
(see the second investment limitation above) shall not be deemed to be
Municipal Obligations.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax (and, with respect to
California Municipal Obligations, to the exemption of interest thereon from
California state personal income tax) are rendered by bond counsel to the
5
<PAGE> 47
respective issuers at the time of issuance, and opinions relating to the
validity of and the tax-exempt status of payments received by the Fund from
tax-exempt derivatives are rendered by counsel to the respective sponsors of
such derivatives. Neither the Fund nor its investment adviser will review the
proceedings relating to the issuance of Municipal Obligations, the creation of
any tax-exempt derivatives, or the bases for such opinions.
TYPES OF MUNICIPAL OBLIGATIONS
The two principal classifications of Municipal Obligations which may be
held by the Fund 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 may include private activity bonds.
Such bonds may be issued by or on behalf of public authorities to finance
various privately operated facilities, and are not payable from the unrestricted
revenues of the issue. As a result, the credit quality of private activity bonds
is frequently related directly to the credit standing of private corporations or
other entities.
The Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities 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.
OTHER INVESTMENT PRACTICES
Municipal Obligations purchased by the Fund may include variable and
floating rate instruments, which provide for adjustments in the interest rate on
certain reset dates or whenever a specified interest rate index changes,
respectively. Variable and floating rate instruments are subject to the credit
quality standards described above. In some cases the Fund may require that the
obligation to pay the principal of the instrument be backed by a letter or line
of credit or guarantee. Although a particular variable or floating rate demand
instrument may not be actively traded in a secondary market, in some cases, the
Fund may be entitled to principal on demand and may be able to resell such
instrument in the dealer market.
The Fund may also purchase Municipal Obligations on a "when-issued" basis.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield. 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 basis are recorded as an asset and are
subject to changes in value based upon changes in the general level of interest
rates. The Fund expects that commitments to purchase when-issued securities will
not exceed 25% of the value of its total assets absent unusual market
conditions, and that a commitment by the Fund to purchase when-issued securities
will not exceed 45 days. The Fund does not intend to purchase when-issued
securities for speculative purposes but only in furtherance of its investment
objective.
In addition, the Fund may acquire "stand-by commitments" with respect to
Municipal Obligations held in its portfolio. Under a stand-by commitment, a
dealer agrees to purchase at the Fund's option specified Municipal Obligations
at a stated price. The Fund will acquire stand-by commitments solely to
facilitate portfolio liquidity, and does not intend to exercise its rights
thereunder for trading purposes.
6
<PAGE> 48
RISK FACTORS
The Fund intends to follow the diversification standards set forth in the
Investment Company Act of 1940, as amended (the "1940 Act") except to the
extent, in the investment adviser's judgment, that non-diversification is
appropriate in order to maximize the percentage of the Fund's assets that are
California Municipal Obligations. The investment return on a non-diversified
portfolio typically is dependent upon the performance of a smaller number of
issuers relative to the number of issuers held in a diversified portfolio. In
the event of changes in the financial condition or in the market's assessment of
certain issuers, the Fund's maintenance of large positions in the obligations of
a small number of issuers may affect the value of the Fund's portfolio to a
greater extent than that of a diversified portfolio.
Although the Fund does not presently intend to do so on a regular basis, it
may invest more than 25% of its assets in Municipal Obligations the interest on
which is paid solely from revenues on similar projects if such investment is
deemed necessary or appropriate by the Fund's investment adviser. To the extent
that the Fund's assets are concentrated in Municipal Obligations payable from
revenues on similar projects, the Fund will be subject to the particular risks
presented by such projects to a greater extent than it would be if the Fund's
assets were not so concentrated.
The Fund's ability to achieve its investment objective is dependent upon
various factors, including the ability of the issuers of California Municipal
Obligations to timely meet their continuing payment obligations with respect to
the municipal obligations. Any reductions in the credit worthiness of issuers of
California Municipal Obligations could adversely affect the market values and
marketability of California Municipal Obligations, and, consequently, the net
asset value of the Fund's portfolio.
On July 15, 1994 and July 15, 1994, respectively, Standard and Poor's
Ratings Group and Moody's Investors Service, Inc., citing the State of
California's deteriorating financial position, lowered their ratings of the
State's general obligation bonds from A+ and Aa, respectively, to A and A1,
respectively.
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could result
in certain adverse consequences affecting California Municipal Obligations.
Significant financial and other considerations relating to the Fund's
investments in California Municipal Obligations are summarized in the Statement
of Additional Information.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
Fund shares are sold to institutional investors at the net asset value per
share next determined after receipt of a purchase order by PFPC, the Fund's
transfer agent.
Purchase orders for shares are accepted by the Fund until 4:00 P.M.,
Eastern time, only on days on which both the New York Stock Exchange and the
Federal Reserve Bank of Philadelphia, are open for business (a "Business Day"),
and must be transmitted to PFPC by telephone at 800-441-7450 (in Delaware call
302-791-5350) or through the Fund's computer access program. Purchase orders
received before 4:00 P.M., Eastern time, will be executed the following Business
Day if payment has been received by 4:00 P.M., Eastern time, on the day the
order is executed. Orders for which payment has not been received by 4:00 P.M.,
Eastern time, on the next Business Day following receipt of the order, will not
be accepted and notice thereof will be given to the institution placing the
order.
7
<PAGE> 49
(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.
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 Dollar or Plus shares. Institutions, including banks regulated by the
Comptroller of the Currency and investment advisers and other money managers
subject to the jurisdiction of the Securities and Exchange Commission, the
Department of Labor or state securities commissions, should consult their legal
advisers before investing fiduciary funds in Dollar or Plus shares. See also
"Management of the Fund--Banking Laws."
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 $5,000; however, broker-dealers and other institutional investors
may set a higher minimum for their customers. There is no minimum subsequent
investment.
REDEMPTION PROCEDURES
Redemption orders must be transmitted to PFPC by telephone in the manner
described under "Purchase Procedures." Redemption orders will be priced at the
net asset value per share determined as of 4:00 P.M., Eastern time, on the day
the order is received and will be executed on the following Business Day. 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.
Payment for redeemed shares is normally made in Federal funds wired to the
redeeming shareholder on the next Business Day (the execution date) following
receipt of the order. The Fund reserves the right to wire redemption proceeds
within 7 days after receiving the redemption order if, in the judgment of the
Fund's investment adviser, an earlier payment could adversely affect the Fund.
The Fund reserves the right to redeem shares in any account at their net
asset value if the value of the account is less than $1,000 upon sixty days'
written notice to the shareholder, unless the shareholder increases the value of
its account to $1,000 or more during such sixty-day period. In addition, the
Fund may redeem shares involuntarily or suspend the right of redemption under
certain special circumstances described in the Statement of Additional
Information under "Additional Purchase and Redemption Information."
OTHER MATTERS
The Fund's net asset value per share for purposes of pricing purchase and
redemption orders is determined by PIMC, as of 4:00 P.M., Eastern time, on each
Business Day (excluding those holidays on which either the New York Stock
Exchange or the Federal Reserve Bank of Philadelphia is closed). Currently, the
holidays which the New York Stock Exchange or the Federal Reserve Bank of
Philadelphia observe are New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day. The net asset
value per share of the Fund's shares is calculated by adding the value of all
securities and other assets of the Fund, subtracting liabilities and dividing
the result by the number of the Fund's outstanding shares (irrespective of
series). The net asset value per share for purposes of pricing purchase and
redemption orders for Fund shares is determined independently of the net asset
value per share of the Company's other investment portfolio.
8
<PAGE> 50
The net asset value of the Fund's shares will fluctuate as the value of its
portfolio changes in response to changing market rates of interest and other
factors. The value of the Fund's portfolio securities can be expected to vary
inversely with changes in prevailing interest rates. Municipal Obligations with
longer maturities tend to produce higher yields and are generally subject to
potentially greater capital appreciation and depreciation than securities with
shorter maturities and lower yields. Thus, investing in Municipal Obligations
with longer maturities will cause greater fluctuations in the Fund's net asset
value than investing in securities with shorter maturities.
Portfolio securities for which market quotations are readily available
(other than debt securities with remaining maturities of 60 days or less) are
valued at the mean of the most recent quoted bid and asked prices provided by
investment dealers. Other securities and assets for which market quotations are
not readily available are valued at their fair value in the best judgment of
PIMC under procedures established by, and under the supervision of, the
Company's Board of Directors. Market or fair value may be determined by a matrix
pricing system which is used to determine the value of Municipal Obligations
based on factors such as yield, prices, maturities, call features and ratings on
comparable securities.
Debt securities with remaining maturities of 60 days or less are valued on
an amortized cost basis (unless the Board determines that such basis does not
represent fair value at the time). Under this method, such securities are valued
initially at cost on the date of purchase or, in the case of securities
purchased with more than 60 days to maturity, are valued at their market or fair
value each day until the 61st day prior to maturity. Thereafter, absent unusual
circumstances, the Fund assumes a constant proportionate amortization of any
discount or premium until maturity of the security.
Shares of the Fund are sold and redeemed without charge by the Fund,
although Service Organizations (see below) and other institutional investors
purchasing or holding Fund shares for their customers' accounts may charge
customers for cash management and other services provided in connection with
their accounts including, for example, account maintenance fees, compensating
balance requirements or fees based upon account transactions, assets or income.
Such charges, in effect, will reduce the yield of the Fund to such customers. A
customer should therefore read this Prospectus in light of the terms governing
its account with a Service Organization (or other institution) before purchasing
Fund shares. An institution purchasing or redeeming shares on behalf of its
customers is responsible for transmitting orders to the Fund in accordance with
its customer agreements.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The business and affairs of the Fund are managed under the direction of the
Company's Board of Directors. The directors of the Company are as follows:
G. Willing Pepper, Chairman of the Board and President of the Company,
is a former President of Scott Paper Company.
Rodney D. Johnson is President of Fairmount Capital Advisors, Inc.
William R. Howell is a former Vice Chairman, Union Bank, Los Angeles.
Rudolph A. Peterson is Honorary Director, President and Chief
Executive Officer (Ret.) of BankAmerica Corporation.
Anthony M. Santomero is the Richard K. Mellon Professor of Finance at
The Wharton School, University of Pennsylvania.
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<PAGE> 51
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly-owned subsidiary of PNC Bank, serves as the Fund's
investment adviser. PIMC was organized in 1977 by PNC Bank to perform advisory
services for investment companies and has its principal offices at 400 Bellevue
Parkway, Wilmington, Delaware 19809. PNC Bank serves as the Fund's sub-adviser.
PNC Bank is one of the largest bank managers of investments for individuals in
the United States, and together with its predecessors has been in the business
of managing the investment of fiduciary and other accounts since 1847. PNC Bank
is a wholly-owned, indirect subsidiary of PNC Bank Corp., and has its principal
offices at Broad and Chestnut Streets, Philadelphia, Pennsylvania 19102. PNC
Bank Corp. is a multi-bank holding company. PIMC and PNC Bank also serve as
adviser and sub-adviser, respectively, to the Company's California Money
portfolio.
The California Intermediate Municipal Fund's portfolio manager, W. Don
Simmons, is the person primarily responsible for the day-to-day management of
the Fund's investments. Mr. Simmons has been with PIMC since 1984 and has been
the Fund's manager since 1991.
PNC Bank Corp., headquartered in Pittsburgh, Pennsylvania, is one of the
largest financial services organizations in the United States with banking
subsidiaries in Pennsylvania, New Jersey, Delaware, Ohio, Kentucky, Indiana,
Massachusetts and Florida. Its major businesses include corporate banking,
consumer banking, mortgage banking and asset management.
PNC Financial Services Group is PNC Bank Corp.'s mutual fund complex,
headquartered in Wilmington, Delaware. This group includes PIMC, PFPC, and PNC
Bank. In 1973, Provident National Bank (predecessor to PNC Bank) commenced
advising the first institutional money market mutual fund -- a U.S.
dollar-denominated constant net asset value fund -- offered in the United
States.
The PNC Financial Services Group is one of the largest U.S. bank managers
of mutual funds with assets currently under management in excess of $30 billion.
This group, through PFPC Inc. and PFPC International Ltd., is also a leading
mutual fund service provider having contractual relationships with approximately
370 mutual funds with 3.5 million shareholders and in excess of $101 billion in
assets. This group, through its PNC Institutional Investment Service, provides
investment research to some 250 financial institutions located in the United
States and abroad. PNC Bank provides custodial services for approximately $210
billion in assets, including $160 billion in mutual fund assets.
As adviser, PIMC manages the Fund's portfolio and is responsible for all
purchases and sales of the Fund's portfolio securities. PIMC also maintains
certain of the Fund's financial accounts and records and computes the Fund's net
asset value and net income. For the advisory services provided and expenses
assumed by it, PIMC is entitled to receive a fee, computed daily and payable
monthly based on the Fund's average net assets. PIMC and the administrators may
from time to time reduce the advisory and administration fees otherwise payable
to them or may reimburse the Fund for its operating expenses. For the fiscal
year ended January 31, 1996, the Fund paid advisory fees to PIMC (after fee
waivers) of .04% of the Fund's average daily net assets.
As sub-adviser, PNC Bank provides research, credit analysis and makes
recommendations with respect to the Fund's investments and supplies PIMC with
certain computer facilities, personnel and other services. For its sub-advisory
services, PNC Bank is entitled to receive from PIMC an amount equal to 75% of
the advisory fee paid by the Fund to PIMC (subject to adjustment in certain
circumstances). The sub-advisory fees paid by PIMC to PNC Bank have no effect on
the advisory fees payable by the Fund to PIMC. PNC Bank also serves as the
Fund's custodian. The services provided by
10
<PAGE> 52
PNC Bank and PIMC and the fees payable by the Fund for these services are
described further in the Statement of Additional Information under "Management
of the Company."
ADMINISTRATORS
PFPC whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809 and PDI, whose principal business address is 259 Radnor-Chester
Road, Suite 120, Radnor, Pennsylvania 19087, serve as administrators. PFPC is an
indirect wholly-owned subsidiary of PNC Bank Corp. A majority of the outstanding
stock of PDI is owned by its officers. The administrative services provided by
the administrators, which are described more fully in the Statement of
Additional Information, include providing and supervising the operation of an
automated data processing system to process purchase and redemption orders;
assisting in maintaining the Fund's Wilmington, Delaware office; performing
administrative services in connection with the Fund's computer access program
maintained to facilitate shareholder access to the Fund; accumulating
information for and coordinating the preparation of reports to the Fund's
shareholders and the SEC; and maintaining the registration or qualification of
the Fund's shares for sale under state securities laws. PFPC and PDI are each
responsible for carrying out the duties undertaken pursuant to the
Administration Agreement with the Fund.
For their administrative services, the administrators are entitled jointly
to receive a fee computed daily and payable monthly. (For information regarding
the administrators' waivers, see "Investment Adviser and Sub-Adviser" above.)
The Fund also reimburses each administrator for its reasonable out-of-pocket
expenses incurred in connection with the Fund's computer access program. For the
fiscal year ended January 31, 1996, the Fund paid PFPC and PDI administrative
fees (after fee waivers) aggregating .04% of its average daily net assets.
PFPC also serves as transfer agent, registrar and dividend disbursing
agent. PFPC's address is P.O. Box 8950, Wilmington, Delaware 19885-9628. The
services provided by PFPC and PDI and the fees payable by the Fund for these
services are described further in the Statement of Additional Information under
"Management of the Company."
DISTRIBUTOR
PDI serves as distributor of the Fund's shares. Its principal offices are
located at 259 Radnor-Chester Road, Suite 120, Radnor Pennsylvania 19087. Fund
shares are sold on a continuous basis by the distributor as agent. The
distributor pays the cost of printing and distributing prospectuses to persons
who are not shareholders of the Fund (excluding preparation and printing
expenses necessary for the continued registration of the Fund's shares) and of
printing and distributing all sales literature. No compensation is payable by
the Fund to the distributor for its distribution services.
SERVICE ORGANIZATIONS
As stated above, Service Organizations may purchase Dollar or Plus shares
offered by the Fund. Dollar shares are sold to institutions other than
broker/dealers, and Plus shares are sold to broker/ dealers, which, in each
case, enter into servicing agreements with the Fund requiring them to provide
support services to their customers who are the beneficial owners of such shares
in consideration for .25% (on an annualized basis) of the average daily net
asset value of the Dollar or Plus shares held by the Service Organizations for
the benefit of their customers. Such services, which are described more fully in
the Statement of Additional Information under "Management of the Fund--Service
Organiza-
11
<PAGE> 53
tions," 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 or Plus shares; and
providing sub-accounting not provided by the transfer agent with respect to
shares beneficially owned by customers or the information necessary for
sub-accounting. In addition, broker/dealers purchasing Plus shares may be
requested to provide from time to time assistance (such as the forwarding of
sales literature and advertising to their customers) in connection with the
distribution of Plus shares. Under the terms of the agreements, Service
Organizations are required to provide to their customers a schedule of any fees
that they may charge to their customers relating to the investment of their
customers' assets in Dollar or Plus shares. Intermuni shares offered by the Fund
may be purchased by any type of institutional investor (including banks and
broker/dealers) which does not wish to enter into such servicing agreements with
the Fund in connection with its investments.
EXPENSES
Except as noted above and in the Statement of Additional Information, the
Fund's service contractors bear all expenses in connection with the performance
of their services. Similarly, the Fund bears the expenses incurred in its
operations. The ratio of the Fund's expenses to its average daily net assets for
the period ended January 31, 1996 for the Fund's Intermuni, Dollar and Plus
shares were .20%, .45% and .45%, respectively (such ratios would have been .52%,
.77% (estimated) and .77% (estimated) for the Fund's Intermuni, Dollar and Plus
shares, respectively, without the waiver of advisory and administration fees
described above).
BANKING LAWS
Banking laws and regulations currently 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. PNC Bank, PIMC, PFPC, as well as certain Service Organizations are
subject to such banking laws and regulations, but believe they may perform the
services for the Fund contemplated by their respective agreements, this
Prospectus and Statement of Additional Information without violating applicable
banking laws or regulations.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of bank Service Organizations in connection with the
provision of support services to their customers, the Fund may be required to
alter or discontinue its arrangements with Service Organizations and change its
method of operations. It is not anticipated, however, that any change in the
Fund's method of operations would affect its net asset value per share or result
in a financial loss to any customer.
PERFORMANCE CALCULATIONS
From time to time, performance information such as total return and yield
data for the Fund may be quoted in advertisements or in communications to
shareholders. The Fund's total return may be calculated on an average annual
total return basis, and may also be calculated on an aggregate total
12
<PAGE> 54
return basis, for various periods. Average annual total return reflects the
average annual percentage change in value of an investment in the Fund over the
measuring period. Aggregate total return reflects the total percentage change in
value over the measuring period. Both methods of calculating total return assume
that dividends and capital gain distributions made by the Fund during the period
are reinvested in Fund shares.
The yield of the Fund is computed based on its net income during a 30-day
(or one month) period (the particular period will be identified in connection
with a given yield quotation). More specifically, the Fund's yield is computed
by dividing its net income per share during a 30-day (or one month) period by
the net asset value per share on the last day of the period and annualizing the
result on a semi-annual basis. The Fund's "tax-equivalent yield" may also be
quoted from time to time and shows the level of taxable yield necessary to
produce an after-tax yield equivalent to the Fund's tax-free yield. It is
calculated by increasing the Fund's yield (calculated as above) by the amount
necessary to reflect the payment of Federal and California income taxes at a
stated tax rate. The "tax-equivalent yield" will always be higher than the
yield. The yield for Intermuni shares for the month of January 1996 was 5.01%
and the tax-equivalent yield was 8.16%. This tax-equivalent yield assumes a
Federal income tax rate of 31.0% and a California income tax rate of 11.0%.
Because actual income tax rates may vary considerably from these assumptions,
each investor should consider their own tax rate in evaluating yields.
Performance quotations of the Fund represent the Fund's past performance,
and should not be considered as representative of future results. The investment
return and principal value of an investment in the Fund will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Any fees charged by banks or other institutional investors
directly to their customer accounts in connection with investments in shares of
the Fund will not be included in the Fund's calculations of yield and total
return.
DIVIDENDS
Shareholders of the Fund are entitled to dividends and distributions
arising only from the net income and capital gains, if any, earned on
investments held by the Fund. The Fund's net income is declared daily as a
dividend to shareholders of record at the close of business on the day of
declaration. Shares begin accruing dividends on the day the purchase order for
the shares is executed and continue to accrue dividends through, and including,
the day before the redemption order for the shares is executed. Dividends are
paid monthly by check, or by wire transfer if requested in writing by the
shareholder, within 5 business days after the end of the month or within 5
business days after a redemption of all of a shareholder's shares of a
particular series. Dividends declared in December of any year payable to
shareholders of record on a specified date in such month will be deemed to have
been received by the shareholders and paid by the Fund on the record date,
provided such dividends are paid before February 1 of the following year.
Dividends for each series are equal to the net income available for such
series and are determined in the same manner. Net income available for dividends
on the Dollar shares is after deduction of all the expenses of fees paid to
Service Organizations for their services with respect to Dollar shares and for
the Plus shares is after deduction of all the expenses of fees paid to Service
Organizations with respect to Plus shares. As a result, at any given time, the
net yield on Dollar shares and Plus shares will be approximately .25% lower than
the net yield on other shares of the Fund that are not subject to
13
<PAGE> 55
agreements with Service Organizations. Yield quotations are computed for Dollar
shares and Plus shares separately from those for shares not subject to
agreements with Service Organizations.
Changes in the Fund's net asset value will affect its yield for any period,
and such changes should be considered together with the Fund's yield in
ascertaining the Fund's total return to shareholders for the period. See the
Statement of Additional Information--"Dividends--Additional Information on
Performance Calculations" for a description of the method used by the Fund to
calculate its yield.
The Fund expects to distribute at least once each year any net realized
short and long-term capital gains.
TAXES
The Fund is treated as a separate corporation for Federal tax purposes. It
is intended that the Fund will separately qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification generally relieves the Fund of liability for Federal income and
California franchise and income taxes to the extent the Fund's earnings are
distributed in accordance with the Code.
The Fund's policy is to pay its shareholders with respect to each taxable
year dividends equal to at least the sum of 90% of its exempt-interest income
(net of certain deductions) and 90% of its investment company taxable income (if
any) for such year. Dividends derived from exempt-interest income (known as
"exempt-interest dividends") may be treated by the Fund's shareholders as items
of interest excludable from their gross income under Section 103(a) of the Code,
unless under the circumstances applicable to the particular shareholder
exclusion would be disallowed. (See Statement of Additional
Information--"Additional Information Concerning Taxes.")
If the Fund should hold certain private activity bonds issued after August
7, 1986, shareholders must include, as an item of tax preference, the portion of
dividends paid by the Fund that is attributable to interest on such bonds in
their Federal alternative minimum taxable income for purposes of determining
liability (if any) for the 26-28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax applicable to corporations.
Corporate shareholders also must take all exempt-interest dividends into account
in determining certain adjustments for alternative minimum tax purposes.
Shareholders receiving Social Security benefits or Railroad Retirement Act
benefits should note that all exempt-interest dividends will be taken into
account in determining the taxability of such benefits.
Dividends that are paid by the Fund to non-corporate shareholders and are
derived from interest on California Municipal Obligations (as defined above) or
certain U.S. Government obligations are exempt from California state personal
income tax. For this purpose, Federal Obligations are obligations the interest
on which is excludable from gross income for state income tax purposes under the
Constitution or laws of the United States. However, dividends paid to corporate
shareholders subject to California state franchise tax or California state
corporate income tax will be taxed as ordinary income to such shareholders,
notwithstanding that all or a portion of such dividends is exempt from
California state personal income tax. Moreover, to the extent that the Fund's
dividends are derived from interest on debt obligations other than California
Municipal Obligations or certain U.S. Government obligations, such dividends
will be subject to California state personal income tax, even though such
dividends may be exempt for Federal income tax purposes.
14
<PAGE> 56
Exempt-interest dividends derived from U.S. Government obligations
generally will be exempt from state and local taxes as well. However, except as
noted with respect to California state personal income tax, in some situations
distributions of net investment income may be taxable to investors under state
or local law as dividend income even though all or a portion of such
distributions may be derived from interest on tax-exempt obligations which, if
realized directly, would be exempt from such income taxes. To the extent, if
any, that dividends paid to shareholders are derived from taxable interest or
from long-term or short-term capital gains, such dividends will not be exempt
from Federal income tax or California state personal income tax.
Shareholders will be advised at least annually as to the Federal and
California state personal income tax consequences of distributions made each
year.
The foregoing is only a brief summary of some of the important 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 advisers with specific reference to their own
tax situations.
DESCRIPTION OF SHARES AND MISCELLANEOUS
The Company's Charter authorizes the Board of Directors to issue up to
three billion full and fractional shares of capital stock, $.001 par value per
share, and to classify or reclassify any unissued shares of the Fund into one or
more classes or series by setting or changing in any one or more respects their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. Pursuant to such authority, the Board of Directors has classified
2.3 billion of its shares as California Money shares (Class A Common Stock), 300
million of its shares as California Money Dollar shares (Class A Common
Stock--Special Series 1), 300 million of its shares as California Money Plus
shares (Class A Common Stock--Special Series 2), 80 million of its shares as
California Intermuni shares (Class B Common Stock), 10 million of its shares as
California Intermuni Dollar shares (Class B Common Stock--Special Series 1) and
10 million of its shares as California Intermuni Plus shares (Class B Common
Stock--Special Series 2). At May 20, 1996, Santa Barbara Bank & Trust held, on
behalf of its underlying accounts, approximately 44.7% of the Company's shares
that were outstanding on that date. The 1940 Act states that the beneficial
owner of more than 25% of the voting securities of a company is presumed to
control the company. Under this definition, Santa Barbara Bank & Trust may be
deemed to be a controlling person of the Company.
THIS PROSPECTUS RELATES PRIMARILY TO THE FUND AND DESCRIBES ONLY THE
INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO THE FUND. INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING
CALIFORNIA MONEY MAY OBTAIN A SEPARATE PROSPECTUS DESCRIBING THAT PORTFOLIO BY
CONTACTING THE DISTRIBUTOR AT 800-998-7633.
Each Intermuni, Dollar and Plus share represents an equal proportionate
interest in the assets of the Fund. Shareholders of each series are entitled to
participate equally in any dividend or distribution declared by the Company's
Board of Directors (except as provided under "Dividends") and in the net
distributable assets of the Fund on liquidation. Fund shares have no pre-emptive
rights and only such conversion and exchange rights as the Board may grant in
its discretion. When issued for payment as described in this Prospectus, the
Fund's shares will be fully paid and non-assessable. Further, shareholders of
each series are entitled to one vote for each full share held and proportionate
15
<PAGE> 57
fractional votes for fractional shares held, and will vote in the aggregate and
not by series, except where otherwise required by law and except that only
Dollar shares will be entitled to vote on matters submitted to a vote of
shareholders pertaining to the Fund's arrangements with Service Organizations
with respect to Dollar shares, and Plus shares will enjoy similar voting rights
on matters pertaining to the Fund's arrangements with Service Organizations with
respect to Plus shares. (See "Management of the Fund--Service Organizations.")
Shares of the Company have non-cumulative voting rights and, accordingly, the
holders of more than 50% of the Company's outstanding shares (irrespective of
class or series) may elect all of the directors.
For information concerning the redemption of Fund shares and possible
restrictions on their transferability, see "Purchase and Redemption of Shares."
16
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<PAGE> 59
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<PAGE> 60
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<PAGE> 61
NO PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION
INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR
ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE
FUND OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Background and Expense
Information.................. 2
Financial Highlights........... 3
Investment Objective and
Policies..................... 4
Purchase and Redemption of
Shares....................... 7
Management of the Fund......... 9
Dividends...................... 13
Taxes.......................... 14
Description of Shares and
Miscellaneous................ 15
</TABLE>
PIF-P-018
CALIFORNIA
INTERMEDIATE
MUNICIPAL
FUND
AN INVESTMENT PORTFOLIO
OFFERED BY
MUNICIPAL FUND FOR
CALIFORNIA INVESTORS, INC.
[PROVIDENT INSTITUTIONAL FUNDS LOGO]
Prospectus
May 31, 1996
<PAGE> 62
CALIFORNIA MONEY FUND
and
CALIFORNIA INTERMEDIATE MUNICIPAL FUND
Investment Portfolios Offered By
Municipal Fund for California Investors, Inc.
Statement of Additional Information
May 31, 1996
Table of Contents
THE COMPANY............................................................ 1
INVESTMENT OBJECTIVE AND POLICIES...................................... 1
MUNICIPAL OBLIGATIONS.................................................. 6
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION......................... 27
MANAGEMENT OF THE COMPANY.............................................. 30
ADDITIONAL INFORMATION CONCERNING TAXES................................ 39
DIVIDENDS.............................................................. 44
COUNSEL................................................................ 50
INDEPENDENT ACCOUNTANTS................................................ 51
MISCELLANEOUS.......................................................... 51
APPENDIX A............................................................. 1
FINANCIAL STATEMENTS................................................... 53
APPENDIX............................................................... A-1
This Statement of Additional Information is meant to be read in
conjunction with the Prospectuses for California Money Fund and California
Intermediate Municipal Fund dated May 31, 1996, and is incorporated by
reference in its entirety into those Prospectuses. Because this Statement of
Additional Information is not itself a prospectus, no investment in shares of
California Money Fund or California Intermediate Municipal Fund should be made
solely upon the information contained herein. Copies of the Prospectuses for
California Money Fund and California Intermediate Municipal Fund may be obtained
by calling 800-821-7432. Capitalized terms used but not defined herein have the
same meanings as in the Prospectuses.
<PAGE> 63
THE COMPANY
Municipal Fund for California Investors, Inc. (the "Company") is a
no-load, non-diversified, open-end investment company presently offering two
separate investment portfolios -- California Money Fund ("California Money") and
California Intermediate Municipal Fund ("California Intermediate")
(individually, a "Fund," collectively, the "Funds"). California Money is a money
market fund. Substantially all of California Money's assets are invested in
obligations which have remaining maturities of 13 months or less at the time of
purchase. California Intermediate is an intermediate-term bond fund.
Substantially all of California Intermediate's assets are invested in tax-exempt
obligations having remaining maturities of ten years or less at the time of
purchase. The Funds will not knowingly purchase securities the interest on which
is subject to regular Federal income tax; however, the Funds may hold uninvested
cash reserves pending investment during temporary defensive periods of, if in
the opinion of the Funds' investment adviser, suitable tax-exempt obligations
are unavailable. Although both Funds have the same investment adviser and
comparable investment objectives, their yields normally will differ due to their
differing cash flows and differences in the specific portfolio securities held.
INVESTMENT OBJECTIVE AND POLICIES
As stated in California Money's Prospectuses, the investment objective
of California Money is to provide investors with as high a level of current
interest income that is exempt from Federal income tax and, to the extent
possible, from California state personal income tax as is consistent with the
preservation of capital and relative stability of principal. The investment
objective of California Intermediate is to provide investors with a high level
of current interest income that is exempt from Federal income tax and, to the
extent possible, from California state personal income tax. The following
policies supplement the description of California Money's and California
Intermediate's investment objectives and policies in their respective
Prospectuses.
Additional Information on Investment Practices.
Variable and Floating Rate Demand Instruments. Variable and floating
rate demand instruments held by California Money may have maturities of more
than 13 months, provided: (i) California Money is entitled to the payment of
principal at any time or during specified intervals not exceeding 13 months,
subject to notice of no more than 30 days, and (ii) the rate of interest on such
instruments is adjusted (based upon a preselected market sensitive index such as
the prime rate of a major commercial bank) at periodic intervals not exceeding
13 months.
<PAGE> 64
In determining California Money's average weighted portfolio maturity and
whether a variable or floating rate demand instrument has a remaining maturity
of 13 months or less, the maturity of each instrument will be computed in
accordance with guidelines established by the Securities and Exchange Commission
(the "SEC").
Variable or floating rate demand instruments held by California
Intermediate may have maturities of more than ten years, provided: (i)
California Intermediate is entitled to the payment of principal, at any time or
during specified intervals within a prescribed period after California
Intermediate's demand for payment, and (ii) the rate of interest on such
instruments is adjusted at periodic intervals according to the terms of the
instrument. In determining California Intermediate's average weighted portfolio
maturity and whether a variable or floating rate demand instrument has a
remaining maturity of 10 years or less, each instrument will be deemed by
California Intermediate 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.
In determining whether an unrated variable rate demand instrument is of
comparable quality at the time of purchase to instruments with minimal credit
risk, the Funds' investment adviser will consider the earning power, cash flow
and other liquidity ratios of the issuer of the instrument and will continuously
monitor its financial condition. In addition, the Funds sometimes require that
the issuer's obligation to pay the principal of the instrument be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
Variable and floating rate notes that do not provide for payment within
seven days may be deemed illiquid and subject to the 10% limitation on such
investments.
California Money and California Intermediate 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
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to tender the underlying municipal securities 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. California Money and California
Intermediate 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 a Fund nor its investment adviser will review the
proceedings related to the creation of any tax-exempt derivatives or the bases
for such options.
When-Issued Securities. As stated in the Funds' Prospectuses, the Funds
may purchase Municipal Obligations on a "when-issued" basis (i.e., for delivery
beyond the normal settlement date at a stated price and yield). When the Funds
agree to purchase when-issued securities, their 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 the Funds 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 each Fund's commitment. It
may be expected that the Funds' net assets will fluctuate to a greater degree
when they set aside portfolio securities to cover such purchase commitments than
when they set aside cash. Because the Funds will set aside cash or liquid assets
to satisfy their purchase commitments in the manner described, the Funds'
liquidity and ability to manage their portfolios might be affected in the event
their commitments to purchase when-issued securities ever exceeded 25% of the
value of their assets.
When the Funds engage in when-issued transactions, they rely on the
seller to consummate the trade. Failure of the seller to do so may result in the
Funds incurring a loss or missing an opportunity to obtain a price considered to
be advantageous.
Stand-By Commitments. The Funds may acquire "stand-by commitments" with
respect to Municipal Obligations held in their portfolios. Under a stand-by
commitment, a dealer agrees to purchase at a Fund's option specified Municipal
Obligations at their amortized cost value to such Fund plus accrued interest, if
any. (Stand-by commitments acquired by the Funds may also be
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referred to as "put" options.) Stand-by commitments may be sold, transferred or
assigned by the Funds only with the underlying instruments.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Funds may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by a Fund is not expected to
exceed 1/2 of 1% of the value of the Fund's total assets calculated immediately
after each stand-by commitment is acquired.
The Funds intend to enter into stand-by commitments only with dealers,
banks and broker-dealers which, in the investment adviser's opinion, present
minimal credit risks. In evaluating the creditworthiness of the issuer of a
stand-by commitment, the investment adviser will review periodically the
issuer's assets, liabilities, contingent claims and other relevant financial
information.
The Funds would acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. Stand-by commitments acquired by the Funds would be valued at
zero in determining net asset value. Where a Fund paid any consideration
directly or indirectly for a stand-by commitment, its cost would be reflected as
unrealized depreciation for the period during which the commitment was held by
that Fund.
Portfolio Transactions.
Subject to the general control of the Company's Board of Directors, PNC
Institutional Management Corporation ("PIMC"), the Funds' investment adviser, is
responsible for, makes decisions with respect to and places orders for all
purchases and sales of portfolio securities for the Funds. Purchases and sales
of portfolio securities are usually principal transactions without brokerage
commissions. The cost of securities purchased from the underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down. In
transactions with dealers, PIMC 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, PIMC may, in its discretion,
effect transactions in portfolio securities with dealers who provide the Company
with research advice or other services such as information relating to the price
of portfolio securities.
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Investment decisions for the Funds are made independently from those
for other investment company portfolios advised by PIMC. Such other investment
company portfolios may 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 investment company portfolios, transactions are averaged
as to price, and available investments allocated as to amount, in a manner which
PIMC believes to be equitable to each investment company portfolio, including
the Funds. In some instances, this investment procedure may adversely affect the
price paid or received by the Funds or the size of the position obtained for the
Funds. To the extent permitted by law, PIMC may aggregate the securities to be
sold or purchased for the Funds with those to be sold or purchased for such
other investment companies in order to obtain best execution.
Portfolio securities will not be purchased from or sold to PIMC, PNC
Bank, National Association ("PNC Bank"), PFPC Inc. ("PFPC"), Provident
Distributors, Inc. ("PDI"), or any affiliated person of any of them (as such
term is defined in the Investment Company Act of 1940, as amended (the "1940
Act")), except to the extent permitted by the SEC. In addition, the Funds will
not purchase Municipal Obligations during the existence of any underwriting or
selling group relating thereto of which PNC Bank is a member, except to the
extent permitted by the SEC. Under certain circumstances, the Funds may be at a
disadvantage because of these limitations in comparison with other investment
company portfolios which have a similar investment objective but are not subject
to such limitations. Furthermore, with respect to such transactions, securities
and deposits, the Funds will not give preference to Service Organizations with
whom the Funds enter into agreements concerning the provision of support
services to customers who beneficially own shares of California Money Dollar or
California Intermuni Dollar ("Dollar shares") or California Money Plus or
California Intermuni Plus ("Plus shares"). See the Prospectuses, "Management of
the Fund--Service Organizations."
The Funds may participate, if and when practicable, in bidding for the
purchase of Municipal Obligations directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Funds will engage in this practice, however, only when PIMC, in its sole
discretion, believes such practice to be otherwise in the Funds' interests.
The Funds do not intend to seek profits through short-term trading. The
Funds' annual portfolio turnover rate is not expected to have a material effect
on their net income. California Money's portfolio turnover is expected to be
zero for regulatory reporting purposes and California Intermuni's portfolio
turnover is not expected to exceed 100%. The portfolio
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turnover rate for California Intermuni is disclosed in its Prospectus under
"Financial Highlights."
Other Investment Limitations.
The Prospectuses for the Funds set forth certain investment limitations
that may not be changed with respect to California Money or California
Intermediate without the affirmative vote of the holders of a majority of that
Fund's outstanding shares (as defined below under "Additional Information -
Miscellaneous"). Similarly, the following additional investment limitations may
not be changed without such a vote of shareholders.
The Funds may not:
1. Make loans except that the Funds may purchase or hold debt
obligations in accordance with their investment objective, policies and
limitations.
2. Underwrite any issue of securities except to the extent that the
purchase of Municipal Obligations directly from the issuer thereof in accordance
with the Funds' investment objective, policies and limitations may be deemed to
be underwriting.
3. Purchase or sell real estate except that the Funds may invest in
Municipal Obligations secured by real estate or interests therein.
4. Purchase securities on margin, make short sales of securities or
maintain a short position.
5. Write or sell puts, calls, straddles, spreads or combinations
thereof.
6. Purchase or sell commodities or commodity contracts, or invest
in oil, gas or mineral exploration or development programs.
7. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition or reorganization.
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MUNICIPAL OBLIGATIONS
In General.
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 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 to
shareholders is (subject to the Federal alternative minimum tax) exempt from
regular Federal income tax.
California Money 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 a long-term fixed-rate Municipal Obligation,
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 securities 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 Fund
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 Fund nor its investment adviser will independently review the
underlying proceedings related to the creation of any tax-exempt derivatives or
the bases for such opinions.
Before purchasing a tax-exempt derivative for the Fund, PIMC is
required by the Fund's procedures to conclude that the
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tax-exempt security and the supporting short-term obligation involve minimal
credit risks and are Eligible Securities under the Fund's Rule 2a-7 procedures.
In evaluating the creditworthiness of the entity obligated to purchase the
tax-exempt security, PIMC will review periodically the entity's relevant
financial information. Currently, the Directors have authorized the purchase of
tax-exempt derivatives by the Fund so long as after any purchase not more than
15% of the Fund's assets are invested in such securities.
As described in the Prospectuses for the Funds, the two principal
classifications of Municipal Obligations consist of "general obligation" and
"revenue" issues, and the Funds' portfolios may include "moral obligation"
issues, which are normally issued by special purpose authorities. 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 Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P"), Fitch
Investors Service, L.P. ("Fitch") and Duff & Phelps ("Duff") 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 their
purchase by the Funds, issues of Municipal Obligations may cease to be rated or
their ratings may be reduced below the minimum rating required for purchase by
the Funds. The Funds' investment adviser will consider such an event in
determining whether the Funds should continue to hold the obligation.
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
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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, in the case of California
Money, or ten years or less, in the case of California Intermediate, at the time
of purchase.
Special Considerations Relating to California Municipal Obligations.
This summary does not purport to be a comprehensive description of all
relevant facts. Although the Company has no reason to believe that the
information summarized herein is not correct in all material respects, this
information has not been independently verified for accuracy or thoroughness by
the Company. Rather, the information presented herein was culled from official
statements and prospectuses issued in connection with various securities
offerings of the State of California and local agencies in California, available
as of the date of this Statement of Additional Information. Further, the
estimates and projections presented herein should not be construed as statements
of fact. They are based upon assumptions which may be affected by numerous
factors and there can be no assurance that target levels will be achieved.
ECONOMIC FACTORS. Fiscal Years Prior to 1994-95. The 1989-90 Fiscal
Year ended with revenues below estimates, so that the State's budget reserve,
the Special Fund for Economic Uncertainties (the "Special Fund") was fully
depleted by June 30, 1990. A recession began in mid-1990, which severely
affected State General Fund revenues, and increased expenditures above initial
budget appropriations due to greater health and welfare costs. The State's
budget problems in recent years have also been caused by a structural imbalance
in that the largest General Fund Programs -- K-14 education, health, welfare and
corrections -- were increasing faster than the revenue base, driven by the
State's rapid population growth. These pressures are expected to continue as
population trends maintain strong demand for health and welfare services, as the
school age population continues 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.
As a result of these factors and others, from the late 1980's until
1992-93, the State experienced a period of budget imbalance. During this period,
expenditures exceeded revenues in four out of six years, and the State
accumulated and sustained a budget deficit in the Special Fund approaching $2.8
billion at its peak at June 30, 1993. Starting in the 1990-91 Fiscal Year
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and for each fiscal year thereafter, each budget required multibillion dollar
actions to bring projected revenues and expenditures into balance. The
Legislature and Governor agreed on the following principal steps to produce
Budget Acts in the years 1991-92 to 1993-94:
1. Significant cuts in health and welfare program
expenditures;
2. Transfers of program responsibilities and funding
from the State to local governments (referred to as
"realignment"), coupled with some reduction in mandates on local
government;
3. Transfer of about $3.6 billion in local property tax
revenues from cities, counties, redevelopment agencies and some other districts
to local school districts, thereby reducing State funding for schools under
Proposition 98;
4. Reduction in growth of support for higher
education programs, coupled with increases in student fees;
5. Revenue increases (particularly in the 1991-92
Fiscal Year budget), most of which were for a short duration;
6. Increased reliance on aid from the federal
government to offset the costs of incarcerating, educating and
providing health and welfare services to illegal immigrants; and
7. Various one-time adjustments and accounting
changes.
Despite these budget actions, the effects of the recession led
to large, unanticipated deficits in the Special Fund 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 it 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.
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 its cash
reserves, the State
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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 constitutionally-mandated payments,
such as debt service on bonds and warrants. Between July 1 and September 4, 1992
the State Controller issued a total of approximately $3.8 billion of registered
warrants. After that date, all remaining outstanding registered warrants (about
$2.9 billion) were called for redemption from proceeds of the issuance of 1992
Interim Notes after the budget was adopted.
In late spring of 1992, the State Controller issued revenue
anticipation warrants maturing in the following fiscal year in order to pay the
State's continuing obligations. The State was forced to rely increasingly on
external debt markets to meet its cash needs, as a succession of notes and
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.
A key feature of the 1993-94 Budget Act was a plan to retire by
December 31, 1994 the $2.8 billion budget deficit which had been accumulated by
June 30, 1993 (the "Deficit Retirement Plan"). This 18-month plan used existing
statutory authority to borrow $2.8 billion externally. The 1993-94 Budget Act
provided that $1.6 billion of the deficit elimination loan would be repaid by
December 23, 1993 from a portion of the proceeds of the $2.0 billion 1993
Revenue Anticipation Warrants issued on June 23, 1993. Legislation enacted with
the 1993-94 Budget Act directed the State Controller to issue $1.2 billion of
registered reimbursement warrants in the 1993-94 Fiscal Year to fund the balance
of the accumulated deficit. Pursuant to this directive, the State issued $1.2
billion of 1994 Revenue Anticipation Warrants, Series A (the "Series A
Warrants") in February 1994, which matured on December 21, 1994. The law also
created in the State Treasury a Deficit Retirement Fund. The State Controller
transferred from the General Fund to the Deficit Retirement Fund the sum of $1.2
billion in two equal installments on September 15, 1994 and December 15, 1994,
which moneys were used to retire the Series A Warrants.
The Deficit Retirement Plan anticipated a combined program to balance
the budget over the 1993-94 and 1994-95 Fiscal Years, and projected a General
Fund balance of $260 million, on June 30, 1995. Because fiscal conditions did
not improve as projected in the 1993-94 Fiscal Year, the revenue assumptions of
the Deficit Retirement Plan could not be met, and the Governor indicated in the
June 1994 Revision that the General Fund condition would be about $1 billion
worse at June 30, 1994 than was projected at the start of the year. Accordingly,
the 1994-95 Budget Act anticipated deferring retirement of about $1 billion
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of the carryover budget deficit to the 1995-96 Fiscal Year, when it is intended
to be fully retired. This 22-month Deficit Reduction Plan relied on existing
statutory authority to borrow $4 billion externally of which approximately $1
billion is the carryover budget deficit. In addition, Chapter 136, Statutes of
1994, created in the State Treasury the Warrant Payment Fund. The State
Controller is directed to transfer from the General Fund to the Warrant Payment
Fund in September 1995, November 1995, January 1996 and April 1996 in four equal
installments the amount necessary to retire the $4.0 billion of revenue
anticipation warrants maturing on April 25, 1996.
1994-95 Fiscal Year. The Government's Budget Proposal for the 1994-95
Fiscal Year, as updated in May and June 1994, recognized that the accumulated
deficit could not be rapid in one year, and proposed a two-year solution
designed to eliminate the accumulated budget deficit, estimated at about $1.8
billion at June 30, 1994, by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on July 8, 1994,
projected General Fund revenues and transfers of $41.9 billion, $2.1 billion
more than actual revenues received in 1993-94, and expenditures of $40.9
billion, an increase of $1.6 billion from the prior year.
As a result of the improving economy, the Department of Finance's final
estimates for the fiscal year showed revenues and transfers of $42.7 billion and
expenditures of $42.0 billion, reducing the accumulated budget deficit to about
$600 million.
The principal features of the 1994-95 Budget Act are as follows:
1. Receipt of additional federal aid of about $760 million
for costs of refugee assistance and costs of incarceration and medical
care for illegal immigrants. Only about $33 million of this amount was
received, with about another $98 million scheduled to be received in
the 1995-96 Fiscal Year;
2. Reductions of approximately $1.1 billion in health and
welfare costs. A 2.3% reduction in Aid to Family with Dependent
Children payments (equal to about $56 million for the entire fiscal
year) has been temporarily suspended by court order pending appeal;
3. A General Fund increase of approximately $38 million in
support for the University of California and $65 million for California
State University, accompanied by student fee increases for both the
University of California and California State University ;
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4. Proposition 98 funding for K-14 schools was increased by
$526 million from 1993-94 Fiscal Year levels, representing an increase
for enrollment growth and inflation. Consistent with previous budget
agreements, Proposition 98 funding provided approximately $4,217 per
student for K-12 schools, equal to the level in the prior three years;
and
5. Additional miscellaneous cuts ($500 million) , fund
transfers ($255 million) , and adjustment to prior years' legislation
concerning property tax shifts for local governments ($300 million).
The 1994-95 Budget Act contained no tax increases. Under legislation
enacted for the 1993-94 Budget Act, the renters' tax credit was suspended for
two years (1993 and 1994). A ballot proposition to permanently restore the
renters' tax credit after this year failed at the June, 1994 election. The
Legislature enacted a further one-year suspension of the renters' tax credit,
for 1995, saving about $390 million in the 1995-96 Fiscal Year.
The State's cash flow management plan for the 1994-95 Fiscal Year
included the issuance of $4.0 billion of revenue Anticipation Warrants, Series
C and D, on July 26, 1994, to mature on April 25, 1996, as part of a two-year
plan to retire the accumulated State budget deficit. To assure repayment of
these warrants, the Legislature enacted a backup mechanism which could result in
automatic expenditure cuts if projected revenues did not meet certain targets
(the "Budget Adjustment Law").
The third and last step in the Budget Adjustment Law process occurred
on October 16, 1995, when the State Controller issued a report (the "October
Trigger Report") reviewing the estimated cash condition of the General Fund for
the 1995-96 Fiscal Year. The State Controller estimated that the General Fund
would have at least $1.4 billion of internal cash resources on June 30, 1996
(i.e., external borrowing would not be needed on June 30, 1996). As a result of
this finding, certain provisions of the Budget Adjustment Law, which could have
ultimately led to automatic, across-the-board cuts in the General Fund budget,
will not have to be implemented. Likewise, an earlier report issued on November
15, 1994, avoided implementation of any automatic budget cuts in the 1994-95
fiscal year.
1995-96 Fiscal Year. With strengthening revenues and reduced caseload
growth based on an improving economy, the State entered the 1995-96 Fiscal Year
budget negotiations with the smallest nominal "budget gap" to be closed in many
years. Nonetheless, serious policy differences between the Governor and
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Legislature prevented timely enactment of the budget. The 1995-96 Budget Act
was signed by the Governor on August 3, 1995, 34 days after the start of the
fiscal year. The Budget Act projected General Fund revenues and transfers of
$44.1 billion, a 3.5 percent increase from the prior year. Expenditures were
budgeted at $43.4 billion, a 4 percent increase. The Department of Finance
projected that, after repaying the last of the carryover budget deficit, there
would be a positive balance of $28 million in the budget reserve, the Special
Fund for Economic Uncertainties, at June 30, 1996. The Budget Act also projected
Special Fund revenues of $12.7 billion and appropriated Special Fund
expenditures of $13.0 billion.
The Governor's Budget for the 1996-97 Fiscal Year, released on January
10, 1996, updated the current year projections, so that revenues and transfers
are estimated to be $45.0 billion, and expenditures to be $44.2 billion. The
Special Fund is projected to have a positive balance of about $50 million at
June 30, 1996, and on that date available internal borrowable resources
(available cash, after payment of all obligations due) will be about $2.2
billion. The Administration projects it will issue up to $2.0 billion of revenue
anticipation notes in April, 1996, to mature by June 30, 1996, to assist in cash
flow management for the final two months of the year, after repayment of the
$4.0 billion RAW issue on April 25, 1996.
The following are the principal features of the 1995-96 Budget:
1. Proposition 98 funding for schools and community colleges
was originally budgeted to increase by about $1.0 billion (General
Fund) and $1.2 billion total above revised 1994-95 levels. Because of
higher than projected revenues in 1994-95, an additional $543 million
($91 per K-12 ADA) was appropriated to the 1994-95 Proposition 98
entitlement. A large part of this is a block grant of about $54 per
pupil for any onetime purpose. For the first time in several years, a
full 2.7 percent cost of living allowance was funded. The budget
compromise anticipates a settlement of the CTA v. Gould litigation
(discussed below). The Governor's 1996-97 Budget indicates that, with
revenues even higher than projected, Proposition 98 apportionments will
exceed the amounts originally budgeted, reaching a level of $4,500 per
ADA;
2. Cuts in health and welfare costs totaling about $0.9
billion. Some of these cuts (totaling about $500 million) require
federal legislative or administrative approval, which was still pending
as of January 1996.
3. A 3.5 percent increase in funding for the University of
California ($90 million General Fund) and the
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California State University system ($24 million General Fund), with no
increases in student fees;
4. The Budget assumed receipt of $473 million in new
federal aid for costs of illegal immigrants, above commitments already
made by the federal government. In the Governor's 1996-97 Budget, the
Administration revised this figure downward to $278 million; and
5. General Fund support for the Department of Corrections
is increased by about eight percent over the prior year, reflecting estimates of
increased prison population, but funding is less than proposed in the 1995
Governor's Budget.
1996-97 Fiscal Year. On January 10, 1996, the Governor released his
proposed budget for the next fiscal year (the "1996-97 Budget"). The Governor
requested total General Fund appropriations of about $45.2 billion, based on
projected revenues and transfers of about $45.6 billion, which would leave a
budget reserve in the Special Fund at June 30, 1997 of about $400 million. The
Governor renewed a proposal, which had been rejected by the Legislature in 1995,
for a 15 percent phased cut in individual and corporate tax rates over three
years (the budget proposal assumes this will be enacted, reducing revenues in
1996-97 by about $600 million). There was also a proposal to restructure trial
court funding in a way which would result in a $300 million decrease in General
Fund revenues. The Governor requested legislation to make permanent a moratorium
on cost of living increases for welfare payments, and suspension of a renters
tax credit, which otherwise would go back into effect in the 1996-97 Fiscal
Year. He further proposed additional costs in certain health and welfare
programs, and assumed that cuts previously approved by the Legislature will
receive federal approval. The Governor's Budget proposes increases in funding
for K-12 schools under Proposition 98, for State higher education systems (with
a second year of no student fee increases), and for corrections. The Governor's
Budget projects external cash flow borrowing of up to $3.2 billion, to mature by
June 30, 1997.
The Orange County Bankruptcy. 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. Approximately 187 California
public entities, substantially all of which are public agencies within the
County, invested funds in the Pool. Many of the agencies have various bonds,
notes or other forms of indebtedness outstanding, in some instances the proceeds
of which were invested in the Pool. Various investment advisors were employed by
the County to restructure the Pool. Such restructuring led to the sale of
substantially all of the Pool's portfolio, resulting in losses estimated to be
approximately $1.7 billion or approximately 22%
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of amounts deposited by the Pool investors, including the County. It is
anticipated that such losses may result in delays or failures of the County as
well as investors in the Pool to make scheduled debt service payments. Further,
the County expects substantial budget deficits to occur in Fiscal Year 1995 with
possibly similar effects upon operations of investors in the Pool.
Investor access to monies in the Pool subsequent to the filing was
pursuant to Court order only and severely limited. On May 2, 1995, the
Bankruptcy Court approved a comprehensive settlement agreement (the "CSA")
between the County and Pool investors which, among other things, (i) established
a formula for distribution of all available cash and securities from the Pool to
the Pool investors, including the County, (ii) established formulas for
distribution among certain settling Pool investors of several tranches of new
County obligations to be payable from, and in some instances secured by, certain
designated sources of potential recoveries on Pool related claims, and (iii)
designated certain outstanding short term note obligations of the County to be
senior to or on a parity with certain of the new County obligations. By order
dated May 22, 1995, following distribution of all available cash and securities
from the Pool to the Pool investors, including the County, the Bankruptcy Court
dismissed the bankruptcy filing of the Pool based upon the Court's finding that
the Pool was not eligible for relief under Chapter 9 of the Bankruptcy Code
because it is not a municipality and it has not been specifically authorized to
file under Chapter 9 as required by the Bankruptcy Code. In negotiations
regarding a plan of adjustment for the County, many municipal investors in the
Pool have indicated a willingness to subordinate their remaining claims against
the County to those of other creditors and to make their further recovery
contingent on recovery by the County in litigation with brokerage houses,
investment advisors and other defendants regarding the Pool's investments. On
December 21, 1995, the County filed a proposed plan based on this premise,
pursuant to which most creditors other than municipal investors would be paid in
full or reinstated. A disclosure statement for a slightly amended plan has been
approved, and a hearing on confirmation of that plan is set for May 15, 1996.
Following its bankruptcy filing, the County has, with Bankruptcy Court
approval, made payments of scheduled principal and interest on its outstanding
obligations where no alternative source of payment (such as reserve funds on
deposit with indenture trustees, letters of credit, municipal bond insurance
policies or other alternative payment sources) was available. The County has
not replenished such reserve funds or reimbursed the issuers of such letters of
credit or municipal bond insurance policies. In addition, the County ceased
making set aside deposits for repayment of certain of its short term
indebtedness.
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The Bankruptcy Court subsequently ruled that the rights of the holders of such
short term indebtedness to require the set aside deposits from County revenues
received following the filing were cut off by operation of the Bankruptcy Code.
In the proposed plan, the County proposes to cancel obligations to make such
set-asides for certain bonds, and to increase the applicable interest rates in
compensation. In addition, the County has failed to satisfy its obligation to
accept tenders of its $110,200,000 aggregate principal amount of Taxable Pension
Obligation Bonds, Series B, used to finance County pension obligations. Interest
at a rate set pursuant to the bond documents has been timely paid on such
Pension Bonds. The failure to satisfy the contractual obligations discussed
above may constitute defaults under the documents governing such securities.
To June 30, 1995 there had been no default in payment of scheduled
interest and principal (excluding the tender payment described above and the
Note Debt hereinafter described) to holders of County securities, although
certain securities are scheduled to mature at various times thereafter and the
Fund is unable to predict whether or to what extent such securities will be
timely paid by the County. On June 27, 1995, the Bankruptcy Court approved a
Stipulation and an Extension Agreement that, offered to holders of certain
short term note obligations of the County ("Note Debt") who elected to be
treated thereunder: (i) extension of maturity dates to June 30, 1996; (ii)
payment of monthly interest at a rate below existing contract rates; (iii)
accrual of monthly interest equal to the difference between the amount paid and
the contract rate, plus a settlement adjustment of 0.95%; (iv) waiver of
post-bankruptcy interest recapture or disallowance; (v) waiver of defenses to
repayment of the Note Debt claims based on California limitations on municipal
indebtedness; and (vi) allowance of the Note Debt claims, subject to certain
reserved rights. The holders of in excess of 90% of the outstanding aggregate
principal amount of all Note Debt elected such treatment on July 7, 1995.
Certain of the holders did not approve the agreement and those notes, in the
amount of $2.8 million, were defaulted upon by the County on July 18, 1995.
Both S&P and Moody's have suspended or downgraded ratings on various
debt securities of the County and certain of the investors in the Pool and,
following the defeat of the proposition submitted to the voters on June 27,
announced their intention to downgrade the County's debt to default status,
regardless of whether the Stipulation and Extension Agreement receives approval
by holders of the Note Debt. On July 18, 1995, S&P declared the Note Debt in
default in spite of the approval of the Stipulation and Extension Agreement. S&P
further stated that it had no reason to believe that the County would be able to
fulfill the terms of the Stipulation and Extension Agreement on June 30, 1996.
Such suspensions or downgradings could affect
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both price and liquidity of the County's securities. The Fund is unable to
predict (i) the occurrence of covenant and/or payment defaults with respect to
obligations of the County and/or investors in the Pool or (ii) the financial
impact of any such defaults or credit rating suspensions or downgradings upon
the value or liquidity of such securities.
Constitutional, Legislative and Other Factors.
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could result
in the adverse effects described below.
Certain California Municipal Obligations in the Funds' Portfolio Fund
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.
In 1988, California enacted legislation providing for a water's-edge
combined reporting method if an election fee was paid and other conditions met.
On October 6, 1993, the Governor signed Senate Bill 671 (Alquist) which
modifies the unitary tax law by deleting the requirements that a taxpayer
electing to determine its income on a water's-edge basis pay a fee and file a
domestic disclosure spreadsheet and instead requiring an annual information
return. Significantly, the Franchise Tax Board can no longer disregard a
taxpayer's election. The Franchise Tax Board is reported to have estimated state
revenue losses from the Legislation as growing from $27 million in 1993-94 to
$616 million in 1999-2000, but others, including Assembly Speaker Willie Brown,
disagreed with that estimate and asserted that more revenue will be generated
for California, rather than less, because of an anticipated increase in economic
activity and additional revenue generated by the incentives in the Legislation.
Certain California Municipal Obligations held by the Funds 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. On November 7, 1978, California
voters
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approved Proposition 8, and on June 3, 1986, the California voters approved
Proposition 46, both of which amended Article XIIIA.
Section 1 of Article XIIIA limits the maximum ad valorem tax on real
property to 1% of full cash value (as defined in Section 2), to be collected by
the counties and apportioned according to law; provided that the 1% limitation
does not apply to ad valorem taxes or special assessments to pay the interest
and redemption charges on (i) any indebtedness approved by the voters prior to
July 1, 1978, or (ii) any bonded indebtedness for the acquisition or improvement
of real property approved on or after July 1, 1978, 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 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. The California State Board of Equalization has adopted regulations,
binding on county assessors, interpreting the meaning of "change in ownership"
and "new construction" for purposes of determining full cash value of property
under Article XIIIA.
Legislation enacted by the California Legislature to implement Article
XIIIA (Statutes of 1978, Chapter 292, as amended) 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 of
$4.00 per $100 assessed valuation (based on the former practice of using 25%,
instead of 100%, of full cash value as the assessed value for tax purposes). The
legislation further provided that, for the 1978/79 fiscal year only, the tax
levied by each county was to be apportioned among all taxing agencies within the
county in proportion to their average share of taxes levied in certain previous
years. The apportionment of property taxes for fiscal years after 1978/79 has
been revised pursuant to Statutes of 1979, Chapter 282, which provides relief
funds from State moneys beginning in fiscal year 1979/80 and is designed to
provide a permanent system for sharing State taxes and budget funds with local
agencies. Under Chapter 282, cities and counties receive more of the remaining
property tax revenues collected under Proposition 13 instead of direct State
aid. School districts receive a correspondingly reduced amount of property
taxes, but receive compensation directly from the State and are given additional
relief. Chapter 282 does not
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affect the derivation of the base levy ($4.00 per $100 assessed valuation) and
the bonded debt tax rate.
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.
Article XIIIB, like Article XIIIA, may require further interpretation
by both the Legislature and the courts to determine its applicability to
specific situations involving the State and local taxing authorities. Depending
upon the interpretation, Article XIIIB may limit significantly a governmental
entity's ability to budget sufficient funds to meet debt service on bonds and
other obligations.
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 XIIIB 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
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between Test 3 and Test 2 would become a "credit" to schools which would be the
basis of payments in future years when per capital General Fund revenue growth
exceeds per capita personal income growth. Legislation adopted prior to the end
of the 1988-89 Fiscal Year, implementing Proposition 98, determined the K-14
schools' funding guarantee under Test 1 to be 40.3 percent of the General Fund
tax revenues, based on 1986-87 appropriations. However, that percent has been
adjusted to approximately 35 percent to account for a subsequent redirection of
local property taxes, since such redirection directly affects the share of
General Fund revenues to schools.
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 XIIIB limit to
K-14 schools.
During the recent recession, 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. By implementing these actions, per-pupil funding from Proposition
98 sources stayed almost constant at approximately $4,220 from Fiscal Year
1991-92 to Fiscal Year 1993-94.
In 1992, a lawsuit was filed, California Teachers' Association v.
Gould, which challenged the validity of these off-budget loans. As part of the
negotiations leading to the 1995-96 Budget Act, an oral agreement was reached to
settle this case. It is expected that a formal settlement reflecting these
conditions will be entered into in the near future.
The oral agreement provides that both the State and K-14 schools share
in the repayment of prior years' emergency loans to schools. Of the total $1.76
billion in loans, the State will repay $935 million, while schools will repay
$825 million. The State share of the repayment will be reflected as expenditures
above the current Proposition 98 base circulation. The schools' share of the
repayment will count as appropriations that count toward satisfying the
Proposition 98 guarantee, or from "below" the current base. Repayments are
spread over the eight-year period of 1994-95 through 2001-02 to mitigate any
adverse fiscal impact. Once a court settlement is reached, and the Director of
Finance certifies that such a settlement has occurred,
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approximately $377 million in appropriations from the 1995-96 Fiscal Year to
schools will be disbursed in August 1996.
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 recalculates spending
limits for the State and for local governments, allows greater annual increases
in the limits, allows the averaging of two years' tax revenues before requiring
action regarding excess tax revenues, reduces 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),
removes 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, limits the amount of State tax revenue over the limit which would
be transferred to school districts and community college districts, and exempts
increased gasoline taxes and truck weight fees form the State appropriations
limit. Additionally, Proposition 111 exempts from the State appropriations limit
funding for capital outlays.
On November 4, 1986, California voters approved an initiative statute
known as Proposition 62. This initiative provides the following: (i) 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, (ii) 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, (iii) restricts the use of revenues from a special tax to the
purposes or for the service for which the special tax was imposed, (iv)
prohibits the imposition of ad valorem taxes on real property by local
governmental entities except as permitted by Article XIIIA, (v) prohibits the
imposition of transaction taxes and sales taxes on the sale of real property by
local governments, (vi) 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 or be terminated by November 15,
1988, (vii) 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
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to the tax levied in violation of the initiative, and (viii) 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
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.
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. It is impossible to predict whether the
California Legislature will enact such a prohibition nor is it possible to
predict the impact of Proposition 87 on redevelopment agencies and their ability
to make payments on outstanding debt obligations.
Certain California Municipal Obligations held by the Funds 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 Municipal 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.
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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 or increase the patient base, but may result in
reduced payment and lower net income to the contracting hospitals.
These California Municipal 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 California Municipal 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
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reserve level consistent with those that would be required by an insurance
company.
Certain California Municipal Obligations held by the Funds 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 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 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 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.
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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 California Municipal Obligations in the Funds' portfolios 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.
Other Considerations.
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. (See the Funds' Prospectuses, "Taxes.") 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. Additionally, with
respect to Municipal Obligations issued by the State of
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California and political subdivisions thereof, the Company cannot predict what
legislation, if any, may be proposed in the California Legislature as regards
the California state personal income tax status of interest on such obligations,
or which proposals, if any, might be enacted. Such proposals, while pending or
if enacted, might materially adversely affect the availability of California
Municipal Obligations, in particular, and Municipal Obligations generally, for
investment by the Funds and the liquidity and value of each Fund's portfolio. In
such an event, the Company would re-evaluate the investment objectives and
policies of the Funds and consider changes in their structures or possible
dissolution.
Moreover, if the Company's Board of Directors, after consultation with
the Funds' investment adviser, should for any reason determine that it is
impracticable to invest at least 50% of California Money's or California
Intermediate's assets in California Municipal Obligations at the close of each
quarter of the Company's taxable year (and thereby to qualify such Funds to pay
dividends that are exempt from California state personal income tax), the Board
would consider changing the Funds' investment objectives and policies (and
recommending to shareholders a change in the Funds' names), or possibly
dissolving the Funds.
The payment of principal and interest on most securities purchased by
the Funds will depend upon the ability of the issuers to meet their obligations.
The value of the Funds' portfolio securities can be expected to vary inversely
with changes in prevailing interest rates.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
In General.
Information on how to purchase and redeem shares of California Money
and California Intermediate, and how such shares are priced, is included in
their Prospectuses. The issuance of shares is recorded on the books of the
Funds, 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 California Money or California Intermediate shares 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
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<PAGE> 90
the administration of the account. With respect to Dollar and Plus shares,
conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Funds in connection with the investment of fiduciary
funds in Dollar and Plus shares. 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 advisers before
investing fiduciary funds in Dollar and Plus shares.
Prior to effecting a redemption of shares represented by certificates,
PFPC 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 with the signature guaranteed by a bank or
other eligible guarantor institution unless other arrangements satisfactory to
the Funds have previously been made. The Funds may require any additional
information reasonably necessary to evidence that a redemption has been duly
authorized.
Under the 1940 Act, the Funds 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. (The Funds may
also suspend or postpone the recordation of the transfer of their shares upon
the occurrence of any of the foregoing conditions.)
In addition, if, in the opinion of the Board of Directors of the
Company, ownership of shares has or may become concentrated to an extent which
would cause the Funds to be deemed a personal holding company, the Company may
compel the redemption of, reject any order for or refuse to give effect on the
books of the Funds to the transfer of the Funds' shares in an effort to prevent
that consequence. The Funds may also redeem shares involuntarily if such
redemption otherwise appears appropriate in light of the Funds' responsibilities
under the 1940 Act. If the Company's Board of Directors determines that
conditions exist which make payment of redemption proceeds wholly in cash unwise
or undesirable, the Funds may make payment wholly or partly in securities or
other property. In certain instances, the Funds may redeem shares pro rata from
each shareholder of record without payment of monetary consideration. See
"Portfolio Valuation -- California Money" below.
Any institution purchasing shares on behalf of separate accounts will
be required to hold the shares in a single nominee
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<PAGE> 91
name (a "Master Account"). Institutions investing in more than one of the
Company's portfolios or series of shares must maintain a separate Master Account
for each portfolio and series of shares. Institutions may arrange with PFPC for
certain sub-accounting services (such as purchase, redemption and dividend
recordkeeping) paid for by the Company, if PFPC is provided with the information
necessary for sub-accounting. Sub-accounts may be established by name or number.
Net Asset Value.
As stated in the Prospectuses for California Money and California
Intermediate, the net asset value per share for California Money and California
Intermediate is calculated by adding the value of all of a Fund's portfolio
securities and other assets belonging to that Fund, subtracting the liabilities
charged to that Fund including dividends that have been declared but not paid,
and dividing the result by the number of the Fund shares outstanding
(irrespective of series). The value of the assets of California Money is
calculated using the amortized cost method pursuant to procedures adopted by the
Board of Directors under Rule 2a-7. "Assets belonging to" a Fund consist of the
consideration received upon the issuance of that Fund's 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 re-investment of such proceeds, and the portion of any general
assets of the Company not belonging to either California Money or California
Intermediate. 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 in proportion to the relative net assets of the Fund and the Company's
other portfolio. The determinations by the Board of Directors as to the direct
and allocable liabilities, and allocable portion of general assets, with respect
to each Fund are conclusive.
Portfolio Valuation.
California Money. California Money's portfolio securities are valued on
the basis of amortized cost. In connection with its use of amortized cost
valuation, California Money 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
Company's Board of Directors has also established procedures that are intended
to stabilize the net asset value per share of each of California Money's series
of shares 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 California Money's net asset value per share
calculated by using available market quotations deviates from $1.00 per share.
In
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<PAGE> 92
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 California Money'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; shortening California Money's average portfolio maturity; withholding
or reducing dividends; redeeming shares in kind; reducing the number of
California Money's outstanding shares without monetary consideration; or
utilizing a net asset value per share determined by using available market
quotations.
California Intermediate. California Intermediate's portfolio securities
for which market quotations are readily available (other than debt securities
with remaining maturities of 60 days or less) are valued at the mean of the most
recent quoted bid and asked prices provided by investment dealers. Debt
securities with remaining maturities of 60 days or less are valued on an
amortized cost basis (unless the Board of Directors determines that such basis
does not represent fair value at the time). Other securities and assets for
which market quotations are not readily available are valued at their fair value
in the best judgment of PIMC under procedures established by, and under
supervision of, the Company's Board of Directors. PIMC may use a pricing service
to value portfolio securities where the prices provided are believed to reflect
the fair market value of such securities. In valuing California Intermediate's
securities, the pricing service would normally take into consideration such
factors as yield, risk, quality, maturity, type of issue, trading
characteristics, special circumstances and other factors it deems relevant in
determining valuations for normal institutionalized trading units of debt
securities and would not rely exclusively on quoted prices. The methods used by
the pricing service and the valuation so established will be reviewed by PIMC
under the general supervision of the Company's Board of Directors. Several
pricing services are available, one or more of which may be used by PIMC at its
own expense from time to time.
MANAGEMENT OF THE COMPANY
Board of Directors.
The Company's directors and executive officers, their addresses,
principal occupations during the past 5 years and other affiliations are as
follows:
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<TABLE>
<CAPTION>
Principal Occupations
during last 5 years
Name and Address Position and Other Affiliations(4)
- ---------------- -------- -----------------------
<S> <C> <C>
G. Willing Pepper(1,2) Chairman of Retired; Chairman of the Board, The Institute of Cancer Re-
128 Springton Lake Rd. the Board search until 1979; Director, Philadelphia National Bank until
Media, PA 19063 and President 1978; President, Scott Paper Company, 1971 to 1973; Chairman of
Age 88 the Board, Specialty Composites Corp. until May, 1984.
Rodney D. Johnson(2) Director President, Fairmount Capital Advisors, Inc. (financial advising),
Fairmount Capital since 1987.
Advisors, Inc.
1435 Walnut Street
Drexel Building
Philadelphia, PA 19102
Age 54
William R. Howell(3) Director Retired; Vice Chairman, Union Bank, Los Angeles, until September,
73-350 Calliandra Street 1982; Director, Current Income Shares, Inc.
Palm Desert, CA 92260
Age 74
Rudolph A. Peterson(2,3) Director Honorary Director, President and Chief Executive Officer
BankAmerica Corporation (Retired), BankAmerica Corporation and Bank of America, NT & SA.
555 California Street
Suite 500
San Francisco, CA 94104
Age 91
Anthony M. Santomero(3) Director Richard K. Mellon Professor of Finance, since April 1984 and
310 Keithwood Road Dean's Advisory Council Member since July 1984, The Wharton
Wynnewood, PA 19096 School, University of Pennsylvania; Director, Wharton Financial
Age 49 Insitutions Center, since July 1995; Associate Editor, Journal of
Banking and Finance, since June 1978; Associate Editor, Journal
of Economics and Business, since October 1979; Associate Editor,
Journal of Money, Credit and Banking, since January 1989;
Research Associate, New York University Center for Japan-US
Business and Economic Studies, since July 1989; Editorial
Advisory Board, Open Economics Review, since November 1990;
Director, The Zweig Fund and The Zweig Total Return Fund.
Edward J. Roach Vice Certified Public Accountant; Vice Chairman of the Board, Fox
Bellevue Park Corporate President Chase Cancer Center; Trustee Emeritus, Pennsylvania School for
Center and Treasurer the Deaf; Trustee Emeritus Immaculata College; Officer of
400 Bellevue Parkway various Investment companies advised by PNC Institutional
Suite 100 Management Corporation.
Wilmington, DE 19809
Age 71
</TABLE>
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<PAGE> 94
<TABLE>
<CAPTION>
Principal Occupations
during last 5 years
Name and Address Position and Other Affiliations(4)
- ---------------- -------- -----------------------
<S> <C> <C>
Morgan R. Jones Secretary Partner of the law firm of Drinker Biddle & Reath.
PNB Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Age 56
</TABLE>
- ----------------
(1) This director may be deemed to be an "interested person" of the Company
as defined in the 1940 Act.
(2) Executive Committee Member.
(3) Audit Committee Member.
(4) Additional affiliations with investment companies advised by PIMC or
PNC Bank are set forth below.
During intervals between meetings of the Board, the Executive Committee
may exercise the authority of the Board of Directors in the management of the
business of the Company to the extent permitted by law.
Messrs. Pepper and Johnson serve as trustees of Municipal Fund for
Temporary Investment ("MuniFund"), Trust for Federal Securities ("FedFund") and
as directors of Temporary Investment Fund, Inc. ("TempFund") and Provident
Institutional Funds, Inc. ("PIF"). Mr. Santomero serves as a trustee of Compass
Capital Funds ("Compass"). In addition, Mr. Pepper serves as a director of
Independence Square Income Securities, Inc. ("ISIS") and Managing General
Partner of Chestnut Street Exchange Fund ("Chestnut"); and Messrs. Johnson and
Santomero are directors of Municipal Fund for New York Investors, Inc. ("New
York Money"). Each of the investment companies named above receives various
advisory or other services from PIMC or PNC Bank.
Mr. Pepper is Chairman of the Board and President and Mr. Roach is Vice
President and Treasurer of TempFund, MuniFund, FedFund and PIF. In addition,
Mr. Roach is Treasurer of Chestnut, President and Treasurer of The RBB Fund,
Inc. ("RBB") and New York Money and Vice President and Treasurer of ISIS ; Mr.
Jones is Secretary of Chestnut, MuniFund, New York Money, Compass and RBB. Mr.
Johnson is a director of International Dollar Reserve Fund. Of the
above-mentioned funds, PDI provides distribution services and PFPC and PDI
provide
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<PAGE> 95
administration services to TempFund, PIF, FedFund, MuniFund and New York Money.
Each director who is not affiliated with PNC Bank, PIMC, PFPC or PDI
receives $5,000 annually from the Company for his services as a director plus
$250 for each Board meeting attended, $250 for each Committee meeting attended
and is reimbursed for reasonable out-of-pocket expenses incurred in attending
meetings. The Chairman of the Board is entitled to receive an additional $5,000
per annum for services in such capacity.
For the fiscal year ended January 31, 1996, the Company paid or
accrued for the account of its directors and officers a total of $41,540
(exclusive of expense reimbursements) for services in all capacities. In
addition, the Company contributed $1,034 for its last fiscal year to its
retirement plan for employees (who included Mr. Roach). No employee of PDI,
PIMC, PFPC or PNC Bank receives any compensation from the Company for acting as
an officer or director of the Company. The directors and officers of the Company
own less than 1% of the Company's shares.
By virtue of the responsibilities assumed by PDI, PIMC, PNC Bank and
PFPC under their respective agreements with the Company, the Company itself
requires only one part-time employee in addition to its officers. Drinker Biddle
& Reath, of which Mr. Jones is a partner, receives legal fees as counsel to the
Company.
The table below sets forth information about the fees received by the
Company's directors in the most recently completed fiscal year.
<TABLE>
<CAPTION>
Total
Compensation
from Company
Aggregate and Fund
Name of Person Compensation Complex(1) Paid
Position from Company to Directors
- -------------- ------------ ----------------
<S> <C> <C>
William R. Howell $ 6,000 $ 6,000
Director
Rodney D. Johnson(3) $ 6,000 (6)(2) $ 54,875
Director
G. Willing Pepper(3) $11,000 (6)(2) $ 96,625
Director, Chairman
</TABLE>
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<PAGE> 96
<TABLE>
<S> <C> <C>
and President
Rudolph A. Peterson $ 6,000 $ 6,000
Director
Anthony M. Santomero(4) $ 6,000 (3)(3) $ 38,450
Director
$35,000 $201,950
</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 director serves on
within the fund complex.
(3) As of January 4, 1996, Messrs. Johnson and Pepper resigned as
trustees of Compass.
(4) As of January 4, 1996, Mr. Santomero resigned as director/trustee of
TempFund, PIF, MuniFund and FedFund.
Adviser and Administrators.
The advisory and administrative services provided and the expenses
assumed by PIMC and the administrators, as well as the fees payable to each of
them, are described in the Prospectuses. For California Money Fund's fiscal
years ended January 31, 1996, 1995 and 1994, PIMC received fees for advisory
services (net of waivers) in the amounts of $254,168, $250,983 and $209,402. For
the same periods, PFPC and PDI received fees for administration services (net of
waivers) of $254,168, $250,983 and $209,402 in the aggregate. For California
Money Fund's fiscal years ended January 31, 1996, 1995 and 1994, PIMC waived
advisory fees of $594,290, $582,744 and $555,359 and PFPC and PDI waived
administration fees of $594,290, $582,744 and $555,359 in the aggregate. For
California Intermediate Municipal Fund's fiscal years ended January 31, 1996,
1995 and 1994, PIMC received fees for advisory services (net of waivers) in the
amounts of $6,122, $6,382 and $8,238. For the same periods, PFPC and PDI
received fees for administration services (net of waivers) of $6,122, $6,382 and
$8,238 in the aggregate.
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<PAGE> 97
For California Intermediate Municipal Fund's fiscal years ended January 31,
1996, 1995 and 1994, PIMC waived advisory fees of $25,055, $30,987 and $26,591
and PFPC and PDI waived administration fees of $25,055, $30,987 and $26,591 in
the aggregate.
PIMC and the administrators have agreed that if, in any fiscal year,
the expenses borne by each Fund exceed the applicable expense limitations
imposed by the securities regulations of any state in which shares of a Fund are
registered or qualified for sale to the public, they will each reimburse that
Fund for one-half of any excess to the extent required by such regulations. To
the Funds' knowledge, as of the date of this Statement of Additional
Information, the most restrictive expense limitation applicable to the Funds
provides that annual expenses (as defined by statute) may not exceed 2.5% of the
first $30 million of a portfolio's average annual net assets, 2% of the next $70
million of the average annual net assets and 1.5% of the remaining average
annual net assets.
Banking Laws.
Certain banking laws and regulations with respect to investment
companies are discussed in the Funds' Prospectuses. PIMC, PFPC and PNC Bank
believe that PIMC may perform the advisory services for the Funds contemplated
by the Company's Advisory Agreement, the Funds' Prospectuses and this Statement
of Additional Information, that PFPC may perform the transfer agency services
for the Funds contemplated by the Company's Transfer Agency Agreement, the
Funds' Prospectuses and this Statement of Additional Information, and that PNC
Bank may perform the custodial services for the Funds contemplated by the
Company's Custodian Agreement, the Funds' Prospectuses and this Statement of
Additional Information, and the sub-advisory services for the Funds contemplated
by the Company's Sub-Advisory Agreement, the Funds' Prospectuses and this
Statement of Additional Information, without violation of the Glass-Steagall Act
or applicable banking laws or regulations. It should be noted, however, that
changes in legal requirements relating to the permissible activities of banks
and their affiliates, as well as further interpretations of present and future
requirements, could prevent PIMC, PNC Bank and PFPC from continuing to perform
such services for the Funds. If PIMC, PFPC or PNC Bank were prohibited from
continuing to perform such services, it is expected that the Board of Directors
would recommend that the Company 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.
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<PAGE> 98
Custodian and Transfer Agent.
As custodian of the Funds' assets, PNC Bank (i) maintains a separate
account or accounts in the name of the Funds, (ii) holds and disburses portfolio
securities on account of the Funds, (iii) makes receipts and disbursements of
money on behalf of the Funds, (iv) collects and receives all income and other
payments and distributions on account of the Funds' portfolio securities, (v)
responds to correspondence from security brokers and others relating to its
duties and (vi) makes periodic reports to the Company's Board of Directors
concerning the Funds' operations. PNC Bank is authorized to select one or more
banks or trust companies to serve as sub-custodian on behalf of the Funds,
provided that PNC Bank remains responsible for the performance of all its duties
under its Custodian Agreement with the Funds and holds the Funds harmless from
the acts and omissions of any sub-custodian chosen by PNC Bank. Each Fund pays
PNC Bank a fee for its custodial services equal to $.25 per annum for each
$1,000 of that Fund's average gross assets.
As the Funds' transfer and dividend disbursing agent, PFPC (i) issues
and redeems shares of the Funds, (ii) addresses and mails all communications by
the Funds to its shareholders, including reports to shareholders, dividend and
distribution notices and proxy material for its meetings of shareholders, (iii)
responds to correspondence by shareholders and others relating to its duties,
(iv) maintains shareholder accounts and sub-accounts, (v) provides installation
and other services in connection with the Funds' computer access program
maintained to facilitate shareholder access to the Funds, and (vi) makes
periodic reports to the Board of Directors concerning the Funds' operations.
PFPC may, on 30 days' notice to the Company, assign its duties thereunder to any
other affiliate of PNC Bank Corp. For its transfer agency, dividend disbursing
and sub-accounting services, each Fund pays PFPC $12.00 per account and
sub-account per annum 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).
PFPC sends each shareholder of record a monthly statement showing the
total number of shares owned as of the last business day of the month (as well
as the dividends paid during the current month and year), and provides each
shareholder of record with a daily transaction report for each day on which a
transaction occurs in the shareholder's Master Account with each of the Funds.
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 balance for the sub-account at the beginning and end of the
month and income paid or reinvested during the month.
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<PAGE> 99
Service Organizations.
As stated in the Funds' Prospectuses, the Funds enter into agreements
with institutional investors ("Service Organizations") requiring them to provide
support services to their customers who beneficially own Dollar or Plus shares.
In consideration of such services, California Money pays Service Organizations
.25% (on an annualized basis) of the average daily net asset value of the
California Money Dollar or California Money Plus shares held by the Service
Organizations for the benefit of their customers. California Intermediate pays
such Service Organizations the same fee based on the average daily net asset
value of the California Intermuni Dollar or California Intermuni 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 Funds 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 Company (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 Company. In addition, broker/dealers purchasing Plus shares may be
requested to 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. For the fiscal years ended January 31, 1996, 1995
and 1994, California Money paid a total of $59,647, $43,771 and $31,773,
respectively, to Service Organizations with respect to California Money Dollar
shares, of which $2,244, $1,646 and $1,195, respectively, was paid to an
affiliate. California Money made no payments to Service Organizations with
respect to California Money Plus shares during the fiscal years ended January
31, 1996 and 1995 because no such shares had been sold . California Intermuni
made no payments to Service Organizations for such period because no California
Intermuni Dollar or California Intermuni Plus shares had been sold during the
fiscal years ended January 31, 1996, 1995 and 1994.
Each Fund's agreements with Service Organizations are governed by Plans
(called "Non-12b-1 Shareholder Services Plan" and "12b-1 Services Plan" for the
Dollar shares and Plus shares, respectively), which have been adopted by the
Board of Directors
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<PAGE> 100
pursuant to applicable rules and regulations of the SEC and an exemptive order
granted by the SEC in connection with the creation of the Dollar and Plus
shares. Pursuant to each Plan, the Board of Directors 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 Funds' arrangements with Service Organizations must be
approved annually by a majority of the Fund's directors, including a majority of
the directors 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 "Disinterested Directors").
The Board of Directors has approved the Funds' arrangements with
Service Organizations based on information provided to the Board that there is
a reasonable likelihood that the arrangements will benefit the Funds and their
shareholders by affording the Funds greater flexibility in connection with the
servicing of the accounts of the beneficial owners of their shares in an
efficient manner. Any material amendment to the Funds' arrangements with Service
Organizations must be approved by a majority of the Board of Directors
(including a majority of the Disinterested Directors), 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 plan adopted by the
Board of Directors 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
Board of Directors who are not "interested persons" (as defined in the 1940 Act)
of the Company will be committed to the discretion of such noninterested
directors.
Expenses.
Except as noted in the Funds' Prospectuses, the Funds' service
contractors bear the expenses incurred in connection with the performance of
their services. Similarly, the Funds bear the expenses incurred in their
operations. Fund expenses include taxes, interest, fees and salaries of its
directors and officers, SEC fees, state securities qualification fees, costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to shareholders, advisory and administration fees, charges of the custodian,
transfer agent and dividend disbursing agent, Service Organization fees, costs
of the Funds' computer access program, certain insurance premiums, outside
auditing and legal expenses, cost of independent pricing service, costs of
shareholder reports and shareholder meetings and any extraordinary expenses. The
Funds also pay for brokerage
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<PAGE> 101
fees and commissions (if any) in connection with the purchase of portfolio
securities.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional Federal, state and local
tax considerations generally affecting the 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 the Funds or their shareholders,
and the discussion here and in the Funds' Prospectuses is not intended as a
substitute for careful tax planning. Investors should consult their tax advisers
with specific reference to their own tax situations.
General.
Each Fund is treated as a separate corporate entity under the Code, and
has qualified, and intends to continue to qualify, as a regulated investment
company.
As described above and in the Funds' Prospectuses, the Funds are
designed to provide California institutional investors and their customers with
current tax-exempt interest income. The Funds are not intended to constitute a
balanced investment program and are not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Funds would not be suitable for tax-exempt institutions
and may not be suitable for retirement plans qualified under Section 401 of the
Internal Revenue Code, H.R. 10 plans and individual retirement accounts since
such plans and accounts are generally tax-exempt and, therefore, would not only
not gain any additional benefit from the Funds' dividends being tax-exempt, but
such dividends would be ultimately taxable to the beneficiaries when distributed
to them. In addition, the Funds 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 (i) regularly uses
a part of such facilities in his trade or business and (ii) 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, 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.
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<PAGE> 102
The percentage of total dividends paid by each Fund with respect to any
taxable year which qualify as Federal exempt-interest dividends will be the
same for all shareholders receiving dividends for such year. In order for a Fund
to pay exempt-interest dividends for any taxable year, at the close of each
fiscal quarter at least 50% of the aggregate value of the Fund's portfolio must
consist of exempt-interest obligations. In addition, a Fund must distribute with
respect to each taxable year an amount that is at least equal to the sum of 90%
of the exempt-interest income net of certain deductions and 90% of the
investment company taxable income for the taxable year. Not later than 60 days
after the close of its taxable year, each Fund will notify each shareholder of
the portion of the dividends paid by that Fund to the shareholder with respect
to such taxable year which constitutes an exempt-interest dividend. The
aggregate amount of dividends so designated cannot, however, exceed the excess
of the amount of interest exempt from tax under Section 103 of the Code received
by that Fund during the taxable year over any amounts disallowed as deductions
under Sections 265 and 171(a)(2) of the Code.
Interest on indebtedness incurred by a shareholder to purchase or carry
a Fund's shares generally is not deductible for Federal income tax purposes.
While the Funds do not expect to earn any investment company taxable
income, any taxable income earned by the Funds will be distributed to
shareholders. In general, a Fund's investment company taxable income will be its
taxable income, 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. Such distributions would be taxable to shareholders
as ordinary income (whether made in cash or additional shares).
Similarly, while the Funds do 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 (whether paid in cash or additional shares) will be
taxable to shareholders as long-term capital gain, regardless of how long a
shareholder has held shares of the Fund. Such distributions will be designated
as capital gain dividends in a written notice mailed by the Funds to
shareholders not later than 60 days after the close of the Funds' taxable year.
Taxable distributions generally are included in a shareholder's gross
income for the taxable year in which they are received. Dividends declared in
October, November or December of any year and made payable to a Fund's
shareholders of record on a specified date in such months will be deemed to have
been received by the shareholders and paid by the Funds on December 31
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<PAGE> 103
of such year, if such dividends are actually paid during January of the
following year.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to distribute currently 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 with respect to each calendar year to avoid liability
for this excise tax.
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all liability for Federal
income taxes, a Fund may be subject to the tax laws of certain states or
localities, 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 deemed to be conducting business.
If for any taxable year a Fund does not qualify for the special Federal
income tax treatment afforded regulated investment companies, all of its taxable
income would be subject to Federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). In such event,
dividend distributions (including amounts derived from interest on Municipal
Obligations) would be taxable to shareholders to the extent of a Fund's current
or accumulated earnings and profits and would be eligible for the dividends
received deduction allowed to corporations under the Code.
To the extent that a Fund's dividends distributed to shareholders are
derived from interest income exempt from Federal income tax and are properly
designated as "exempt-interest dividends" by a Fund, they will be excludable
from a shareholder's gross income for Federal income tax purposes. Under the
Code, shareholders that receive exempt-interest dividends may be required to
treat as taxable income a portion of certain otherwise nontaxable social
security and railroad retirement benefit payments.
A shareholder of California Intermediate should be aware that a
redemption of such shares is a taxable event, and, accordingly, a capital gain
or loss may be recognized. If a shareholder of California Intermediate receives
an exempt-interest dividend with respect to any share and such share has been
held for six months or less, any loss on a redemption of such shares will be
disallowed to the extent of such exempt-interest dividend. Similarly, if a
shareholder receives a distribution taxable as long-term capital gain and
redeems shares before he has held them for more than six months, any loss on the
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redemption (not otherwise disallowed as attributable to an exempt-interest
dividend) will be treated as long-term capital loss.
California.
Assuming each Fund qualifies as a "regulated investment company," it
will be relieved of California franchise and income taxes to the extent it
distributes its exempt-interest income, investment company taxable income and
any excess of net long-term capital gain over net short-term capital loss. It is
anticipated that each Fund will be relieved of all or substantially all of
California franchise and income taxes by making such distributions.
If, at the close of each quarter of its taxable year, at least 50% of
the value of the total assets of a regulated investment company, or series
thereof, consists of obligations which when held by an individual, the interest
therefrom is exempt from California personal income taxation ("California
Tax-Exempt Obligations") then the regulated investment company, or series of
that company, will be qualified to pay dividends exempt from California state
personal income tax to its non-corporate shareholders (hereinafter referred to
as "California exempt-interest dividends"). Series of a regulated investment
company is defined as a segregated portfolio of assets, the beneficial interest
in which is owned by the holders of an exclusive class or series of stock of the
company. California Tax-Exempt Obligations are limited to California Municipal
Obligations and certain U.S. Government obligations the interest on which is
exempt from state income taxation as provided by federal law. Each of the Funds
intends to qualify under the above 50% by value requirement so that it can pay
California exempt-interest dividends. If the Funds fail to so qualify, no part
of their dividends will be exempt from California state personal income tax.
Not later than 60 days after the close of its taxable year, each Fund
will notify each shareholder of the portion of the dividends paid by that Fund
to the shareholder with respect to such taxable year which is exempt from
California state personal income tax. The total amount of California
exempt-interest dividends paid by each Fund to its shareholders with respect to
any taxable year cannot exceed the excess of the amount of interest received by
the Fund during such year on California Tax-Exempt Obligations over any amounts
that, if the Fund were treated as an individual, would be considered expenses
related to tax exempt income and would thus not be deductible under Federal
income or California state personal income tax law. The percentage of total
dividends paid by the Fund with respect to any taxable year which qualifies as
California exempt-interest
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dividends will be the same for all shareholders receiving dividends from the
Fund with respect to such year.
In cases where shareholders are "substantial users" or "related
persons" with respect to California Municipal Obligations held by the Funds,
such shareholders should consult their tax advisers to determine whether
California exempt-interest dividends paid by the Funds with respect to such
obligations retain their California state personal income tax exclusion. In this
connection rules similar to those regarding the possible unavailability of
Federal exempt-interest dividend treatment to "substantial users" are applicable
for California state tax purposes. See "Additional Information Concerning Taxes
- -General" above.
To the extent any dividends paid to shareholders are derived from
long-term and short-term capital gains, such dividends will not constitute
California exempt-interest dividends. Rules similar to those regarding the
treatment of such dividends for Federal income tax purposes are also applicable
for California state personal income tax purposes. See "Additional Information
Concerning Taxes - General." Moreover, interest on indebtedness incurred by a
shareholder to purchase or carry shares of the Funds is not deductible for
California state personal income tax purposes if the particular Fund distributes
California exempt-interest dividends to the shareholder during his or her
taxable year.
The foregoing is only a summary of some of the important California
state personal income tax considerations generally affecting the Funds and their
shareholders. No attempt is made to present a detailed explanation of the
California state personal income tax treatment of the Funds or their
shareholders, and this discussion is not intended as a substitute for careful
planning. Further, it should be noted that the portion of each Fund's dividends
constituting California exempt-interest dividends is excludable from income for
California state personal income tax purposes only. Any dividends paid to
shareholders of the Funds subject to California state franchise tax or
California state corporate income tax will be taxed as ordinary dividends to
such shareholders, notwithstanding that all or a portion of such dividends is
exempt from California state personal income tax. Accordingly, potential
investors in the Funds, including, in particular, corporate investors which may
be subject to either California franchise tax or California corporate income
tax, should consult their tax advisers with respect to the application of such
taxes to the receipt of the Funds' dividends and as to their own California
state tax situation, in general.
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DIVIDENDS
General.
Net income for dividend purposes for each of the Funds consists of (i)
interest accrued and original issue discount earned on the Fund's assets for the
applicable dividend period, less (ii) amortization of market premium on such
assets, accrued expenses directly attributable to the Fund and the general
expenses (e.g. legal, accounting and director's fees) of the Company prorated to
the Fund on the basis of its relative net assets. Net income for each Fund's
three series of shares is determined in the same manner except that Dollar and
Plus shares bear the fees payable to Service Organizations for the services to
the beneficial owners of such shares. (See the Fund's Prospectus under
"Dividends.") Realized and unrealized gains and losses on portfolio securities
are reflected in net asset value.
Should a Fund incur or anticipate any unusual or unexpected significant
expense or loss which would affect disproportionately the income of the Fund for
a particular period, the Board of Directors would at that time consider whether
to adhere to the present dividend policy with respect to the Fund or to revise
it in order to mitigate to the extent possible the disproportionate effect of
such expense or loss on the income of the Fund. Such expense or loss may result
in the shareholder's receiving no dividends for the period during which it held
shares of the Fund and in it receiving upon redemption a price per share lower
than that which it paid.
Yield Information.
Yields are computed separately for each series of each Fund.
California Money. The "yields," "effective yields" and "tax-equivalent
yields" for each of California Money's three series of shares as described and
shown in the Prospectuses are calculated according to formulas prescribed by the
SEC. The standardized seven-day yield for each of California Money's three
series of shares is computed separately for each series by determining the net
change in the value of a hypothetical pre-existing account in California Money
having a balance of one share of the series 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 California Money
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
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California Money's average account size, but does not include gains and losses
or unrealized appreciation and depreciation. The "effective yield" of any series
of shares is calculated by compounding the unannualized base period return for
the series involved (calculated as above) by adding one to the base period
return for the series, raising that sum to a power equal to 365/7, and
subtracting one from the result. The "tax-equivalent" yield of any series of
shares is computed by: (a) dividing the portion of the yield for the series
involved (calculated as above) that is exempt from both Federal and California
State income taxes by one minus a stated combined Federal and California State
income tax rate; (b) dividing the portion of the yield for the series involved
(calculated as above) that is exempt from Federal income tax only by one minus a
stated Federal income tax rate; and (c) adding the figures resulting from (a)
and (b) above to that portion, if any, of the yield for the series involved that
is not exempt from Federal income tax.
From time to time, in advertisements or in reports to shareholders, the
yield of California Money may be quoted and compared to those of other mutual
funds with similar investment objectives and to stock or other relevant indices.
For example, the yield of California Money may be compared to the Donoghue's
IBC/Money Fund Average, which is an average compiled by 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 data prepared by
Lipper Analytical Services, Inc. ("Lipper"), a widely-recognized independent
service that monitors the performance of mutual funds.
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 a Fund investment are
reinvested by being paid in additional Fund shares, any future income or capital
appreciation of a Fund would increase the value, not only of the original Fund
investment, but also of the additional Fund 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,
investment management strategies, techniques, policies or investment suitability
of a Fund, economic 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,
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bonds and Treasury securities. 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. 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, 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. Such Materials may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail therein.
From time to time in advertisements, sales literature and
communications to shareholders, California Money may compare its total return 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 the Fund over a particular period, assuming that all distributions have been
reinvested. SUCH RANKINGS REPRESENT THE FUND'S PAST PERFORMANCE AND SHOULD NOT
BE CONSIDERED AS REPRESENTATIVE OF FUTURE RESULTS.
The following information has been provided by the Fund's distributor:
In managing the 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.
California Money's yield will fluctuate and any quotation of California
Money's yield should not be considered as representative of the future
performance of California Money. Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in California Money's shares with
bank deposits, savings accounts, and similar investment alternatives
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<PAGE> 109
which often provide an agreed or guaranteed fixed yield for a stated period of
time. Shareholders should remember that yield is generally a function of kind
and quality of the investments held in a portfolio, portfolio maturity,
operating expenses, and market conditions. Any fees charged by banks or other
financial institutions with respect to customer accounts investing in shares of
California Money will not be included in calculations of yield; such fees, if
charged, would reduce the actual yield from that quoted.
California Intermediate. From time to time, the yield of California
Intermediate may be quoted in advertisements, shareholder reports or other
communications to shareholders. The yield of California Intermediate will be
calculated by dividing the net investment income per share (as described below)
earned by California Intermediate during a 30-day (or one month) period by the
net asset value per share on the last day of the period and annualizing the
result on a semi-annual basis by adding one to the quotient, raising the sum to
the power of six, subtracting one from the result and then doubling the
difference. California Intermediate's net investment income per share earned
during the period will be based on the average daily number of shares
outstanding during the period entitled to receive dividends and will include
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements. This calculation can be expressed as follows:
a-b
Yield = 2 [ (----- + 1)(EXPONENT 6) - 1]
cd
Where: a = dividends and interest earned
during the period.
b = expenses accrued for the period
(net of reimbursements).
c = the average daily number of
shares outstanding during the period
that were entitled to receive
dividends.
d = net asset value per share on the
last day of the period.
Except as noted below, for the purpose of determining net investment
income earned during the period (variable "a" in the formula), interest earned
on debt obligations held by California Intermediate will be calculated by
computing the yield to maturity of each obligation based on the market value of
the obligation (including actual accrued interest) at the close of business on
the last business day of each month, or, with respect
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to obligations purchased during the month, the purchase price (plus actual
accrued interest) and dividing the result by 360 and multiplying the quotient by
the market value of the obligation (including actual accrued interest) in order
to determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by California Intermediate. For
purposes of this calculation, it is assumed that each month contains 30 days.
The maturity of an obligation with a call provision will be the next call date
on which the obligation reasonably may be expected to be called or, if none, the
maturity date.
Interest earned on tax-exempt obligations that are issued without
original issue discount and have a current market discount will be calculated by
using the coupon rate of interest instead of the yield to maturity. In the case
of tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
will be the imputed rate based on the original issue discount calculation. On
the other hand, in the case of tax-exempt obligations that are issued with
original issue discount but which have discounts based on current market value
that are less than the then-remaining portion of the original issue discount
(market premium), the yield to maturity will be based on the market value.
Undeclared earned income will be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared as
a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
The "tax-equivalent" yield of any series of shares is computed by: (a)
dividing the portion of the yield for the series involved (calculated as above)
that is exempt from both Federal and California state income taxes by one minus
a stated combined Federal and California state income tax rate; (b) dividing the
portion of the yield for the series involved (calculated as above) that is
exempt from Federal income tax only by one minus a stated Federal income tax
rate; and (c) adding the figures resulting from (a) and (b) above to that
portion, if any, of the yield for the series involved that is not exempt from
Federal income tax.
Total Return Calculations -- California Intermediate.
California Intermediate will compute its average annual total return by
determining the average annual compounded rates of return during specified
periods that equate the initial amount invested to the ending redeemable value
of
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such investment. This will be done by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
ERV
T = [(-----)(EXPONENT 1/n) - 1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the
period covered by the computation of
a hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed
in terms of years.
California Intermediate will compute its aggregate total returns by
determining the aggregate compounded rates of return during specified periods
that likewise equate the initial amount invested to the ending redeemable value
of such investment. The formula for calculating aggregate total return is as
follows:
ERV
Aggregate Total Return = [(-----) - 1]
P
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
at California Intermediate's net asset value as described in the Prospectus on
the reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
Since performance will fluctuate, performance data for California
Intermediate cannot necessarily be used to compare an investment in California
Intermediate's shares with bank
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<PAGE> 112
deposits, savings accounts and similar investment alternatives which often
provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that performance is generally a function of the
kind and quality of the instruments held in a portfolio, portfolio maturity,
operating expenses and market conditions. The time periods used in advertising
will be updated no less frequently than through the last day of the most recent
calendar quarter prior to submission of the advertising for publication and will
cover one, five and ten year periods or a shorter period dating from the
commencement of California Intermediate's operations.
The total return and yield of the Fund may be compared to those of
other mutual funds with similar investment objectives and to bond and other
relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the total return and yield of the Fund's shares may be compared to
data prepared by Lipper. Total return and yield data as reported in national
financial publications such as MONEY MAGAZINE, FORBES, BARRON'S, THE WALL STREET
JOURNAL and THE NEW YORK TIMES, or in publications of a local or regional
nature, may also be used in comparing the performance of the Fund.
Based on the foregoing calculations, the average annual total return
for California Intermuni shares for the one-year period ended January 31, 1996
was 11.36%, for the five year period ended January 31, 1996 was 6.90% and for
the period from commencement of operations (September 12, 1988) to January 31,
1996 was 7.24%. No shares of California Intermuni Dollar or Plus had been sold
during the period ended January 31, 1996.
COUNSEL
Drinker Biddle & Reath, 1345 Chestnut Street, Suite 1100, Philadelphia,
Pennsylvania 19107, of which Mr. Jones, Secretary of the Company, is a partner,
will pass upon certain legal matters for the Company as its counsel. O'Melveny &
Myers, 400 South Hope Street, Los Angeles, California 90071, act as special
California counsel for the Company and have reviewed the portions of this
Statement of Additional Information and the Funds' Prospectuses concerning
California taxes and the description of the special considerations relating to
California Municipal Obligations.
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<PAGE> 113
INDEPENDENT ACCOUNTANTS
The financial statements of the Company incorporated by reference in
this Statement of Additional Information and the information included in the
Financial Highlights tables which appear in the Funds' Prospectuses have been
audited by Coopers & Lybrand L.L.P., independent accountants, whose report
thereon is incorporated by reference herein, and have been included in the
Funds' Prospectuses in reliance upon the report of said firm of independent
accountants given upon their authority as experts in accounting and auditing.
Coopers & Lybrand L.L.P. has offices at 2400 Eleven Penn Center, Philadelphia,
Pennsylvania 19103.
MISCELLANEOUS
The Company was organized as a Maryland corporation on September 20,
1982 under the name of California Municipal Fund for Temporary Investment, Inc.
On February 10, 1983, the Company changed its name to Municipal Fund for
California Investors, Inc.
As used in this Statement of Additional Information and the Funds'
Prospectuses, a "majority of the outstanding shares" of the Company or either
Fund means, with respect to the approval of an investment advisory agreement, a
distribution plan or a change in an investment objective or fundamental
investment policy, the lesser of (1) 67% of the Company's or the Fund's shares,
irrespective of series, represented at a meeting at which the holders of more
than 50% of the outstanding shares of the Company or the Fund are present in
person or by proxy, or (2) more than 50% of the Company's or a Fund's
outstanding shares, irrespective of series.
As stated in the Prospectuses for California Money, holders of such
Fund's Money, Dollar and Plus shares will vote in the aggregate and not by
series on all matters, except where otherwise required by law, except that only
Dollar shares will be entitled to vote on matters submitted to a vote of
shareholders pertaining to such Fund's arrangements with Service Organizations
with respect to Dollar shares and only Plus shares will be entitled to vote on
matters submitted to a vote of shareholders pertaining to such Fund's
arrangements with Service Organizations with respect to Plus shares. As stated
in California Intermediate's Prospectus, holders of that Fund's Intermuni,
Dollar and Plus shares will vote in the aggregate and not by series on all
matters, except where otherwise required by law and except that only Dollar
shares will be entitled to vote on matters submitted to a vote of shareholders
pertaining to such Fund's arrangements with Service Organizations with respect
to Dollar shares and only Plus shares will be entitled to vote on matters
submitted to a vote of shareholders pertaining to such
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<PAGE> 114
Fund's arrangements with Service Organizations with respect to Plus shares. (See
the Fund's Prospectuses "Management of the Fund - Service Organizations.")
Further, shareholders of both 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 Directors determines that the matter to be voted upon affects only the
interests of the shareholders 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 directors 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.
As of May 20, 1996, the name, address and percentage of ownership of
each institutional investor that owned of record 5% or more of the outstanding
shares of California Money were as follows: Bank of America National Trust &
Savings Association as Fiduciary for Various Accounts Common Trust Fund Unit
8329, P.O. Box 3577 Terminal Annex, Los Angeles, California 90051, 28.8%; Union
Bank, Trust Fund Accounting, P.O. Box 85602, San Diego, California 92112, 8.1%;
GSS as Agent, The Chase Manhattan Bank, N.A., One Chase Manhattan Plaza - 4B,
New York, New York 10081, 6.06%; BF Fund Partnership I, Bankers Trust Company,
P.O. Box 1742 Church Street Station, New York, New York 10008, 5.13%; and
SANBARCO, Santa Barbara Bank & Trust, P.O. Box 1320, Santa Barbara, California
93120, 5.1%. As of May 20, 1996, the name, address and percentage of ownership
of each institutional investor that owned of record 5% or more of the
outstanding shares of California Intermediate were as follows: SANBARCO, Santa
Barbara Bank & Trust, P.O. Box 1320, Santa Barbara, California 93102, 44.7%;
Laird Norton Trust Company, Drial & Co., 801 2nd Avenue, Seattle, Washington
98104, 8.6%; and Calhoun & Co., Comerica Bank, P.O. Box 75000, Detroit,
Michigan 48275, 27.2%. Bank of America National Trust Savings Association is a
subsidiary of BankAmerica Corporation and is a corporation
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<PAGE> 115
organized and existing under the laws of the United States as a national banking
association. The Company does not know whether the entities named above are the
beneficial owners of the shares held by them.
The Company does not presently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Company will assist in shareholder communication in
such matters.
Notwithstanding any provision of Maryland law requiring a greater vote
of the Company's shares in connection with any corporate action, unless
otherwise provided by law 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
the Company's outstanding shares voting without regard to class or series. (See,
however, the Funds' Prospectuses under "Description of Shares" regarding certain
special voting rights of Dollar and Plus shares on matters pertaining to the
Funds' arrangements with Service Organizations.)
FINANCIAL STATEMENTS
The Company's Annual Report to Shareholders for the fiscal year ended
January 31, 1996 has been filed with the Securities and Exchange Commission. The
financial statements in such Annual Report (the "Financial Statements") are
incorporated into this Statement of Additional Information by reference. The
Financial Statements included in the Annual Report for the fiscal year ended
January 31, 1996 have been audited by the Company's independent accountants,
Coopers & Lybrand L.L.P., whose report thereon also appears in such Annual
Report and is incorporated herein by reference. The Financial Statements in such
Annual Report have been incorporated herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
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APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However,
the relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of 9 months. The following summarizes the rating categories used by
Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered to
have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
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.
A-1
<PAGE> 117
"Prime-2" - Issuer or related supporting institutions are considered to
have a strong capacity for repayment of short-term promissory 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, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternative liquidity is
maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." 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:
"D-1+" - Debt possesses 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.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk
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factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
"F-1" - Securities possess very strong credit quality. Issues assigned
this rating reflect an assurance of timely payment only slightly less in degree
than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one
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year or less which is issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for short-term debt ratings:
"A1" - Obligations are supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit feature, a rating
of A1+ is assigned.
"A2" - Obligations are supported by a good capacity for timely
repayment.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
"B" - Obligations for which there is an uncertainty as to the capacity
to ensure timely repayment.
"C" - Obligations for which there is a high risk of default or which
are currently in default.
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CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
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"CCC" - Debt has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no interest is
being paid.
"D" - Debt is in payment default. This rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The following summarizes the 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 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.
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"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 risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issuer ranks at the lower end of its generic rating category.
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<PAGE> 123
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 of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" 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 highest four ratings used by Fitch for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."
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<PAGE> 124
"A" - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" Bonds that possess
one of these ratings are considered by Fitch to be speculative investments. The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
bond issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "C" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business,
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<PAGE> 125
economic or financial conditions may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of these
ratings where it is considered that speculative characteristics are present.
"BB" represents the lowest degree of speculation and indicates a possibility of
investment risk developing. "C" represents the highest degree of speculation and
indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within major rating categories.
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 represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
"AA" - This designation indicates a superior ability to repay principal
and interest on a timely basis with limited incremental risk versus issues rated
in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson BankWatch to non-investment grade long-term
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debt. Such issues are regarded as having speculative characteristics regarding
the likelihood of timely payment of principal and interest. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" 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 very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
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" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades.
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<PAGE> 127
Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and
lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
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<PAGE> 128
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Financial Statements:
(1) Included in Part A of the Registration
Statement:
Financial Highlights for California Money
Fund (Money Shares) for the fiscal years
ended January 31, 1996, 1995, 1994, 1993,
1992, 1991, 1990, 1989, 1988 and 1987;
for California Money Fund (Dollar Shares)
for the fiscal years ended January 31,
1996, 1995, 1994, 1993, 1992 and for the
period from January 9, 1991 (commencement
of operations) through January 31, 1991;
for California Money Fund (Plus Shares)
for the fiscal years ended January 31,
1996, 1995, 1994, 1993, 1992, 1991, 1990,
1989, 1988 and 1987; and for California
Intermediate Municipal Fund (Intermuni
Shares) for the fiscal years ended January
31, 1996, 1995, 1994, 1993, 1992, 1991 and
1990 and for the period from September 12,
1988 (commencement of operations) through
January 31, 1989.
(2) Included in Part B of the Registration
Statement:
The financial statements contained in
Registrant's January 31, 1996 Annual
Report to Shareholders, a copy of which
has been filed with the Commission, are
incorporated herein by reference to the
Registrant's File No. 2-79510 filed on
March 15, 1996.
(b) Exhibits:
(1) (a) Articles of Incorporation dated September
20, 1982 are incorporated herein by
reference to Exhibit 1(a) of
Post-Effective Amendment No. 7 to
Registrant's Registration Statement, filed
on March 31, 1988.
(b) Articles Supplementary to Registrant's
Articles of Incorporation dated
<PAGE> 129
November 24, 1982 are incorporated herein
by reference to Exhibit 1(b) of
Post-Effective Amendment No. 7 to
Registrant's Registration Statement,
filed on March 31, 1988.
(c) Articles of Amendment to Registrant's
Articles of Incorporation dated February
10, 1983 are incorporated herein by
reference to Exhibit 1(c) of
Post-Effective Amendment No. 7 to
Registrant's Registration Statement filed
on March 31, 1988.
(d) Articles Supplementary to Registrant's
Articles of Incorporation dated August 31,
1985 are incorporated herein by reference
to Exhibit 1(d) of Post-Effective
Amendment No. 5 to Registrant's
Registration Statement, filed on May 30,
1986.
(e) Articles Supplementary to Registrant's
Articles of Incorporation dated July 26,
1988 are incorporated herein by reference
to Exhibit (1)(e) of Post-Effective
Amendment No. 10 to Registrant's
Registration Statement, filed on March 31,
1989.
(f) Articles of Amendment to Registrant's
Articles of Incorporation dated October
20, 1988 are incorporated herein by
reference to Exhibit (1)(f) of
Post-Effective Amendment No. 10 to
Registrant's Registration Statement, filed
on March 31, 1989.
(2) (a) By-laws as initially approved and adopted
by Registrant's Board of Directors on
September 21, 1982 are incorporated herein
by reference to Exhibit 2(a) to
Post-Effective Amendment No. 7 to
Registrant's Registration Statement, filed
on March 31, 1988.
(b) Amendments to By-laws as approved and
adopted by Registrant's Board of Directors
on February 1, 1983 are incorporated
herein by reference to Exhibit 2(b) to
Post-Effective Amendment No. 7 to
Registrant's
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<PAGE> 130
Registration Statement, filed on March 31,
1988.
(c) Amendment to By-laws as approved and
adopted by Registrant's Board of Directors
on May 8, 1984 is incorporated herein by
reference to Exhibit (2)(c) of
Post-Effective Amendment No. 3 to
Registrant's Registration Statement, filed
on May 30, 1985.
(d) Amendment to By-laws as approved and
adopted by Registrant's Board of Directors
on March 25, 1986 is incorporated herein
by reference to Exhibit 2(d) of
Post-Effective Amendment No. 5 to
Registrant's Registration Statement, filed
on May 30, 1986.
(e) Amendments to By-laws as approved and
adopted by Registrant's Board of Directors
on December 16, 1987 are incorporated
herein by reference to Exhibit 2(e) to
Post-Effective Amendment No. 7 to
Registrant's Registration Statement, filed
on March 31, 1988.
(f) Amendments to By-laws as approved and
adopted by Registrant's Board of Directors
on June 21, 1988 are incorporated herein
by reference to Exhibit (2)(f) of
Post-Effective Amendment No. 10 to
Registrant's Registration Statement, filed
on March 31, 1989.
(3) None.
(4) (a) Specimen copy of share certificate for
Class A Common Stock is incorporated
herein by reference to Exhibit (4) of
Post-Effective Amendment No. 1 to
Registrant's Registration Statement, filed
on September 1, 1983.
(b) Specimen copy of share certificate for
Class A Common Stock-Special Series 1 is
incorporated herein by reference to
Exhibit 4(b) of Post-Effective Amendment
No. 5 to Registrant's Registration
Statement, filed on May 30, 1986.
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<PAGE> 131
(c) Specimen copy of share certificate for
Class A Common Stock-Special Series 2 is
incorporated herein by reference to
Exhibit 4(c) of Post-Effective Amendment
No. 5 to Registrant's Registration
Statement, filed on May 30, 1986.
(d) Specimen copy of share certificate for
Class B Common Stock is incorporated
herein by reference to Exhibit (4)(d) of
Post-Effective Amendment No. 10 to
Registrant's Registration Statement, filed
on March 31, 1989.
(e) Specimen copy of share certificate for
Class B Common Stock -- Special Series 1
is incorporated herein by reference to
Exhibit (4)(e) of Post-Effective Amendment
No. 10 to Registrant's Registration
Statement, filed on March 31, 1989.
(f) Specimen copy of share certificate for
Class B Common Stock -- Special Series 2
is incorporated herein by reference to
Exhibit (4)(f) of Post-Effective Amendment
No. 10 to Registrant's Registration
Statement, filed on March 31, 1989.
(5) (a) Amended and Restated Investment Advisory
Agreement dated July 28, 1988 between
Registrant and Provident Institutional
Management Corporation is incorporated
herein by reference to Exhibit (5)(a) of
Post-Effective Amendment No. 10 to
Registrant's Registration Statement, filed
on March 31, 1989.
(b) Amended and Restated Sub-Advisory
Agreement dated July 28, 1988 between
Provident Institutional Management
Corporation and Provident National Bank is
incorporated herein by reference to
Exhibit (5)(b) of Post-Effective
Amendment No. 10 to Registrant's
Registration Statement, filed on March 31,
1989.
(6) Distribution Agreement dated January 31, 1994
between Registrant and Provident
Distributors, Inc. is incorporated herein by
reference to Exhibit (6) of Post-Effective
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<PAGE> 132
Amendment No. 15 to Registrant's Registration
Statement filed on May 27, 1994.
(7) Fund Office Retirement Profit-Sharing Plan
and Trust Agreement as approved September 27,
1990 is incorporated herein by reference to
Exhibit (7) of Post-Effective Amendment No.
49 to the Registration Statement of Temporary
Investment Fund, Inc. (TempFund portfolio)
(No. 2-47015) filed on December 12, 1990.
(8) Amended and Restated Custodian Agreement
dated July 28, 1988 between Registrant and
Provident National Bank is incorporated
herein by reference to Exhibit (8) of
Post-Effective Amendment No. 10 to
Registrant's Registration Statement, filed on
March 31, 1989.
(9) (a) Administration Agreement dated January 18,
1993 between Registrant and Provident
Distributors, Inc. (formerly MFD Group,
Inc.) and Provident Financial Processing
Corporation is incorporated herein by
reference to Exhibit (9)(a) of
Post-Effective Amendment No. 14 to
Registrant's Registration Statement filed
on May 28, 1993.
(b) Amended and Restated Transfer Agency
Agreement dated July 28, 1988 between
Registrant and Provident Financial
Processing Corporation is incorporated
herein by reference to Exhibit (9)(b) of
Post-Effective Amendment No. 10 to
Registrant's Registration Statement, filed
on March 31, 1989.
(10) Opinion of Counsel.
(11) (a) Consent of Coopers & Lybrand L.L.P.
(b) Consent of Drinker Biddle & Reath.
(c) Consent of O'Melveny & Myers.
(12) None.
(13) None.
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<PAGE> 133
(14) None.
(15) (a) 12b-1 Services Plan is incorporated herein
by reference to Exhibit (15) of
Post-Effective Amendment No. 4 to
Registrant's Registration Statement, filed
on July 30, 1985.
(b) Amended and Restated 12b-1 Services Plan
is incorporated herein by reference to
Exhibit 15(b) of Post-Effective Amendment
No. 8 to the Registrant's Registration
Statement, filed on June 1, 1988.
(c) Amended and Restated Non-12b-1 Plan is
incorporated herein by reference to
Exhibit (15)(c) of Post-Effective
Amendment No. 10 to Registrant's
Registration Statement, filed on March 31,
1989.
(16) Schedule for Computation of Performance
Quotations is incorporated herein by
reference to Exhibit (16) of Post-Effective
Amendment No. 14 to Registrant's Registration
Statement, filed on May 28, 1993.
(27) (1) Financial Data Schedule as of January 31,
1996 for the California Money Fund (Money
Class).
(2) Financial Data Schedule as of January 31,
1996 for the California Money Fund (Dollar
Class).
(3) Financial Data Schedule as of January 31,
1996 for the California Intermediate
Municipal Fund.
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is controlled by its Board of Directors.
Item 26. Number of Holders of Securities
The following information is as of May 20, 1996.
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Class A Common Stock 54
Class A Common Stock -
Special Series 1 4
Class A Common Stock -
Special Series 2 0
Class B Common Stock 12
</TABLE>
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<PAGE> 134
Item 27. Indemnification
Article VII, Section 3 of the Registrant's Articles of
Incorporation, incorporated herein by reference as Exhibit (1)(a), and Article
VI, Section 2 of Registrant's By-Laws, incorporated herein by reference as
Exhibit (2)(a), require the indemnification of Registrant's directors and
officers to the full extent permissible under the General Laws of the State of
Maryland and the Investment Company Act of 1940. Indemnification of
Registrant's principal underwriter, custodian and transfer agent against
certain losses is provided for, respectively, in Section 6.b. of the
Distribution Agreement, incorporated herein by reference as Exhibit (6),
Section 22 of the Custodian Agreement, incorporated herein by reference as
Exhibit (8), and Section 15 of the Transfer Agency Agreement, incorporated
herein by reference as Exhibit (9)(b). The Fund has obtained from a major
insurance carrier a directors and officers' liability policy covering certain
types of errors and omissions.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, 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 director, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, 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 28. Business and Other Connections of Investment
Adviser
PIMC performs investment advisory and other services for
Registrant and certain other investment companies. PNC Bank and its
predecessors have been in the business of managing the investments of fiduciary
and other accounts in the Philadelphia area since 1847. In addition to its
trust business, PNC Bank provides commercial banking services.
The information required by this Item 28 with respect to each
director and officer of PIMC is incorporated by reference to Schedules A and
D of Form ADV filed by PIMC with the SEC
C-7
<PAGE> 135
pursuant to the Investment Advisors Act of 1940. (File No. 801-13304.) To
the knowledge of Registrant, none of the directors or officers of PNC Bank,
except those set forth below, is, or has been, at any time during Registrant's
past two fiscal years, engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain directors and officers
of PNC Bank also hold various positions with, and engage in business for, PNC
Bank Corp, which indirectly owns all the outstanding stock of PNC Bank, or
other subsidiaries of PNC Bank Corp. Set forth below are the names and
principal businesses of the directors and certain of the senior executive
officers of PNC Bank who are engaged in any other business, profession,
vocation or employment of a substantial nature.
C-8
<PAGE> 136
PNC BANK, NATIONAL ASSOCIATION
DIRECTORS
<TABLE>
<CAPTION>
Position with Other Business Type of
PNC Bank Name Connections Business
-------- ---- ----------- --------
<S> <C> <C> <C>
Director B.R. Brown President and C.E.O. of Coal
Consol, Inc.
Consol Plaza
Pittsburgh, PA 15241
Director Constance E. Clayton Associate Dean, School of Public Health Medical
and Professor of Pediatrics Medical
College of PA, Hahnemann Univeristy
430 E. Sedgwick Street
Philadelphia, PA 19119
Director Eberhard Faber, IV Chairman and C.E.O. Manufacturing
E.F.L., Inc.
450 Hedge Road
P.O. Box 49
Bear Creek, PA 18602
Director Dr. Stuart Heydt President and C.E.O. Medical
Geisinger Foundation
100 N. Academy Avenue
Danville, PA 17822
Director Edward P. Junker, III Vice Chairman Banking
PNC Bank, N.A.
Ninth and State Streets
Erie, PA 16553
Director Thomas A. McConomy President, C.E.O. and Manufacturing
Chairman, Calgon Carbon
Corporation
P.O. Box 717
Pittsburgh, PA 15230-0717
Director Thomas H. O'Brien Chairman Banking
PNC Bank, National Association
One PNC Plaza, 30th Floor
Pittsburgh, PA 15265
Director Dr. J. Dennis O'Connor Provost, The Smithsonian Institution Education
1000 Jefferson Drive, S.W.
Room 230, MRC 009
Washington, D.C. 20560
Director Rocco A. Ortenzio Chairman and C.E.O. Medical
Continental Medical
Systems, Inc.
P.O. Box 715
Mechanicsburg, PA 17055
Director Jane G. Pepper President Horticulture
Pennsylvania Horticultural
Society
325 Walnut Street
Philadelphia, PA 19106
</TABLE>
C-9
<PAGE> 137
<TABLE>
<CAPTION>
Position with Other Business Type of
PNC Bank Name Connections Business
-------- ---- ----------- --------
<S> <C> <C> <C> <C>
Director Robert C. Robb, Jr. Partner, Lewis, Eckert, Financial and
Robb & Company Management
425 One Plymouth Meeting Consultants
Plymouth Meeting, PA 19462
Director James E. Rohr President and C.E.O. Bank Holding Company
PNC Bank, N.A.
One PNC Plaza, 30th Floor
Pittsburgh, PA 15265
Director Daniel M. Rooney President, Pittsburgh Steelers Football
Football Club of the National Football
League
300 Stadium Circle
Pittsburgh, PA 15212
Director Seth E. Schofield Chairman and C.E.O. Airline
USAir, Inc.
2345 Crystal Drive
Arlington, VA 22227
</TABLE>
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<PAGE> 138
PNC BANK, NATIONAL ASSOCIATION
OFFICERS
<TABLE>
<S> <C>
Robert V. Aiken Senior Vice President
John E. Alden Senior Vice President
James C. Altman Senior Vice President
John W. Atkinson Executive Vice President
Lila M. Bachelier Senior Vice President
R. Perrin Baker Chief Market Counsel, Northwest PA
James R. Bartholomew Senior Vice President
Peter R. Begg Senior Vice President
Donald G. Berdine Senior Vice President
James H. Best Senior Vice President
Eva T. Blum Senior Vice President
Susan B. Bohn Senior Vice President
Michael S. Borocz Senior Vice President
George Brikis Executive Vice President
Anthony J. Cacciatore Senior Vice President
Richard C. Caldwell Executive Vice President
Craig T. Campbell Senior Vice President
J. Richard Carnall Executive Vice President
Peter K. Classen President & C.E.O., PNC Bank, Northeast PA
Andra D. Cochran Senior Vice President
Sharon Coghlan Coordinating Market Chief Counsel, Philadelphia
James P. Conley Senior Vice President
C. David Cook Senior Vice President
Alfred F. Cordasco Supervising Counsel, Pittsburgh, PA
Robert Crouse Senior Vice President
Keith P. Crytzer Senior Vice President
John J. Daggett Senior Vice President
</TABLE>
C-11
<PAGE> 139
PNC BANK, NATIONAL ASSOCIATION
OFFICERS
<TABLE>
<S> <C>
Anuj Dhanda Senior Vice President
Victor M. DiBattista Chief Regional Counsel
Thomas C. Dilworth Senior Vice President
James Dionise Senior Vice President and C.F.O.
Patrick S. Doran Senior Vice President, Head of Consumer Lending
Robert D. Edwards Senior Vice President
David J. Egan Senior Vice President
J. Lynn Evans Senior Vice President & Controller
William E. Fallon Senior Vice President
James M. Ferguson, III Senior Vice President
Frederick C. Frank, III Executive Vice President
William J. Friel Executive Vice President
John F. Fulgoney Coordinating Market Chief Counsel, Northeast PA
Brian K. Garlock Senior Vice President
George D. Gonczar Senior Vice President
Richard C. Grace Senior Vice President
James S. Graham Senior Vice President
Michael J. Hannon Senior Vice President
Stephen G. Hardy Senior Vice President
Michael J. Harrington Senior Vice President
Marva H. Harris Senior Vice President
Maurice H. Hartigan, II Executive Vice President
G. Robert Hoffman Executive Vice President
Sylvan M. Holzer Executive Vice President
John M. Infield Senior Vice President
Joe R. Irwin Executive Vice President
Philip C. Jackson Senior Vice President
William J. Johns Controller
William R. Johnson Audit Director
</TABLE>
C-12
<PAGE> 140
PNC BANK, NATIONAL ASSOCIATION
OFFICERS
<TABLE>
<S> <C>
Edward P. Junker, III Vice Chairman
Robert D. Kane Senior Vice President
Michael D. Kelsey Chief Compliance Counsel
Randall C. King Senior Vice President
Joseph E. Kloecker Senior Vice President
Christopher M. Knoll Senior Vice President
Richard C. Krauss Senior Vice President
Frank R. Krepp Senior Vice President & Chief Credit Policy Officer
Kenneth P. Leckey Senior Vice President & Cashier
Marilyn R. Levins Senior Vice President
Carl J. Lisman Executive Vice President
William H. Lochman Senior Vice President
George Lula Senior Vice President
Jane E. Madio Senior Vice President
Nicholas M. Marsini, Jr. Senior Vice President
David O. Matthews Senior Vice President
Walter B. McClellan Senior Vice President
James C. Mendelson Senior Vice President
Scott C. Meves Senior Vice President
J. William Mills Senior Vice President
Barbara A. Misner Senior Vice President
Marlene D. Mosco Senior Vice President
Scott Moss Senior Vice President
Peter F. Moylan Senior Vice President
Michael B. Nelson Executive Vice President
Thomas J. Nist Senior Vice President
Thomas H. O'Brien Chairman
James F. O'Day Senior Vice President
</TABLE>
C-13
<PAGE> 141
PNC BANK, NATIONAL ASSOCIATION
OFFICERS
<TABLE>
<S> <C>
Cynthia G. Osofsky Senior Vice President
George R. Partridge Senior Vice President
David M. Payne Senior Vice President
Charles C. Pearson, Jr. President and CEO, PNC Bank, Central PA
Helen P. Pudlin Senior Vice President
Edward V. Randall, Jr. President and CEO, PNC Bank, Pittsburgh
Richard C. Rhoades Senior Vice President
Bryan W. Ridley Senior Vice President
James E. Rohr President and Chief Executive Officer
Gary Royer Senior Vice President
William Sayre, Jr. Senior Vice President
David W. Schoffstall Executive Vice President
Timothy G. Shack Senior Vice President
Douglas E. Shaffer Senior Vice President
Alfred A. Silva Senior Vice President
George R. Simon Senior Vice President
Richard L. Smoot President and CEO of PNC Bank, Philadelphia
Timothy N. Smyth Senior Vice President
Kenneth S. Spatz Senior Vice President
Darcel H. Steber Senior Vice President
William F. Strome Senior Vice President and Secretary
Herbert G. Summerfield, Jr. Executive Vice President
Stephen L. Swanson Executive Vice President
Jane B. Tompkins Senior Vice President
Robert B. Trempe Senior Vice President
Kevin M. Tucker Senior Vice President
Alan P. Vail Senior Vice President
Bruce E. Walton Executive Vice President
Annette M. Ward-Kredel Senior Vice President
</TABLE>
C-14
<PAGE> 142
PNC BANK, NATIONAL ASSOCIATION
OFFICERS
<TABLE>
<S> <C>
Arlene M. Yocum Senior Vice President
Carole Yon Senior Vice President
David E. Zuern President & C.E.O., PNC Bank, Northwest PA
</TABLE>
Item 29. Principal Underwriter
(a) Provident Distributors, Inc. currently acts as
distributor for, in addition to the Company, Trust for Federal Securities,
Municipal Fund for Temporary Investment, Temporary Investment Fund, Inc.,
Municipal Fund for New York Investors, Inc. and Provident Institutional Funds,
Inc.
(b) The information required by this Item 29 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).
Item 30. Location of Accounts and Records
(1) PNC Bank, National Association, Broad and
Chestnut Streets, Philadelphia, Pennsylvania
19101 (records relating to its functions as
sub-investment adviser).
(2) PNC Bank, National Association, 200 Stevens
Drive, Suite 440-A, Lester, Pennsylvania
19113 (records relating to its functions as
custodian).
(3) Provident Distributors, Inc., 259
Radnor-Chester Road, Suite 120, Radnor,
Pennsylvania 19087 (records relating to its
functions as distributor).
(4) PNC Institutional Management Corporation, 400
Bellevue Parkway, 4th Floor, Wilmington,
Delaware 19809 (records relating to its
functions as investment adviser).
(5) PFPC Inc., P.O. Box 8950, Wilmington,
Delaware 19885-9628 and Provident
Distributors, Inc., 289 Radnor-Chester Road,
Suite 120, Radnor, Pennsylvania 19087
C-15
<PAGE> 143
(records relating to their functions as
administrators).
(6) PFPC Inc., 400 Bellevue Parkway, Wilmington,
Delaware 19809 (records relating to its
functions as transfer agent and dividend
disbursing agent).
(7) Drinker Biddle & Reath, 1100 Philadelphia
National Bank Building, Philadelphia,
Pennsylvania 19107 (Registrant's Articles of
Incorporation, By-Laws and Minute Books).
Item 31. Management Services
None.
Item 32. Undertakings
Registrant hereby undertakes to provide its Annual Report upon
request without change to any recipient of a Prospectus for
the California Money Fund and California Intermediate
Municipal Fund.
C-16
<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets all
the requirements for effectiveness of this Post-Effective Amendment No. 17 to
its Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment No. 17 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 May 31,
1996.
MUNICIPAL FUND FOR
CALIFORNIA INVESTORS, INC.
* G. Willing Pepper
----------------------------
Chairman of the Board and
President
(Signature and Title)
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment No. 17 to Registrant's Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* G. Willing Pepper Chairman of May 31, 1996
- -------------------------- the Board
G. Willing Pepper and President
* William R. Howell Director May 31, 1996
- --------------------------
William R. Howell
* Rudolph A. Peterson Director May 31, 1996
- --------------------------
Rudolph A. Peterson
* Anthony M. Santomero Director May 31, 1996
- --------------------------
Anthony M. Santomero
* Rodney D. Johnson Director May 31, 1996
- -------------------
Rodney D. Johnson
/s/ Edward J. Roach Vice President May 31, 1996
- -------------------------- and Treasurer
Edward J. Roach (Principal
Financial and
Accounting Officer)
*By:/s/ Edward J. Roach
---------------------
Edward J. Roach
Attorney-in-Fact
</TABLE>
<PAGE> 145
Powers of Attorney are incorporated by reference to Post-Effective Amendments
No. 13, 14 and 15 to the Registrant's Registration Statement filed on May 28,
1992, May 28, 1993 and May 27, 1994, respectively.
<PAGE> 146
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
(5) (a) Amended and Restated Investment
Advisory Agreement dated July 28,
1998 between Registrant and
Provident Institutional Management
Corporation.
(b) Amended and Restated Sub-Advisory
Agreement dated July 28, 1988
between Provident Institutional
Management Corporation and
Provident National Bank.
(8) Amended and Restated Custodian
Agreement dated July 28, 1988
between Registrant and Provident
National Bank.
(9) (b) Amended and Restated Transfer
Agency Agreement dated July 28,
1988 between Registrant and
Provident Financial Processing
Corporation.
(10) Opinion of Counsel.
(11) (a) Consent of Coopers & Lybrand L.L.P.
(b) Consent of Drinker Biddle & Reath.
(c) Consent of O'Melveny & Myers.
(27) (1) Financial Data Schedule as of
January 31, 1996 for the California
Money Fund (Money Class).
(2) Financial Data Schedule as of
January 31, 1996 for the California
Money Fund (Dollar Class).
(3) Financial Data Schedule as of
January 31, 1996 for the California
Intermediate Municipal Fund.
</TABLE>
<PAGE> 1
EXHIBIT 5(a)
AMENDED AND RESTATED ADVISORY AGREEMENT
AGREEMENT made as of July 28, 1988 between MUNICIPAL FUND FOR
CALIFORNIA INVESTORS, INC., a Maryland corporation (the "Fund"), and PROVIDENT
INSTITUTIONAL MANAGEMENT CORPORATION, a Delaware corporation (the "Investment
Adviser"), registered as an investment adviser under the Investment Advisers Act
of 1940 and wholly-owned by Provident National Bank ("Provident").
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940;
WHEREAS, the Fund entered into an amended advisory agreement
made as of August 7, 1987 (the "Advisory Agreement") between the Fund and the
Investment Adviser for certain investment advisory and administrative services
to the Fund, which at such time offered shares in only one portfolio: the Fund's
California Money Fund Portfolio (the "Cal Money Portfolio");
WHEREAS, the Fund, as of the date hereof, now offers shares in
two portfolios: the Cal Money Portfolio and the Fund's California Intermediate
Municipal Fund Portfolio (the "Cal Intermuni Portfolio") (the Cal Money
Portfolio and the Cal Intermuni Portfolio collectively referred to herein as the
"Portfolios" and each as a "Portfolio"); and
WHEREAS, the Fund desires to amend and restate in full the
Advisory Agreement to retain the Investment Adviser to render investment
advisory and administrative services to both the Cal Money Portfolio and the Cal
Intermuni Portfolio, and the Investment Adviser is willing to so render such
services;
NOW, THEREFORE, this Agreement
WITNESSETH:
In consideration of the premises and mutual covenants herein
contained, it is agreed between the parties hereto that the Advisory Agreement
is hereby amended and restated in full as follows:
1. Appointment. The Fund hereby appoints the Investment
Adviser to act as investment adviser to each of the Portfolios for the period
and on the terms set forth in this Agreement. The Investment Adviser accepts
such appointment and agrees to render the services herein set forth for the
compensation herein provided.
<PAGE> 2
2. Delivery of Documents. The Fund has furnished the
Investment Adviser with copies properly certified or authenticated of each of
the following:
(a) Articles of Incorporation of the Fund (such
Articles of Incorporation, as presently in effect and as they shall from time to
time be amended or supplemented, herein called the "Articles of Incorporation");
(b) Articles Supplementary as filed with the
Maryland State Department of Assessments and Taxation on November 24, 1982;
(c) By-Laws of the Fund (such By-Laws, as
presently in effect and as they shall from time to time be amended, herein
called the "By-Laws");
(d) Resolutions of the Board of Directors of the
Fund authorizing the appointment of the Investment Adviser and the execution and
delivery of this Agreement;
(e) Registration Statement under the Securities
Act of 1933, as amended, and the Investment Company Act of 1940, as amended, on
Form N-1 (No. 2-79510) relating to each class of common stock of the Fund
(collectively, the "Shares"), and all amendments thereto;
(f) Notification of Registration of the Fund
under the Investment Company Act of 1940, as amended, on Form N-8A as filed with
the Securities and Exchange Commission on September 24, 1982, and all amendments
thereto; and
(g) Each Prospectus relating to either Portfolio
of the Fund in effect under the Securities Act of 1933 (such prospectuses and
supplements thereto, as presently in effect and as from time to time amended and
supplemented, herein called collectively, the "Prospectuses").
The Fund will furnish the Investment Adviser from time to time
with copies of all amendments of or supplements to the foregoing, if any.
3. Management. Subject to the supervision of the Board
of Directors of the Fund, the Investment Adviser will provide a continuous
investment program for the each of the Portfolios, including investment research
and management with respect to all securities, investments, cash and cash
equivalents in each Portfolio. The Investment Adviser will determine from time
to time what securities and other investments will be purchased, retained or
sold by each Portfolio. The Investment Adviser will provide the services
rendered by it hereunder in accordance with each Portfolio's investment
objective and
-2-
<PAGE> 3
policies as stated in the Prospectuses. The Investment Adviser further agrees
that it:
(a) will conform with all applicable Rules and
Regulations of the Securities and Exchange Commission (herein called the
"Rules"), and will in addition conduct its activities under this Agreement in
accordance with regulations of the Board of Governors of the Federal Reserve
System pertaining to the investment advisory activities of bank holding
companies to the same extent as if such regulations were by their terms
applicable to the activities of the Investment Adviser;
(b) will not invest its assets or the assets of
any accounts advised by it or by Provident in Shares, make loans for the purpose
of purchasing or carrying Shares, or make loans to the Portfolios;
(c) will place orders pursuant to its investment
determinations for each Portfolio either directly with the issuer or with any
broker or dealer. In placing orders with brokers and dealers, the Investment
Adviser will attempt to obtain the best net price and the most favorable
execution of its orders. Consistent with this obligation, when the execution and
price offered by two or more brokers or dealers are comparable, the Investment
Adviser may, in its discretion, purchase and sell portfolio securities to and
from brokers and dealers who provide the Fund with research advice and other
services. In no instance will portfolio securities be purchased from or sold to
the Fund's principal underwriter, the Investment Adviser or any affiliated
person thereof, except to the extent permitted by the Securities and Exchange
Commission;
(d) will, together with Provident, maintain all
books and records with respect to each Portfolio's securities transactions, keep
each Portfolio's books of account and will render to the Fund's Board of
Directors such periodic and special reports as the Board may request;
(e) will compute the net asset value and the net
income for each Portfolio on each business day as described in the Prospectuses
or as more frequently requested by the Fund; and
(f) will treat confidentially and as proprietary
information of the Fund all records and other information relative to the Fund
and prior, present or potential shareholders, and will not use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder, except after prior notification to and approval in writing by
the Fund, which approval shall not be unreasonably withheld and may not be
withheld where the Investment Adviser may be exposed to civil or criminal
contempt proceedings for failure
-3-
<PAGE> 4
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Fund.
4. Services Not Exclusive. The investment management
services rendered by the Investment Adviser hereunder are not to be deemed
exclusive, and the Investment Adviser shall be free to render similar services
to others so long as its services under this Agreement are not impaired thereby.
5. Sub-Advisory Agreement. Notwithstanding anything
herein to the contrary, this Agreement shall not be effective until the
Investment Adviser and Provident deliver to the Fund a duly executed copy of the
Sub-Advisory Agreement in substantially the form attached as Exhibit A hereto
(the "Sub-Advisory Agreement") pursuant to which Provident will provide the
Investment Adviser with certain investment advisory services on behalf of each
Portfolio. The Investment Adviser agrees to give the Fund prompt written notice
of any termination of or notice to terminate the Sub-Advisory Agreement by any
person other than the Fund.
6. Books and Records. In compliance with the
requirements of Rule 31a-3 of the Rules, the Investment Adviser hereby agrees
that all records which it maintains for each Portfolio are the property of the
Fund and further agrees to surrender promptly to the Fund any of such records
upon the Fund's request. The Investment Adviser further agrees to preserve for
the periods prescribed by Rule 31a-2 the records required to be maintained by
Rule 31a-1 of the Rules.
7. Expenses. During the term of this Agreement, the
Investment Adviser will pay all expenses incurred by it in connection with its
activities under this Agreement other than the cost of (including brokerage
commissions, if any) securities purchased for each Portfolio.
In addition, if the expenses borne by a Portfolio in any
fiscal year exceed the applicable expense limitations imposed by the securities
regulations of any state in which the Shares are registered or qualified for
sale to the public, the Investment Adviser shall reimburse the Portfolio for
one-half of any excess up to the amount of the fees payable to it during such
fiscal year pursuant to paragraph B hereof; provided, however, that
notwithstanding the foregoing, the Investment Adviser shall reimburse the
Portfolio for one-half of such excess expenses regardless of the amount of fees
paid to it during such fiscal year to the extent that the securities regulations
of any state in which the Shares are registered or qualified for sale so
require.
8. Compensation. For the services provided and the
expenses assumed pursuant to this Agreement, the Fund will pay
-4-
<PAGE> 5
the Investment Adviser and the Investment Adviser will accept as full
compensation therefor a fee, computed daily and payable monthly, at an annual
rate of .20% of the Portfolio's average net assets.
9. Limitation of Liability of the Investment Adviser.
Neither Provident nor the Investment Adviser shall be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement. Notwithstanding the foregoing, the Investment Adviser shall be liable
to the Fund for the acts and omissions of Provident to the extent that Provident
is liable to the Investment Adviser for such acts or omissions under the
Sub-Advisory Agreement between the Investment Adviser and Provident.
10. Duration and Termination. This Agreement, unless
sooner terminated as provided herein, shall continue until May 31, 1989.
Thereafter, if not terminated, this Agreement shall continue with respect to a
Portfolio for successive periods of 12 months each, provided such continuance is
specifically approved at least annually (a) by the vote of a majority of those
members of the Board of Directors of the Fund who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Board of
Directors of the Fund or by vote of a majority of the outstanding voting
securities of the Portfolio; provided, however, that this Agreement may be
terminated with respect to a Portfolio by the Fund at any time, without the
payment of any penalty, by the Board of Directors of the Fund or by vote of a
majority of the outstanding voting securities of the Portfolio on 60 days'
written notice to the Investment Adviser, or by the Investment Adviser at any
time, without payment of any penalty, on 90 days' written notice to the Fund.
This Agreement will immediately terminate in the event of its assignment and
upon any termination of the Sub-Advisory Agreement. (As used in this Agreement,
the terms "majority of the outstanding voting securities," "interested person"
and "assignment" shall have the same meanings as such terms have in the
Investment Company Act of 1940.)
11. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, and no amendment of this
Agreement shall
-5-
<PAGE> 6
be effective until approved by vote of a majority of the Portfolio's outstanding
voting securities.
12. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by Delaware law.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
MUNICIPAL FUND FOR CALIFORNIA
INVESTORS, INC.
Attest: (a Maryland corporation)
/s/ Morgan R. Jones By:/s/ G. Willing Pepper
- -------------------------- ---------------------------
[Seal]
PROVIDENT INSTITUTIONAL
MANAGEMENT CORPORATION
Attest:
/s/ Eugene P. Grace By:/s/ Thomas H. Nevin
- -------------------------- ---------------------------
[Corporate Seal]
-6-
<PAGE> 1
EXHIBIT 5(b)
AMENDED AND RESTATED
SUB-ADVISORY AGREEMENT
AGREEMENT dated July 28, 1988, between PROVIDENT NATIONAL
BANK, a national banking association (herein called "Provident"), and PROVIDENT
INSTITUTIONAL MANAGEMENT CORPORATION, a Delaware corporation registered as an
investment adviser under the Investment Advisers Act of 1940 and wholly-owned by
Provident (herein called "PIMC").
WHEREAS, PIMC is the investment adviser to Municipal Fund for
California Investors, Inc. (the "Fund"), an open-end, diversified, management
investment company registered under the Investment Company Act of 1940;
WHEREAS, PIMC entered into a sub-advisory agreement made as of
February 28, 1983 (the "Sub-Advisory Agreement") between PIMC and Provident for
certain investment research, administrative, and statistical services in
connection with PIMC's advisory activities on behalf of the Fund, which at such
time offered shares in only one portfolio: the Fund's California Money Fund
portfolio (the "Cal Money Portfolio");
WHEREAS, the Fund, as of the date hereof, now offers shares in
two portfolios: the Cal Money Portfolio and the Fund's California Intermediate
Municipal Fund portfolio (the "Cal Intermuni Portfolio") (the Cal Money
Portfolio and the Cal Intermuni Portfolio collectively referred to herein as the
"Portfolios" and each as a "Portfolio");
WHEREAS, PIMC wishes to amend and restate in full the
Sub-Advisory Agreement to retain Provident to provide it with investment
research, administrative, and statistical services in connection with PIMC's
advisory activities on behalf of both the Cal Money Portfolio and the Cal
Intermuni Portfolio; and
WHEREAS, Provident is willing to provide such services to PIMC
upon the conditions and for the compensation set forth below,
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto that the
"Sub-Advisory Agreement" is hereby amended and restated in full as follows:
1. Appointment. PIMC hereby appoints Provident its
sub-adviser as required by the Advisory Agreement between PIMC and the Fund
dated as of July 28, 1988 (such Agreement or the most recent successor advisory
agreement between such parties is referred to herein as the "Advisory
Agreement"). Provident
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accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
2. Sub-Advisory Services. Subject to the supervision of
the Board of Directors of the Fund, Provident, through its Trust Division and on
behalf of each Portfolio of the Fund, will provide each Portfolio investment
research and credit analysis concerning prospective and existing Portfolio
investments, make recommendations with respect to each Portfolio's continuous
investment program, supply PIMC computer facilities and operating personnel, and
provide such statistical services as PIMC may from time to time reasonably
request. Provident will provide the services rendered by it hereunder in
accordance with each Portfolio's investment objective, policies and restrictions
as stated in the Portfolio's prospectus, as presently in effect and as it may be
amended or supplemented from time to time. Provident further agrees that it:
(a) will use the same skill and care in
providing such services as it uses in providing services to fiduciary accounts
for which it has investment responsibilities;
(b) will conform with all applicable Rules and
Regulations of the Securities and Exchange Commission (hereinafter called the
"Rules"), and will in addition conduct its activities under this Agreement in
accordance with the regulations of the Board of Governors of the Federal Reserve
System pertaining to the investment advisory activities of bank holding
companies to the same extent as if such regulations were by their terms
applicable to its activities hereunder;
(c) will not invest its assets or assets of any
fiduciary account managed by it in shares of a Portfolio, make loans for
purposes of purchasing or carrying such shares, or make loans to a Portfolio;
(d) will maintain or cause PIMC to maintain
books and records with respect to each Portfolio's securities transactions;
(e) will render to the Fund's Board of Directors
such periodic and special reports as the Board may request; and
(f) will maintain its policy and practice of
conducting its Trust Division independently of its Commercial Division. In
making investment recommendations for each Portfolio, Trust Division personnel
will not inquire or take into consideration whether the issuer of securities
proposed for purchase or sale for the Portfolio's account are customers of the
Commercial Division. In dealing with commercial customers, the Commercial
Division will not inquire or take into consideration whether securities of those
customers are held by the Portfolio.
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3. Services Not Exclusive. Provident's services
hereunder are not deemed to be exclusive, and Provident shall be free to render
similar services to others so long as its services under this Agreement are not
impaired thereby.
4. Books and Records. In compliance with the
requirements of Rule 31a-3 of the Rules, Provident hereby agrees that all
records which it maintains for each Portfolio are the property of the Fund and
further agrees to surrender promptly to the Fund any of such records upon the
Fund's request. Provident further agrees to preserve, or cause PIMC to preserve,
for the periods prescribed by Rule 31a-2, the records required to be maintained
by Rule 31a-1 of the Rules.
5. Expenses. During the term of this Agreement,
Provident will pay all expenses incurred by it in connection with its activities
under this Agreement.
6. Compensation. For the services which Provident will
render to PIMC under this Agreement, PIMC will pay to Provident a monthly fee
equal to 75% of each month's advisory fee received by PIMC from the Fund with
respect to each Portfolio pursuant to the Advisory Agreement between PIMC and
the Fund. Notwithstanding the foregoing, the fee payable to Provident shall be
adjusted each quarter as necessary to assure that, with respect to each
Portfolio, PIMC has income from all sources before application of Federal,
State, or other income taxes of at least $22,500 during each quarter. The
sub-advisory fee shall be paid by PIMC to Provident at least quarterly.
7. Limitation on Liability. Provident will not be liable
for any error of judgment or mistake of law or for any loss suffered by PIMC or
by the Fund in connection with the matters to which this Agreement relates,
except a loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations or duties under this
Agreement.
8. Duration and Termination. This Agreement, unless
sooner terminated as provided herein, shall continue with respect to a Portfolio
until May 31, 1989. Thereafter, if not terminated, this Agreement shall continue
with respect to a Portfolio for successive periods of 12 months each, provided,
such continuance is specifically approved at least annually (a) by the vote of a
majority of those members of the Board of Directors of the Fund who are not
parties to this Agreement or interested persons of the Fund or any such party,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the Board of Directors of the Fund or by a vote of a majority of the
outstanding voting securities of the Portfolio,
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on 60 days' written notice to PIMC, and will be terminated upon any termination
of the Advisory Agreement between the Fund and PIMC. This Agreement will also
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meanings as such terms
have in the Investment Company Act of 1940.)
9. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. No amendment of this
Agreement shall be effective with respect to a Portfolio until approved by vote
of the holders of a majority of the Portfolio's outstanding voting securities.
10. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by Delaware law.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
PROVIDENT NATIONAL BANK
Attest:
By:/s/ Malcolm C. Wilson
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[Corporate Seal]
PROVIDENT INSTITUTIONAL
Attest: MANAGEMENT CORPORATION
/s/ Eugene P. Grace By:/s/ Thomas H. Nevin
- -------------------------- -------------------------
[Corporate Seal]
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EXHIBIT 8
AMENDED AND RESTATED CUSTODIAN AGREEMENT
THIS AGREEMENT is made this 28th day of July, 1988 by and
between MUNICIPAL FUND FOR CALIFORNIA INVESTORS, INC., a Maryland corporation
(the "Fund"), and PROVIDENT NATIONAL BANK, a national banking association
("Provident").
W I T N E S S E T H :
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended ("the 1940 Act"):
WHEREAS, the Fund entered into a custodian agreement made
February 14, 1983 (the "Custodian Agreement") by and between the Fund and
Provident for certain custodial services for the Fund, which at such time
offered shares in only one portfolio: the Fund's California Money Fund portfolio
(the "Cal Money Portfolio"),
WHEREAS, the Fund, as of the date hereof, now offers shares in
two portfolios: the Cal Money Portfolio and the Fund's California Intermediate
Municipal Bond portfolio (the "Cal Intermuni Portfolio") (the Cal Money
Portfolio and the Cal Intermuni Portfolio collectively referred to herein as the
"Portfolios" and each as a "Portfolio"),
WHEREAS, the Fund offers three separate series of Class A
Common Stock, $.001 par value per share, and three separate series of Class B
Common Stock, $.001 par value per share, (such
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shares and all shares of every class or series hereafter created by the Fund
called "Shares," and such classes or series of Shares and any class or series of
Shares hereafter created by the Fund herein called "Classes"),
WHEREAS, the Fund desires to amend and restate in full the
Custodian Agreement to retain Provident to serve as the Fund's custodian with
respect to both the Cal Money Portfolio and the Cal Intermuni Portfolio and
Provident is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto that the
Custodian Agreement is hereby amended and restated in full as follows:
1. Appointment. The Fund hereby appoints Provident to
act as custodian of the portfolio securities, cash and other property of the
Fund for the period and on the terms set forth in this Agreement. Provident
accepts such appointment and agrees to furnish the services herein set forth in
return for the compensation as provided in Paragraph 21 of this Agreement.
Provident agrees to comply with all relevant provisions of the 1940 Act and
applicable rules and regulations thereunder.
2. Delivery of Documents. The Fund has furnished
Provident with copies properly certified or authenticated of each of the
following:
(a) Resolutions of the Fund's Board of Directors
authorizing the appointment of Provident as custodian of the
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portfolio securities, cash and other property of the Fund and approving this
Agreement;
(b) Incumbency and signature certificates
identifying and containing the signatures of the Fund's officers and/or other
persons authorized to sign Written Instructions, as hereinafter defined, on
behalf of the Fund;
(c) The Fund's Articles of Incorporation filed
with the Department of Assessments and Taxation of the State of Maryland on
September 20, 1982 and all amendments thereto (such Articles of Incorporation,
as currently in effect and as they shall from time to time be amended, are
herein called the "Charter");
(d) The Fund's By-Laws and all amendments
thereto (such By-Laws, as currently in effect and as they shall from time to
time be amended, are herein called the "By-Laws");
(e) Resolutions of the Fund's Board of Directors
appointing Provident Institutional Management Corporation ("PIMC") an the Fund's
investment adviser and resolutions of the Fund's Board of Directors and
Shareholders approving a proposed Advisory Agreement between PIMC and the Fund
(the "Advisory Agreement");
(f) Resolutions of the Fund's Board of Directors
appointing Provident National Bank ("Provident") as the Fund's sub-investment
adviser and resolutions of the Fund's Board of Directors and Shareholders
approving a proposed Sub-Advisory
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Agreement between PIMC and Provident (the "Sub-Advisory Agreement");
(g) Resolutions of the Fund's Board of Directors
appointing Shearson/American Express Inc. ("Shearson") as the Fund's distributor
and approving a proposed Distribution Agreement between Shearson and the Fund
(the "Distribution Agreement");
(h) Resolutions of the Fund's Board of Directors
appointing the Boston Company Advisors, Inc. ("Boston Advisors") as the Fund's
administrator and approving a proposed Administration Agreement between Boston
Advisors and the Fund (the "Administration Agreement");
(i) Resolutions of the Fund's Board of Directors
appointing Provident Financial Processing Corporation ("PFPC") as the Fund's
transfer Agent and approving a proposed Transfer Agency Agreement between the
Fund and PFPC (the "Transfer Agency Agreement");
(j) The Advisory Agreement, the Sub-Advisory
Agreement, the Distribution Agreement, the Administration Agreement, and the
Transfer Agency Agreement;
(k) The Fund's Notification of Registration
filed pursuant to Section 8(a) of the 1940 Act on Form N-8A with the Securities
and Exchange Commission ("SEC") on September 24, 1982;
(l) The Fund's Registration Statement on Form
N-1 under the 1940 Act and the Securities Act of 1983, as amended ("the 1933
Act"), as filed with the SEC on September 24, 1982
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(File No. 2-78510) relating to the Shares, and all amendments thereto; and
(m) The Fund's most recent prospectus relating
to each Portfolio of the Fund (such prospectuses as presently in effect and all
amendments and supplements thereto are herein called collectively the
"Prospectuses", and each a "Prospectus").
The Fund will furnish Provident from time to time with copies
of all amendments of or supplements to the foregoing, if any.
3. Definitions.
(a) "Authorized Persons". An used in this
Agreement, the term "Authorized Person" means the Fund's President. Treasurer,
and any other person, whether or not any such person is an officer or employee
of the Fund, duly authorized by the Board of Directors of the Fund to give Oral
and Written Instructions on behalf of the Fund and listed on the Certificate
annexed hereto as Appendix A or such other Certificate listing persons duly
authorized to give Oral and Written Instructions on behalf of the Fund as may be
received by Provident from time to time.
(b) "Oral Instructions". As used in this
Agreement, the term "Oral Instructions" means verbal instructions actually
received by Provident from an Authorized Person or from a person reasonably
believed by Provident to be an Authorized Person. The Fund agrees to deliver to
Provident, at the time and
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in the manner specified in Paragraph 7(b) of this Agreement, Written
Instructions confirming oral Instructions.
(c) "Property". The term "Property," as used in
this Agreement, means:
(i) any and all securities and other
property which the Fund may from time to time deposit, or cause to be
deposited, with Provident or which Provident may from time to time hold
for the Fund;
(ii) all income in respect of any of
such securities or other property;
(iii) all proceeds of the sale of any of
such securities or other property; and
(iv) all proceeds of the sale of
securities issued by the Fund, which are received by Provident from
time to time from or on behalf of the Fund.
(d) "Written Instructions". As used in this
Agreement, the term "Written Instructions" means written instructions delivered
by mail, tested telegram, cable, telex or facsimile sending device, and received
by Provident, signed by two Authorized Persons.
(e) "Book-Entry System". An used in this
Agreement, the term "Book-Entry System" means the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees and any book-entry system maintained
by a clearing
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agency registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934.
4. Delivery and Registration of the Property. The Fund
will deliver or cause to be delivered to Provident all securities and all moneys
owned by it, including cash received for the issuance of its Shares, at any time
during the period of this Agreement. Provident will not be responsible for such
securities and such moneys until actually received by it. All securities
delivered to Provident (other than in bearer form) shall be registered in the
name of the Fund or in the name of a nominee of the Fund or in the name of
Provident or any nominee of Provident, which nominee shall be assigned
exclusively to the Fund (with or without indication of fiduciary status), or in
the name of any sub-custodian or any nominee of any such subcustodian appointed
pursuant to Paragraph 6 hereof, or shall be properly endorsed and in form for
transfer satisfactory to Provident.
5. Receipt and Disbursement of Money.
(a) Provident shall open and maintain a separate
custodial account or accounts in the name of each Portfolio of the Fund, subject
only to draft or order by Provident acting pursuant to the terms of this
Agreement, and shall hold in such account or accounts, subject to the provisions
hereof, all cash received by it from or for the account of the Fund. Provident
shall make payments of cash to. or for the account of, each Portfolio of the
Fund from such cash only (i) for the purchase of securities for the Fund's
Portfolios as provided in Paragraph 11
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hereof; (ii) for the redemption of Shares as provided in subparagraph (b) of
Paragraph 8 hereof; (iii) upon receipt of Written Instructions, for the payment
of interest, dividends, taxes. or custodial, transfer agency, administration,
distribution or advisory fees or expenses which are to be borne by the Fund
under the terms of this Agreement, the Transfer Agency Agreement, the Advisory
Agreement, the Sub-Advisory Agreement, the Administration Agreement and the
Distribution Agreement; (iv) upon receipt of Written Instructions, for payments
in connection with the conversion, exchange or surrender of securities owned or
subscribed to by the Fund and held by or to be delivered to Provident; (v) to a
subcustodian pursuant to Paragraph 6 hereof; or (vi) upon receipt of Written
Instructions. for other proper Fund purposes.
(b) Provident is hereby authorized to endorse
and collect all checks, drafts or other orders for the payment of money received
as custodian for the account of each Portfolio of the Fund.
6. Receipt of Securities.
(a) Except as provided in sub-Paragraph (c)
below, Provident shall hold and physically segregate in a separate account
identifiable at all times from those of any other persons, firms, or
corporations, all securities and non-cash property received by it for the
account of each Portfolio of the Fund. All such securities and non-cash property
are to be held or disposed of by Provident for the Fund pursuant to the
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terms of this Agreement. In the absence of Written Instructions accompanied by a
certified resolution of the Fund's Board of Directors authorizing the specific
transaction, Provident shall have no power or authority to withdraw, deliver,
assign, hypothecate, pledge or otherwise dispose of any such securities and
investments except in accordance with the express terms provided for in this
Agreement. In no case may any director, officer, employee or agent of the Fund
withdraw any securities. In connection with its duties under this Paragraph 6,
Provident may at its own expense, enter into subcustodian agreements with other
banks or trust companies for the receipt of certain securities and cash to be
held by Provident for the account of the Fund pursuant to this Agreement;
provided that each such bank or trust company has an aggregate capital, surplus
and undivided profits, as shown by its last published report, of not less than
five hundred thousand dollars ($500,000) and that such bank or trust company
agrees with Provident to comply with all relevant provisions of the 1940 Act and
applicable rules and regulations thereunder. Provident shall remain responsible
for the performance of all of its duties under this Agreement and shall hold the
Fund harmless from the acts and omissions of any bank or trust company that it
might choose pursuant to this Paragraph 6.
(b) Promptly after the close of business each
day, Provident shall furnish the Fund with confirmation and a summary of all
transfers to or from the account of each Portfolio of the Fund during said day.
Where securities are transferred to
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an account of a Portfolio of the Fund established pursuant to sub-Paragraph (c)
hereof. Provident shall also by book-entry or otherwise identify as belonging to
the Fund the quantity of securities in a fungible bulk of securities registered
in the name of Provident (or its nominee) or shown in Provident's account on the
books of the Book-Entry System. At least monthly and from time to time,
Provident shall furnish the Fund with a detailed statement of the Property held
for each Portfolio of the Fund under this Agreement.
(c) The Fund shall deliver to Provident a
certified resolution of the Board of Directors of the Fund approving,
authorizing and instructing Provident on a continuous and on-going basis, until
instructed to the contrary by Oral or Written Instructions actually received by
Provident, to deposit in the Book-Entry System all securities of each Portfolio
of the Fund eligible for deposit therein and to utilize the Book-Entry System to
the extend possible in connection with settlements of purchases and sales of
securities by each Portfolio of the Fund, and deliveries and returns of
securities collateral in connection with borrowings. Without limiting the
generality of such use, it is agreed that the following provisions shall apply
thereto:
(i) Securities and any cash of each
Portfolio of the Fund deposited in the Book-Entry System will at all
times be segregated from any assets and cash controlled by Provident in
other than a fiduciary or custodian capacity but may be commingled with
other assets
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held in such capacities. Provident will pay out money only upon receipt
of securities and will deliver securities only upon the receipt of
money.
(ii) All books and records maintained by
Provident which relates to the Fund's participation in the Book-Entry
System will at all times during Provident's regular business hours be
open to the inspection of the Fund's duly authorized employees or
agents, and the Fund will be furnished with all information in respect
of the services rendered to it an it may require.
(iii) Provident will provide the Fund
with copies of any report obtained by Provident on the system of
internal accounting control of the Book-Entry System promptly after
receipt of such a report by Provident. Provident will also provide the
Fund with such reports on its own system of internal control as the
Fund may reasonably request from time to time.
7. Instructions Consistent with Charter, etc.
(a) Unless otherwise provided in this Agreement,
Provident shall act only upon Oral and Written Instructions. Although Provident
may take cognizance of the provisions of the Charter and By-Laws of the Fund,
Provident may assume that any Oral or Written Instructions received hereunder
are not in any way inconsistent with any provisions of such Charter or By-Laws
or any vote, resolution or proceeding of the Shareholders, or of the Board of
Directors, or of any committee thereof.
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(b) Provident shall be entitled to rely upon any
Oral Instructions and any agrees to forward to Provident Written Instructions
confirming Oral Instructions in such manner that the Written Instructions are
received by Provident, whether by hand delivery, telex, facsimile sending device
or otherwise, by the close of business of the same day that such Oral
Instructions are given to Provident. The Fund agrees that the fact that such
confirming Written Instructions are not received by Provident shall in no way
affect the validity of the transactions or enforceability of the transactions
authorized by the Fund by giving Oral Instructions. The Fund agrees that
Provident shall incur no liability to the Fund in acting upon Oral Instructions
given to Provident hereunder concerning such transactions provided such
instructions reasonably appear to have been received from an Authorized Person.
8. Transactions Not Requiring Instructions. Provident is
authorized to take the following action without Oral or Written Instructions:
(a) Deposits of Proceeds of Issuance of Shares.
Provident shall collect and receive for the account of each Portfolio of the
Fund all payments received in payment for Shares issued by the Fund.
(b) Redemptions. Upon receipt of notice by the
Fund's transfer agent stating that such transfer agent is required to redeem
Shares and specifying the number and Class of Shares which such transfer agent
is required to redeem and the
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date and time the request or requests for redemption were received by the Fund's
distributor, Provident shall either (i) pay to such transfer agent, for
distribution to the redeeming Shareholder, the amount payable to such
Shareholder upon the redemption of such Shares as determined in the manner
described in the then current Prospectus relating to such Shares, or (ii)
arrange for the direct payment of such redemption proceeds by Provident to the
redeeming Shareholder in accordance with such procedures and controls as are
mutually agreed upon from time to time by and among Provident, the Fund and the
Fund's transfer agent.
(c) Collection of Income and Other Payments.
Provident shall:
(i) collect and receive for the account
of each Portfolio of the Fund, all income and other payments
and distributions, including (without limitation) stock
dividends, rights, warrants and similar items, included or to
be included in the Property, and promptly advise the Fund of
such receipt and shall credit such income, as collected. to
the Portfolio's custodian account;
(ii) endorse and deposit for collection,
in the name of the Fund, or if with respect to a Portfolio, in
the name of the Portfolio, checks, drafts, or other orders for
the payment of money on the same day as received;
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(iii) receive and hold for the account of
each Portfolio of the Fund all securities received as a
distribution on the portfolio securities of the Portfolio as a
result of a stock dividend, share split-up or reorganization,
recapitalization, readjustment or other rearrangement or
distribution of rights or similar securities issued with
respect to any portfolio securities of the Portfolio held by
Provident hereunder;
(iv) present for payment and collect the
amount payable upon all securities which may mature or be
called, redeemed, or retired, or otherwise become payable on
the date such securities become payable; and
(v) take any action which may be
necessary and proper in connection with the collection and
receipt of such income, payments and other Property and the
endorsement for collection of checks, drafts, and other
negotiable instruments.
(d) Miscellaneous Transactions. Provident is
authorized to deliver or cause to be delivered Property against payment or other
consideration or written receipt therefor in the following cases:
(i) for examination by a broker selling
for the account of a Portfolio in accordance with street
delivery custom;
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(ii) for the exchange of interim
receipts or temporary securities for definitive securities;
and
(iii) for transfer of securities into the
name of the Portfolio or Provident or a nominee of either, or
for exchange of securities for a different number of bonds,
certificates, or other evidence, representing the same
aggregate face amount or number of units bearing the same
interest rate, maturity date and call provisions, if any;
provided that, in any such case, the new securities are to be
delivered to Provident.
9. Transactions Requiring Instructions. Upon receipt
of Oral or Written Instructions and not otherwise, Provident shall:
(a) execute and deliver to such persons as may
be designated in such Oral or Written Instructions, proxies, consents.
authorizations, and any other instruments whereby the authority of the Fund as
owner of any securities may be exercised;
(b) deliver any securities held for a Portfolio
of the Fund in exchange for other securities or cash issued or paid in
connection with the liquidation, reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any corporation, or the
exercise of any conversion privilege;
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(c) deliver any securities held for a Portfolio
of the Fund to any protective committee, reorganization committee or other
person in connection with the liquidation, reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any corporation, and
receive and hold under the terms of this Agreement such certificates of deposit,
interim receipts or other instruments or documents as may be issued to it to
evidence such delivery;
(d) make such transfers or exchanges of the
assets of a Portfolio of the Fund and take such other steps as shall be stated
in said Oral or Written Instructions to be for the purpose of effectuating any
duly authorized plan of liquidation, reorganization, merger, consolidation,
recapitalization or sale of assets of the Portfolio of the Fund; and
(e) release securities belonging to a Portfolio
of the Fund to any bank or trust company for the purpose of pledge or
hypothecation to secure any loan incurred by the Portfolio of the Fund;
provided, however, that securities shall be released only upon payment to
Provident of the monies borrowed, except that in cases where additional
collateral is required to secure a borrowing already made, subject to proper
prior authorization, further securities may be released for that purpose; and
pay such loan upon redelivery to it of the securities pledged or hypothecated
therefor and upon surrender of the note or notes evidencing the loan.
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10. Dividends and Distributions. The Fund shall furnish
Provident with appropriate evidence of action by the Fund's Board of Directors
declaring and authorizing the payment of any dividends and distributions to the
Fund's Shareholders. Upon receipt by Provident of Written Instructions with
respect to dividends and distributions declared by the Fund's Board of Directors
and payable to the Fund's Shareholders, and in conformance with procedures
mutually agreed upon by Provident, the Fund, and the Fund's transfer agent,
Provident shall pay to the Fund's transfer agent, as agent for the Shareholders,
an amount equal to the amount indicated in said Written Instructions as payable
by the Fund to the Shareholders for distribution in cash by the transfer agent
to the Shareholders or for reinvestment by the transfer agent, with respect to
those Shareholders who have elected in proper manner to reinvent their
dividends, in additional Shares. In lieu of paying the Fund's transfer agent
cash dividends and distributions, Provident may arrange for the direct payment
of cash dividends and distributions to Shareholders by Provident in accordance
with such procedures and controls as are mutually agreed upon from time to time
by and among the Fund, Provident and the Fund's transfer agent.
11. Purchases of Securities. Promptly after each decision
by PIMC to purchase securities for a Portfolio of the Fund, the Fund, through
PIMC, shall deliver to Provident Oral Instructions specifying with respect to
such purchase: (a) the
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name of the issuer and the title of the securities; (b) the number of shares or
the principal amount purchased and accrued interest, if any, (c) the date of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase, (f) the name of the person from whom or the broker
through whom the purchase was made, and (g) the Portfolio of the Fund to which
such purchase applies. Provident shall, upon receipt of securities purchased by
or for the Fund, pay out of the moneys held for the account of the Fund the
total amount payable to the person from whom or the broker through whom the
purchase was made, provided that the same conforms to the total amount payable
as set forth in such Oral Instructions.
12. Sales of Securities. Promptly after each decision by
PIMC to sell securities for a Portfolio of the Fund, the Fund, through PIMC,
shall deliver to Provident Oral Instructions, specifying with respect to each
such sale: (a) the name of the issuer and the title of the security, (b) the
number of shares or principal amount sold. and accrued interest, if any, (c) the
date of sale, (d) the sale price per unit, (e) the total amount payable to the
Fund upon such sale, (f) the name of broker through whom or the person to whom
the sale was made, and (g) the Portfolio of the Fund to which such sale applies.
Provident shall deliver the securities upon receipt of the total amount payable
to the Fund upon such sale, provided that the same conforms to the total amount
payable an set forth in such Oral Instructions. Subject to the foregoing,
Provident may accept
-18-
<PAGE> 19
payment in such form an shall be satisfactory to it, and may deliver securities
and arrange for payment in accordance with the customs prevailing among dealers
in securities.
13. Correspondence. Provident shall answer correspondence
from securities brokers and others relating to its duties hereunder and such
other correspondence as may from time to time be mutually agreed upon between
Provident and the Fund.
14. Records. Provident shall keep and maintain the
financial books and records of account for each Portfolio of the Fund. The books
and books pertaining to each Portfolio of the Fund which are in the possession
of Provident shall be the property of the Fund. Such books and records shall be
prepared and maintained as required by the 1940 Act and other applicable
securities laws and rules and regulations. The Fund, or the Fund's authorized
representatives, shall have access to such books and records at all times during
Provident's normal business hours. Upon the reasonable request of the Fund,
copies of any such books and records shall be provided by Provident to the Fund
or the Fund's authorized representative at the Fund's expense.
15. Reports. Provident shall furnish the Fund the
following reports:
(a) such periodic and special reports as the
Fund may reasonably request;
(b) a monthly statement summarizing all
transactions and entries for the account of each Portfolio of the Fund;
-19-
<PAGE> 20
(c) a monthly report of portfolio securities
belonging to each Portfolio of the Fund showing the adjusted average cost of
each issue and the market value at the end of each month;
(d) a monthly report of the cash account of each
Portfolio of the Fund showing disbursements; and
(e) such other information as may be agreed upon
from time to time between the Fund and Provident.
16. Cooperation with Accountants. Provident shall
cooperate with the Fund's independent certified public accountants and shall
take all reasonable action in the performance of its obligations under this
Agreement to assure that the necessary information is made available to such
accountants for the expression of their unqualified opinion, including but not
limited to the opinion included in the Fund's annual report on Form N-1R.
17. Confidentiality. Provident agrees on behalf of itself
and its employees to treat confidentially and as the proprietary information of
the Fund all records and other information relative to the Fund and its prior,
present or potential Shareholders and relative to Shearson and its prior,
present or potential customers, and not to use such records and information for
any purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Fund, which
approval shall not unreasonably be withheld and may not be
-20-
<PAGE> 21
withheld where Provident may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge this information by
duly constituted authorities, or when so requested by the Fund.
18. Equipment Failures. In the event of equipment
failures beyond Provident's control, Provident shall, at no additional expense
to the Fund, take reasonable steps to minimize service interruptions but shall
have no liability with respect thereto. Provident shall enter into and shall
maintain in effect with appropriate parties one or more agreements making
reasonable provision for emergency use of electronic data processing equipment
to the extent appropriate equipment is available.
19. Right to Receive Advice.
(a) Advice of Fund. If Provident shall be in
doubt an to any action to be taken or omitted by it, it may request, and shall
receive, from the Fund directions or advice, including Oral or Written
Instructions where appropriate.
(b) Advice of Counsel. If Provident shall be in
doubt as to any question of law involved in any action to be taken or omitted by
Provident, it may request advice at its own cost from counsel of its own
choosing (who may be counsel for PIMC, PFPC, Shearson, Boston Advisors, the
Fund, or Provident, at the option of Provident).
(c) Conflicting Advice. In case of conflict
between directions or advice (including Oral or Written Instructions) received
by Provident pursuant to subparagraph (a)
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<PAGE> 22
of this paragraph and advice received by Provident pursuant to subparagraph (b)
of this paragraph, Provident shall be entitled to rely on and follow the advice
received pursuant to the latter provision alone.
(d) Protection of Provident. Provident shall be
protected in any action or inaction which it takes in reliance on any directions
or advice (including Oral or Written Instructions) received pursuant to
subparagraphs (a) or (b) of this paragraph which Provident, after receipt of
such directions or advice, reasonably and in good faith believes to be
consistent with such directions or advice, as the case may be. However, nothing
in this paragraph shall be construed as imposing upon Provident any obligation
(i) to seek such directions or advice (including Oral or Written Instructions),
or (ii) to act in accordance with such directions or advice when received,
unless, under the terms of another provision of this Agreement, the same is a
condition to Provident's properly taking or omitting to take such action.
Nothing in this subsection shall excuse Provident when an action or omission on
the part of Provident constitutes willful misfeasance, bad faith, gross
negligence or reckless disregard by Provident of its duties under this
Agreement.
20. Compliance with Governmental Rules and Regulations.
The Fund assumes full responsibility for insuring that the contents of each
prospectus of the Fund complies with all applicable requirements of the 1933
Act, the 1940 Act, and
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<PAGE> 23
any laws, rules and regulations of governmental authorities having jurisdiction.
21. Compensation. As compensation for the services
rendered by Provident during the term of this Agreement, the Fund will pay to
Provident, with respect to each Portfolio of the Fund, monthly fees equal to
$.25 per year for each $1,000 of the Portfolio's average gross assets for such
year (based on the average of the assets included in the net asset value of the
Portfolio on each day in such month that such value is calculated).
22. Indemnification. The Fund, as sole owner of the
Property, agrees to indemnify and hold harmless Provident and its nominees from
all taxes, charges, expenses, assessments, claims and liabilities (including,
without limitation, liabilities arising under the 1983 Act, the Securities
Exchange Act of 1984, the 1940 Act, and any state and foreign securities and
blue sky laws, all an or to be amended from time to time) and expenses,
including (without limitation) attorneys' fees and disbursements, arising
directly or indirectly (a) from the fact that securities included in the
Property are registered in the name of any such nominee or (b) without limiting
the generality of the foregoing clause (a) from any action or thing which
Provident takes or does or omits to take or do (i) at the request or on the
direction of or in reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions, provided, that neither Provident nor any of its nominees
shall be indemnified against any liability to the
-23-
<PAGE> 24
Fund or to its Shareholders (or any expense incident to such liability) arising
out of (x) Provident's or such nominee's own willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties under this Agreement or (y)
Provident's own negligent failure to perform its duties under this Agreement. In
the event of any advance of cash for any purpose made by Provident resulting
from orders or oral or Written Instructions of the Fund, or in the event that
Provident or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any Property
at any time held for the account of the Fund shall be security therefor.
23. Responsibility of Provident. Provident shall be under
no duty to take any action on behalf of the Fund except as specifically set
forth herein or an may be specifically agreed to by Provident in writing. In the
performance of its duties hereunder, Provident shall be obligated to exercise
care and diligence and to act in good faith and to use its beat efforts within
reasonable limits to insure the accuracy of all services performed under this
Agreement, but Provident shall not be liable for any act or omission which does
not constitute willful misfeasance, bad faith or gross negligence on the part of
Provident or reckless disregard by Provident of its duties under this Agreement,
provided that Provident shall be responsible for
-24-
<PAGE> 25
its own negligent failure to perform its duties under this Agreement. Without
limiting the generality of the foregoing or of any other provision of this
Agreement, Provident in connection with its duties under this Agreement shall
not be under any duty or obligation to inquire into and shall not be liable for
or in respect of (a) the validity or invalidity or authority or lack thereof of
any Oral or Written Instruction, notice or other instrument which conforms to
the applicable requirements of this Agreement, if any, and which Provident
reasonably believes to be genuine; (b) the validity or invalidity of the
issuance of any securities included or to be included in the Property, the
legality or illegality of the purchase of such securities, or the propriety or
impropriety of the amount paid therefor; (c) the legality or illegality of the
sale (or exchange) of any Property or the propriety or impropriety of the amount
for which such Property is sold (or exchanged); or (d) delays or errors or loss
of data occurring by reason of circumstances beyond Provident's control,
including acts of civil or military authority, national emergencies, labor
difficulties, fire, mechanical breakdown except as provided in paragraph 18
hereof, flood or catastrophe, acts of God, insurrection, war, riots or failure
of the mails, transportation, communication or power supply, nor shall Provident
be under any duty or obligation to ascertain whether any Property at any time
delivered to or held by Provident may properly be held by or for the Fund.
-25-
<PAGE> 26
24. Collections. All collections of monies or other
property in respect, or which are to become part, of the Property (but not the
safekeeping thereof upon receipt by Provident) shall be at the sole risk of the
Fund. In any case in which Provident does not receive any payment due the Fund
within a reasonable time after Provident has made proper demands for the same,
it shall so notify the Fund in writing, including copies of all demand letters,
any written responses thereto, and memoranda of all oral responses thereto and
to telephonic demands, and await instructions from the Fund. Provident shall not
be obliged to take legal action for collection unless and until reasonably
indemnified to its satisfaction. Provident shall also notify the Fund as soon an
reasonably practicable whenever income due on securities is not collected in due
course.
25. Duration and Termination. This Agreement shall
continue until termination by the Fund or Provident on sixty (60) days' written
notice. Upon any termination of this Agreement, pending appointment of a
successor to Provident or vote of the Shareholders of each Portfolio to dissolve
or to function without a custodian of its cash, securities or other property,
Provident shall not deliver cash, securities or other property of the Fund to
the Fund, but may deliver them to a bank or trust company of its own selection,
having an aggregate capital, surplus and undivided profits, as shown by its last
published report of not lose than twenty million dollars ($20,000,000) as a
custodian for each Portfolio of the Fund to be held under terms similar to
-26-
<PAGE> 27
those of this Agreement; provided, however, that Provident shall not be required
to make any such delivery or payment until full payment shall have been made by
the Fund of all liabilities constituting a charge on or against the properties
of the Portfolios of the Fund then held by Provident or on or against Provident
and until full payment shall have been made to Provident of all of its fees,
compensation, costs and expenses, subject to the provisions of Paragraph 21 of
this Agreement.
26. Notices. All notices and other communications,
including Written Instructions (collectively referred to as "Notice" or
"Notices" in this paragraph), hereunder shall be in writing or by confirming
telegram, cable, telex or facsimile sending device. Notices shall be addressed
(a) if to Provident at Provident's address, 17th and Chestnut Streets,
Philadelphia, Pennsylvania 19103, marked for the attention of the Custodian
Services Department (or its successor); (b) if to the Fund, at the address of
the Fund; or (c) if to neither of the foregoing, at such other address as shall
have boon notified to the sender of any such Notice or other communication. If
the location of the sender of a Notice and the address of the addressee thereof
are, at the time of sending, more than 100 miles apart, the Notice may be sent
by first-class mail, in which case it shall be deemed to have been given three
days after it in sent, or if sent by confirming telegram, cable, telex or
facsimile sending advice, it shall be de to have been given immediately, and, if
the location of the sender of a Notice and the address of the
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<PAGE> 28
addressee thereof are, at the time of sending, not more than 100 miles apart,
the Notice may be sent by first-class mail, in which case it shall be deemed to
have bean given two days after it is sent, or if sent by messenger, it shall be
deemed to have been given on the day it is delivered, or if sent by confirming
telegram, cable, telex or facsimile sending device, it shall be deemed to have
been given immediately. All postage, cable, telegram, telex and facsimile
sending device charges arising from the sending of a Notice hereunder shall be
paid by the sender.
27. Further Actions. Each party agrees to perform such
further acts and execute such further documents as are necessary to effectuate
the purposes hereof.
28. Amendments. This Agreement or any part hereof may be
changed or waived only as an instrument in writing signed by the party against
which enforcement of such change or waiver is sought.
29. Delegation. On thirty (30) days' prior written notice
to the Fund, Provident may assign its rights and delegate its duties hereunder
to any wholly-owned subsidiary of it or PNC Financial Corp., provided that
Provident may delegate its duties only to a bank having the qualifications
provided in section 17(f) of the 1940 Act, and further provided that Provident
and its delegate shall promptly provide such information as the Fund may request
and respond to such questions as the Fund may ask relative to the delegation,
including (without limitation) the capabilities of the delegate.
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<PAGE> 29
30. Miscellaneous. This Agreement embodies the entire
agreement and understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to the subject matter hereof, provided
that the parties hereto may embody in one or more separate documents their
agreement, if any, with respect to delegated and/or Oral or Written
Instructions. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement shall be deemed to
be a contract made in Pennsylvania and governed by Pennsylvania law. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding and shall inure to the benefit
of the parties hereto and their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below on the day and year
first above written.
[SEAL] MUNICIPAL FUND FOR CALIFORNIA
INVESTORS, INC.
Attest:/s/ Morgan R. Jones By/s/ G. Willing Pepper
------------------------ --------------------------------
[SEAL] PROVIDENT NATIONAL BANK
Attest:/s/ John D. Silcox, Jr. By/s/ John W. McLaughlin
------------------------ --------------------------------
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<PAGE> 1
EXHIBIT 9(b)
AMENDED AND RESTATED
TRANSFER AGENCY AGREEMENT
THIS AGREEMENT is made as of this 28th day of July, 1988 by
and between MUNICIPAL FUND FOR CALIFORNIA INVESTORS, INC., a Maryland
corporation (the "Fund"), and PROVIDENT FINANCIAL PROCESSING CORPORATION, a
Delaware corporation ("PFPC"), which is an indirect, wholly-owned subsidiary of
PNC Financial Corp.
R E C I T A L
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund entered into a transfer agency agreement
made February 28, 1983 (the "Transfer Agency Agreement") by and between the Fund
and PFPC for services as transfer agent, registrar and dividend disbursing agent
for the Fund, which at such time offered shares in only one portfolio: the
Fund's California Money Fund portfolio (the "Cal Money Portfolio"); and
WHEREAS, the Fund, as of the date hereof, now offers shares in
two portfolios: the Cal Money Portfolio and the Fund's California Intermediate
Municipal Bond portfolio (the "Cal Intermuni Portfolio") (the Cal Money
Portfolio and the Cal
<PAGE> 2
Intermuni Portfolio collectively referred to herein as the "Portfolios" and each
as a "Portfolio"); and
WHEREAS, the Fund offers three separate series of Class A
Common Stock, $.001 par value per share, and three separate series of Class B
Common Stock, $.001 par value per share, (such shares and all shares of every
class or series hereafter created by the Fund called "Shares", and such classes
or series of Shares and any class or series of Shares hereafter created by the
Fund herein called "Classes"); and
WHEREAS, the Fund desires to amend and restate in full the
Transfer Agency Agreement to retain PFPC to serve as the Fund's transfer agent,
registrar, and dividend disbursing agent with respect to both the Cal Money
Portfolio and the Cal Intermuni Portfolio, and PFPC is willing to furnish such
services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto that the
Transfer Agency Agreement is hereby amended and restated in full as follows:
1. Appointment. The Fund hereby appoints PFPC to serve
as transfer agent, registrar and dividend disbursing agent for the Fund for the
period and on the terms set forth in this Agreement. PFPC accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Paragraph 14 of this Agreement.
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<PAGE> 3
2. Delivery of Documents. The Fund has furnished PFPC
with copies properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Directors
authorizing the appointment of PFPC as transfer agent, registrar and dividend
disbursing agent for the Fund and approving this Agreement;
(b) The Fund's Articles of Incorporation filed
with the Department of Assessments and Taxation of the State of Maryland on
September 20, 1982 and all amendments thereto (such Articles of Incorporation,
as currently in effect and as they shall from time to time be amended, are
herein called the "Charter");
(c) The Fund's By-Laws and all amendments
thereto (such By-Laws, as currently in effect and as they shall from time to
time be amended, are herein called the "By-Laws");
(d) Resolutions of the Fund's Board of Directors
appointing Provident Institutional Management Corporation ("PIMC") as the Fund's
investment adviser and resolutions of the Fund's Board of Directors and
Shareholders approving a proposed Advisory Agreement between PIMC and the Fund
(the "Advisory Agreement");
(e) Resolutions of the Fund's Board of Directors
appointing Provident National Bank ("Provident") as the Fund's sub-investment
adviser and resolutions of the Fund's Board of Directors and Shareholders
approving a proposed Sub-Advisory
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<PAGE> 4
Agreement between Provident and PIMC (the "Sub-Advisory Agreement");
(f) Resolutions of the Fund's Board of Directors
appointing Shearson/American Express Inc. ("Shearson") as the Fund's distributor
and approving a proposed Distribution Agreement between Shearson and the Fund
(the "Distribution Agreement");
(g) Resolutions of the Fund's Board of Directors
appointing The Boston Company Advisors, Inc. ("Boston Advisors") as the Fund's
administrator and approving a proposed Administration Agreement between Boston
Advisors and the Fund (the "Administration Agreement");
(h) The Advisory Agreement, the Sub-Advisory
Agreement, the Distribution Agreement and the Administration Agreement;
(i) The Fund's Notification of Registration
filed pursuant to Section 8(a) of the 1940 Act on Form N-8A with the Securities
and Exchange Commission ("SEC") on September 24, 1982;
(j) The Fund's Registration Statement on Form
N-1 under the 1940 Act and the Securities Act of 1933, as amended (the "1933
Act"), as filed with the SEC on September 24, 1982 (File No. 2-79510) relating
to the Shares, and all amendments thereto; and
(k) The Fund's most recent prospectus relating
to each Portfolio of the Fund (such prospectuses, as currently in
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<PAGE> 5
effect, and all amendments and supplements thereto are herein called the
"Prospectuses", and each a "Prospectus").
The Fund will furnish PFPC from time to time with copies of
all amendments of or supplements to the foregoing, if any.
3. Issuance and Redemption of Shares.
(a) Issuance of Shares. Upon receipt of a
purchase order for the purchase of Shares and sufficient information to enable
PFPC to establish a Shareholder account, and after confirmation of receipt or
crediting of Federal funds for such order from the Fund's Custodian, PFPC shall
issue and credit the account of the Shareholder with Shares in the manner
described in the Prospectus relating to such Shares.
(b) Redemption of Shares. Upon receipt of a
redemption order from Shearson, PFPC shall redeem the number and class of Shares
indicated thereon from the redeeming Shareholder's account and receive from the
Fund's Custodian and disburse to the redeeming Shareholder the redemption
proceeds therefor, or arrange for direct payment of redemption proceeds to such
Shareholder by the Fund's Custodian, in accordance with such procedures and
controls as are mutually agreed upon from time to time by and among the Fund,
PFPC, and the Fund's Custodian.
4. Authorized Shares. The Fund's authorized capital
stock consists of 2.3 Billion shares of Class A Common Stock, 300 million shares
of Class A Common Stock-Special Series 1, 300 million share of Class A Common
Stock-Special Series 2, 80
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<PAGE> 6
million shares of Class B Common Stock, 10 million shares of Class B Common
Stock-Special Series 1 and 10 million shares of Class B Common Stock-Special
Series 2. The Fund certifies that by virtue of its Charter and the provision of
the law of the state of its corporation, Shares which are redeemed by the Fund
from their holders are restored to the status of authorized and unissued Shares
of the same class or series as originally authorized. The Fund may from time to
time authorize the issuance of additional shares of its Common Stock, issue
additional series or classes of its Common Stock, or classify and reclassify
shares of such series or class and shall notify PFPC of any such authorization,
issuance, classification or reclassification. PFPC shall record issues of all
Shares and shall notify the Fund in case any proposed issue of Shares by the
Fund shall result in an over-issue as defined by Section 8-104(2) of Article 8
of the Maryland Uniform Commercial Code. In case any issue of Shares would
result in such over-issue, PFPC shall refuse to issue said Shares and shall not
countersign and issue certificates for such Shares. The Fund agrees to notify
PFPC promptly of any change in the number of authorized Shares and of any change
in the number of Shares registered under the 1933 Act.
5. Dividends and Distributions. The Fund shall furnish
PFPC with appropriate evidence of action taken by the Fund's Board of Directors
authorizing the declaration and payment of dividends and distributions to the
Fund's Shareholders. After deducting any amount required to be withheld by any
applicable
-6-
<PAGE> 7
laws, rules and regulations, PFPC shall, as the agent for each Shareholder and
in accordance with the provisions of the Fund's Charter and applicable
Prospectus, receive from the Fund's Custodian and pay to the Shareholders such
dividends and distributions in cash, or, with respect to any Shareholder who has
elected in proper manner to reinvest its dividends, invest such dividends for
such Shareholder in additional full and fractional Shares of the same class as
the Shares upon which such dividends were declared and paid. In lieu of
receiving from the Fund's Custodian and paying to the Shareholders cash
dividends and distributions, PFPC may arrange for the direct payment of cash
dividends and distributions to the Shareholders by the Fund's Custodian, in
accordance with such procedures and controls as are mutually agreed upon from
time to time by and among the Fund, PFPC, and the Fund's Custodian.
PFPC shall prepare and file with the Internal Revenue Service
and/or other appropriate taxing authorities, and address and mail to
Shareholders, such returns and information relating to dividends and
distributions paid by the Fund as are required to be so prepared, filed and
mailed by applicable laws, rules and regulations, or such substitute form of
notice as may from time to time be permitted or required by the Internal Revenue
Service and/or other appropriate taxing authorities. On behalf of the Fund, PFPC
shall pay on a timely basis to the appropriate Federal authorities any taxes by
applicable Federal tax laws to be
-7-
<PAGE> 8
withheld by the Fund on dividends and distributions paid by the Fund.
6. Communications with Shareholders.
(a) Communications to Shareholders. PFPC will
address and mail all communications by the Fund to its Shareholders, including
reports to Shareholders, dividend and distribution notices and proxy material
for its meetings of Shareholders. PFPC will receive and tabulate the proxy cards
for the meetings of the Fund's Shareholders.
(b) Correspondence. PFPC will answer such
correspondence from Shareholders, securities brokers and others relating to its
duties hereunder and such other correspondence as may from time to time be
mutually agreed upon between PFPC and the Fund.
7. Records. PFPC shall keep the following records:
(a) accounts for each Shareholder showing the
following information:
(i) name, address and United States Tax
Identification or Social Security number;
(ii) number and class of Shares held and
number and class of Shares for which certificates, if any, have been issued,
including certificate numbers and denominations;
(iii) historical information regarding
the account of each Shareholder, including dividends and distributions paid and
the date and price for all transactions on a Shareholder's account;
-8-
<PAGE> 9
(iv) any stop or restraining order
placed against a Shareholder's account;
(v) any correspondence relating to the
current maintenance of a Shareholder's account;
(vi) information with respect to
withholdings; and,
(vii) any information required in order
for PFPC to perform any calculations contemplated or required by this Agreement;
(b) subaccounts for each Shareholder requesting
such services in connection with Shares held by such Shareholder for separate
accounts containing the same information for each subaccount as required by
subparagraph (a) above.
The books and records pertaining to the Fund which are in the
possession of PFPC shall be the property of the Fund. Such books and records
shall be prepared and maintained as required by the 1940 Act, as amended, and
other applicable securities laws and rules and regulations and shall, to the
extent practicable, be maintained separately for each Portfolio of the Fund. The
Fund, or the Fund's authorized representatives, shall have access to such books
and records at all times during PFPC's normal business hours, and such books and
records shall be surrendered to the Fund promptly upon request. Upon the
reasonable request of the Fund, copies of any such books and records shall be
provided by PFPC to the Fund or the Fund's authorized representative at the
Fund's expense.
-9-
<PAGE> 10
8. Reports. PFPC shall furnish the Fund state by state
registration reports, such periodic and special reports as the Fund may
reasonably request, and such other information, including Shareholder lists and
statistical information concerning accounts, as may be agreed upon from time to
time between the Fund and PFPC.
9. Cooperation with Accountants. PFPC shall cooperate
with the Fund's independent certified public accountants and shall take all
reasonable action in the performance of its obligations under this Agreement to
assure that the necessary information is made available to such accountants for
the expression of their unqualified opinion, including but not limited to the
opinion included in the Fund's annual report on Form N-1R.
10. Confidentiality. PFPC agrees on behalf of itself and
its employees to treat confidentially and as the proprietary information of the
Fund all records and other information relative to the Fund and its prior,
present or potential Shareholders and relative to Shearson and its prior,
present or potential customers, and not to use such records and information for
any purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Fund, which
approval shall not be unreasonably withheld and may not be withheld where PFPC
may be exposed to civil or criminal contempt proceedings for failure to
-10-
<PAGE> 11
comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Fund.
11. Equipment Failures. In the event of equipment
failures beyond PFPC's control, PFPC shall, at no additional expense to the
Fund, take reasonable steps to minimize service interruptions but shall have no
liability with respect thereto. PFPC shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provision for emergency use of electronic data processing equipment to the
extent appropriate equipment is available.
12. Right to Receive Advice.
(a) Advice of Fund. If PFPC shall be in doubt as
to any action to be taken or omitted by it, it may request, and shall receive,
from the Fund directions or advice.
(b) Advice of Counsel. If PFPC shall be in doubt
as to any question of law involved in any action to be taken or omitted by PFPC,
it may request advice at its own cost from counsel of its own choosing (who may
be counsel for PIMC, Provident National Bank, Shearson, Boston Advisors, the
Fund or PFPC, at the option of PFPC).
(c) Conflicting Advice. In case of conflict
between directions or advice received by PFPC pursuant to subparagraph (a) of
this paragraph and advice received by PFPC pursuant to subparagraph (b) of this
paragraph, PFPC shall be entitled to rely on and follow the advice received
pursuant to the latter provision alone.
-11-
<PAGE> 12
(d) Protection of PFPC. PFPC shall be protected
in any action or inaction which it takes in reliance on any directions or advice
received pursuant to subparagraphs (a) or (b) of this paragraph which PFPC,
after receipt of any such directions or advice, reasonably and in good faith
believes to be consistent with such directions or advice. However, nothing in
this paragraph shall be construed as imposing upon PFPC any obligation (i) to
seek such directions or advice, or (ii) to act in accordance with such
directions or advice when received, unless, under the terms of another provision
of this Agreement, the same is a condition to PFPC's properly taking or omitting
to take such action. Nothing in this subparagraph shall excuse PFPC when an
action or omission on the part of PFPC constitutes willful misfeasance, bad
faith, gross negligence or reckless disregard by PFPC of its duties under this
Agreement.
13. Compliance with Governmental Rules and Regulations.
The Fund assumes full responsibility for ensuring that the contents of each
prospectus of the Fund complies with all applicable requirements of the 1933
Act, the 1940 Act, and any laws, rules and regulations of governmental
authorities having jurisdiction.
14. Compensation. As compensation for the services
rendered by PFPC during the term of this Agreement, the Fund will pay to PFPC
monthly fees equal to $12.00 per account and subaccount of the Fund per year,
prorated in the case of accounts and accounts maintained for only a portion of a
full year, plus
-12-
<PAGE> 13
$1.00 for each purchase or redemption transaction made by an account during the
month (other than a purchase transaction made in connection with PFPC's
reinvestigation of dividends on behalf of a Shareholder pursuant to paragraph 5
hereof). In addition, the Fund will reimburse PFPC for its out-of-pocket
expenses relating to its services hereunder, including, but not limited to,
expenses of postage, telephone, TWX rental and line charges, wire transfer
costs, communications forms, and checks and check processing. In addition to the
other services to be rendered by PFPC under this Agreement, and other expenses
to be borne by it hereunder, PFPC shall, if so instructed by duly authorized
officers of the Fund, install, or cause to be installed, microcomputer systems
in the offices of Fund Shareholders, and shall provide, or cause to be provided,
communication networks in connection with the use of such systems by Fund
Shareholders pursuant to directives given by Shearson/American Express Inc. with
respect to the Computer Access Program in accordance with the Fund's
Administration Agreement. In such event, the Fund shall reimburse PFPC on a
monthly basis for its reasonable out-of-pocket expenses relating to such
services, including, but not limited to, travel, lodging and meal expenses of
its personnel who perform such services and expenses connected with the printing
and production of operations manuals, provided that PFPC shall in no case be
reimbursed for any expenses: (i) which exceed the Fund's then current budget for
the Computer Access Program approved by its Board of Directors; or (ii) which
PFPC
-13-
<PAGE> 14
has not reasonably determined are in the best interests of the
Fund and its Shareholders.
15. Indemnification. The Fund agrees to indemnify and
hold harmless PFPC from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, liabilities arising under the 1933
Act, the Securities Exchange Act of 1934, the 1940 Act, and any state and
foreign securities and blue sky laws, all as or to be amended from time to time)
and expenses, including (without limitation) attorneys' fees and disbursements,
arising directly or indirectly from any action or thing which PFPC takes or does
or omits to take or do at the request or on the direction of or in reliance on
the advice of the Fund, provided that PFPC shall not be indemnified against any
liability to the Fund or to its Shareholders (or any expenses incident to such
liability) arising out of PFPC's negligent failure to perform its duties under
this Agreement.
16. Responsibility of PFPC. PFPC shall be under no duty
to take any action on behalf of the Fund except as specifically set forth herein
or as may be specifically agreed to by PFPC in writing. In the performance of
its duties hereunder, PFPC shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits to
ensure the accuracy and completeness of all services performed under this
Agreement. PFPC shall be responsible for its own negligent failure to perform
its duties under this
-14-
<PAGE> 15
Agreement, but to the extent that duties, obligations and responsibilities are
not expressly set forth in this Agreement, PFPC shall not be liable for any act
or omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of PFPC or reckless disregard of such duties, obligations
and responsibilities. Without limiting the generality of the foregoing or of any
other provision of this Agreement, PFPC in connection with its duties under this
Agreement shall not be under any duty or obligation to inquire into and shall
not be liable for or in respect of (a) the validity or invalidity or authority
or lack thereof of any advice, direction, notice or other instrument which
conforms to the applicable requirements of this Agreement, if any, and which
PFPC reasonably believes to be genuine, or (b) delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
mechanical breakdown (except as provided in paragraph 11), flood or catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
17. Registration as Transfer Agent. PFPC represents that
it has and is currently registered as a transfer agent with the SEC and has
complied with the SEC's regulations for registered transfer agents. PFPC agrees
that it will continue to be registered as a transfer agent with the SEC for the
duration of this Agreement. Should PFPC fail to be registered with the
-15-
<PAGE> 16
SEC as a transfer agent at any time during this Agreement, the Fund may, on
written notice to PFPC, immediately terminate this Agreement.
18. Duration and Termination. This Agreement shall
continue until termination by PFPC or the Fund on sixty (60) days' written
notice.
19. Notices. All notices and other communications
(collectively referred to as "Notice" or "Notices" in this paragraph), hereunder
shall be in writing or by confirming telegram, cable, telex or facsimile sending
device. Notices shall be addressed (a) if to PFPC at PFPC's address, at P.O. Box
8950, Wilmington, Delaware 19899; (b) if to the Fund, at the address of the
Fund; or (c) if to neither of the foregoing, at such other address as shall have
been notified to the sender of any such Notice or other communication. If the
location of the sender of a Notice and the address of the addressee thereof are,
at the time of sending, more than 100 miles apart, the Notice may be sent by
first-class mail, in which case it shall be deemed to have been given three days
after it is sent, or if sent by confirming telegram, cable, telex or facsimile
sending device, it shall be deemed to have been given immediately, and, if the
location of the sender of a Notice and the address of the addressee thereof are,
at the time of tending, not more than 100 miles apart, the Notice may be sent by
first-class mail, in which case it shall be deemed to have been given two days
after it is sent, or if sent by messenger, it shall be deemed to have been
-16-
<PAGE> 17
given on the day it is delivered, or if sent by confirming telegram, cable,
telex or facsimile sending device, it shall be deemed to have been given
immediately. All postage, cable, telegram, telex and facsimile sending device
charges arising from the sending of a Notice hereunder shall be paid by the
sender.
20. Further Actions. Each party agrees to perform such
further acts and execute such further documents as are necessary to effectuate
the purposes hereof.
21. Amendments. This Agreement or any part hereof may be
changed or waived only by an instrument in writing signed by the party against
which enforcement of such change or waiver is sought.
22. Delegation. On thirty (30) days' prior written notice
to the Fund, PFPC may assign its rights and delegate its duties hereunder to any
wholly-owned direct or indirect subsidiary of Provident National Bank or PNC
Financial Corp., provided that PFPC may delegate its duties only to a transfer
agent registered and qualified under the Securities and Exchange Act of 1934 and
other applicable law, and further provided the PFPC and such delegate shall
promptly provide such information as the Fund may request, and respond to such
question as the Fund may ask, relative to the delegation, including (without
limitation) the capabilities of the delegate.
23. Miscellaneous. This Agreement embodies the entire
agreement and understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to
-17-
<PAGE> 18
the subject matter hereof. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement shall be deemed to be a contract made in Delaware and governed by
Delaware law. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding and shall inure
to the benefit of the parties hereto and their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below on the day and year
first above written.
[SEAL] MUNICIPAL FUND FOR CALIFORNIA
INVESTORS, INC.
Attest:/s/ Morgan R. Jones By:/s/ Edward J. Roach
-------------------------- ------------------------------------
Vice President and Treasurer
[SEAL] PROVIDENT FINANCIAL PROCESSING
CORPORATION
Attest:/s/ Eugene P. Grace By:/s/ Morton B. Comer
-------------------------- ------------------------------------
-18-
<PAGE> 1
EXHIBIT 10
May 31, 1996
Municipal Fund for California Investors, Inc.
Bellevue Park Corporate Center
400 Bellevue Parkway, Suite 100
Wilmington, Delaware 19809
Re: Post-Effective Amendment No. 17 to Registration
Statement on Form N-1A for Municipal Fund for
California Investors, Inc. (Registration Nos. 2-79510;
811-3574)
Gentlemen:
We have acted as counsel for Municipal Fund for California
Investors, Inc., a Maryland corporation (the "Company"), in connection with the
registration of 708,933,322 shares of Class A Common Stock and 459,799 shares of
Class B Common Stock ("Shares"), pursuant to Post-Effective Amendment No. 17 to
the Company's Registration Statement under the Securities Act of 1933. The
registration of such Shares has been made in reliance upon Rule 24e-2 under the
Investment Company Act of 1940. The Company is an open-end investment company
authorized to issue a total of three billion shares of Common Stock, par value
$.001 per share, of which two billion, three hundred million shares were
classified as Class A Common Stock, three hundred million shares were classified
as Class A Common Stock-Special Series 1, three hundred million shares were
classified as Class A Common Stock-Special Series 2, eighty million shares were
classified as Class B Common Stock, ten million shares were classified as Class
B Common Stock-Special Series 1 and ten million shares were classified as Class
B Common Stock-Special Series 1 and then million shares were classified as Class
B Common Stock-Special Series 2 at all times during the fiscal year ended
January 31, 1996 and remain so classified as of the date of this opinion.
We have reviewed the Company's Charter, its By-Laws,
resolutions adopted by its Board of Directors and shareholders and such other
legal and factual matters as we have deemed appropriate, and relied upon a
certificate of the Company's transfer agent as to certain matters including
whether at any
<PAGE> 2
Municipal Fund for California
Investors, Inc.
May 31, 1996
Page 2
time during the fiscal year ended January 31, 1996 the number of issued and
outstanding shares of any class or series of the Company's Common Stock exceeded
the number of such Shares that the Company was then authorized to issue, and on
information in Post-Effective Amendment No. 17 to the Company's Registration
Statement as to the number of shares to be registered.
On the basis of the foregoing, we are of the opinion that the
foregoing 708,933,322 shares of Class A Common Stock and 459,799 shares of Class
B Common Stock, when issued for payment as described in the Company's
Prospectuses, will be validly issued, fully paid and non-assessable by the
Company.
We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as an exhibit to Post-Effective Amendment
No. 17 to the Company's Registration
Statement.
Very truly yours,
/s/ Drinker Biddle & Reath
DRINKER BIDDLE & REATH
<PAGE> 1
EXHIBIT 11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post- Effective Amendment
No. 17 and Amendment No. 18 pursuant to the Securities Act of 1933 and the
Investment Company Act of 1940, respectively, as amended to the Registration
Statement on Form N-1A of Municipal Fund for California Investors, Inc. (File
No. 2-79510):
- The incorporation by reference of our report dated February
28, 1996 into the Prospectuses and the Statement of Additional
Information relating to the California Money Fund and the
California Intermediate Municipal Fund.
- The references to our Firm under the heading "Financial
Highlights" in the Prospectuses relating to the California
Money Fund and the California Intermediate Municipal Fund.
- The reference to our Firm under the headings "Independent
Accountants" and "Financial Statements" in the Statement of
Additional Information.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
May 31, 1996
<PAGE> 1
EXHIBIT (11)(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references
to our firm under the caption "Counsel" in the Statement of Additional
Information included in this Post-Effective Amendment No. 17 to the
Registration Statement (Nos. 2-79510; 811-3574) on Form N-1A of Municipal Fund
for California Investors, Inc. (California Money Fund and California
Intermediate Municipal Fund portfolios) under the Securities Act of 1933 and
the Investment Company Act of 1940, respectively. This consent does not
constitute a consent under Section 7 of the Securities Act of 1933, and in
consenting to the use of our name and the reference to our firm under such
caption we have not certified any part of the Registration Statement and do not
otherwise come within the categories of persons whose consent is required under
Section 7 or the rules and regulations of the Securities and Exchange
Commission thereunder.
/s/ DRINKER BIDDLE & REATH
----------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
May 31, 1996
<PAGE> 1
EXHIBIT (11)(c)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference
to our firm under the caption "Counsel" in the Statement of Additional
Information included in this Post-Effective Amendment No. 17 to the
Registration Statement (No. 2-79510) on Form N-1A of Municipal Fund for
California Investors, Inc. (California Money Fund and California Intermediate
Municipal Fund portfolios) under the Securities Act of 1933 and the Investment
Company Act of 1940, respectively.
/s/ O'Melveny & Myers
----------------------------
O'MELVENY & MYERS
Los Angeles, California
May 23, 1996
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