Money Market Portfolio,
(Investment Portfolio of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary
information pertaining to shares of a class (the "Bedford Shares" or the
"Shares") representing interests in the Money Market Portfolio (the Money Market
Portfolio or "Portfolio") of The RBB Fund, Inc. (the "Fund"). This Statement of
Additional Information is not a prospectus, and should be read only in
conjunction with The RBB Fund Money Market Portfolio (Bedford Shares) Prospectus
of the Fund, dated ^ March 13, 1995 (the "Prospectus"). A copy of the Prospectus
may be obtained through the Fund's distributor by calling toll-free (800)
888-9723. This Statement of Additional Information is dated ^ March 13, 1995.
CONTENTS
Prospectus
Page Page
General ....................................... 2 3
Investment Objectives and Policies ............ 2 7
Directors and Officers ........................ ^ 12 N/A
Investment Advisory, Distribution and Servicing
Arrangements ............................... ^ 16 24
Portfolio Transactions ........................ 20 N/A
Purchase and Redemption Information ........... ^ 21 11
Valuation of Shares ........................... ^ 22 14
Taxes ......................................... ^ 24 19
Additional Information Concerning Fund Shares.. ^ 28 19
Miscellaneous ................................. ^ 29 N/A
Financial Statements (Audited)................. F-1 N/A
Appendix ...................................... A-1 N/A
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information in
connection with the offering made by the 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. The 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.
<PAGE>2
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management investment
company currently operating or proposing to operate nineteen separate investment
portfolios. This Statement of Additional Information pertains to shares of the
class of common stock of the Fund (the "Class") representing interests in the
Money Market Portfolio of the Fund. The Class is offered by the Prospectus dated
^ March 13, 1995. The Fund was organized as a Maryland corporation on February
29, 1988.
Capitalized terms used herein and not otherwise defined have the same
meanings as are given to them in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The following supplements the information contained in the
Prospectus concerning the investment objectives and policies of the Portfolio. A
description of ratings of municipal obligations and commercial paper is set
forth in the Appendix hereto.
Additional Information on Portfolio Investments.
Reverse Repurchase Agreements. Reverse repurchase agreements involve
the sale of securities held by the Portfolio pursuant to the Portfolio's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940 (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding,
the Portfolio will maintain in a segregated account with the Fund's custodian or
a qualified sub-custodian, cash, U.S. Government securities or other liquid,
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
Variable Rate Demand Instruments. Variable rate demand instruments
held by the Money Market Portfolio may have maturities of more than 397 calendar
days, provided: (i) the Portfolio is entitled to the payment of principal at any
time, or during specified intervals not exceeding 397 calendar days, upon giving
the prescribed notice (which may not exceed 30 days), and (ii) the rate of
interest on such instruments is adjusted at periodic intervals which may extend
up to 397 calendar days. In determining the average weighted maturity of the
Money Market Portfolio and whether a variable rate demand instrument has a
remaining maturity of 397 calendar days or less, each instrument will be deemed
by the Portfolio 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 an eligible security, the Portfolio's
investment adviser will follow guidelines adopted by the Fund's Board of
Directors.
<PAGE>3
Firm Commitments. Firm commitments for securities include "when
issued" and delayed delivery securities purchased for delivery beyond the normal
settlement date at a stated price and yield. While the Portfolio has firm
commitments outstanding, the Portfolio will maintain in a segregated account
with the Fund's custodian or a qualified sub-custodian, cash, U.S. government
securities or other liquid, high grade debt securities of an amount at least
equal to the purchase price of the securities to be purchased. Normally, the
custodian for the Portfolio will set aside portfolio securities to satisfy a
purchase commitment and, in such a case, the Portfolio 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 the
Portfolio's commitment. It may be expected that the Portfolio's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. Because the Portfolio's
liquidity and ability to manage its portfolio might be affected when it sets
aside cash or portfolio securities to cover such purchase commitments, the
Portfolio expects that commitments to purchase "when issued" securities will not
exceed 25% of the value of its total assets absent unusual market conditions.
When the Portfolio engages in when-issued transactions, it relies on the seller
to consummate the trade. Failure of the seller to do so may result in the
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Stand-by Commitments. The Money Market Portfolio may enter into
stand-by commitments with respect to obligations issued by or on behalf of
states, territories, and possessions of the United States, the District of
Columbia, and their political subdivisions, agencies, instrumentalities and
authorities (collectively, "Municipal Obligations") held in its portfolio. Under
a stand-by commitment, a dealer would agree to purchase at the Portfolio's
option a specified Municipal Obligation at its amortized cost value to the
Portfolio plus accrued interest, if any. Stand-by commitments may be exercisable
by the Money Market Portfolio at any time before the maturity of the underlying
Municipal Obligations and may be sold, transferred or assigned only with the
instruments involved.
The Money Market Portfolio expects that stand-by commitments will
generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Portfolio 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 the
Money Market Portfolio will not exceed 1/2 of 1% of the value of the Portfolio's
total assets calculated immediately after each stand-by commitment is acquired.
The Money Market Portfolio intends to enter into stand-by commitments
only with dealers, banks and broker-dealers which, in the investment adviser's
opinion, present minimal credit risks. Either such Portfolio's reliance upon the
credit of these dealers, banks and
<PAGE>4
broker-dealers will be secured by the value of the underlying Municipal
Obligations that are subject to the commitment.
The Money Market Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying Municipal
Obligation which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where the Portfolio pays directly or
indirectly for a stand-by commitment, its cost will be reflected as an
unrealized loss for the period during which the commitment is held by the
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
Municipal Obligations.^ The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to ^ this Statement of
Additional Information.
^
The two principal classifications of Municipal Obligations 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 excise tax or other specific revenue source such as the user of the
facility being financed. Revenue securities include private activity bonds which
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Municipal Obligations may include variable rate demand notes. Such
notes are frequently not rated by credit rating agencies, but unrated notes
purchased by the Portfolio will have been determined by the Portfolio's
investment adviser to be of comparable quality at the time of the purchase to
rated instruments purchasable by the Portfolio. Where necessary to ensure that a
note is of eligible quality, the Portfolio will require that the issuer's
obligation to pay the principal of the note is backed by an
<PAGE>5
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by a Portfolio, the Portfolio may, upon the
notice specified in the note, demand payment of the principal of the note at any
time or during specified periods not exceeding 397 calendar days, depending upon
the instrument involved. The absence of such an active secondary market,
however, could make it difficult for the Portfolio to dispose of a variable rate
demand note if the issuer defaulted on its payment obligation or during the
periods that the Portfolio is not entitled to exercise its demand rights. The
Portfolio could, for this or other reasons, suffer a loss to the extent of the
default. The Portfolio invests in variable rate demand notes only when the
Portfolio's investment adviser deems the investment to involve minimal credit
risk. The Portfolio's investment adviser also monitors the continuing
creditworthiness of issuers of such notes to determine whether the Portfolio
should continue to hold such notes.
^
Obligations of Domestic Banks, Foreign Banks and Foreign Branches of
U.S. Banks. For purposes of the Money Market Portfolio's investment policies
with respect to bank obligations, the assets of a bank or savings institution
will be deemed to include the assets of its domestic and foreign branches.
Investments in bank obligations will include obligations of domestic branches of
foreign banks and foreign branches of domestic banks. Such investments may
involve risks that are different from investments in securities of domestic
branches of U.S. banks. These risks may include future unfavorable political and
economic developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect the payment of principal or
interest on the securities held in the Money Market Portfolio. Additionally,
these institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Portfolio
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when its investment adviser believes that the
risks associated with such investment are minimal.
U.S. Government Obligations. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Maritime Administration, International Bank for Reconstruction and
Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
Section 4(2) Paper. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from
<PAGE>6
registration which is afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) paper is restricted as to disposition under the Federal securities
laws and is generally sold to institutional investors such as the Fund which
agree that they are purchasing the paper for investment and not with a view to
public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper normally is resold to other institutional
investors through or with the assistance of investment dealers who make a market
in the Section 4(2) paper, thereby providing liquidity. See "Illiquid
Securities" below.
Repurchase Agreements. The repurchase price under the repurchase
agreements described in the Prospectus generally equals the price paid by the
Portfolio plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Fund's custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans by the Portfolio under the 1940 Act.
Mortgage-Related Debt Securities. Mortgage-related debt securities
represent ownership interests in individual pools of residential mortgage loans.
These securities are designed to provide monthly payments of interest and
principal to the investor. Each mortgagor's monthly payment to his lending
institution on his residential mortgage is "passed-through" to investors.
Mortgage pools consist of whole mortgage loans or participations in loans. The
terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. Lending institutions which originate
mortgages for the pools are subject to certain standards, including credit and
underwriting criteria for individual mortgages included in the pools.
Since the inception of the mortgage-related pass-through security in
1970, the market for these securities has expanded considerably. The size of the
primary issuance market, and active participation in the secondary market by
securities dealers and many types of investors, historically have made interests
in government and government-related pass-through pools highly liquid, although
no guarantee regarding future market conditions can be made. The average life of
pass-through pools varies with the maturities of the underlying mortgage
instruments. In addition, a pool's term may be shortened by unscheduled or early
payments of principal and interest on the underlying mortgages. The occurrence
of mortgage prepayments is affected by factors including the level of interest
rates, general economic conditions, the location and age of the mortgages and
various social and demographic conditions. Because prepayment rates of
individual pools vary widely, it is not possible to predict accurately the
average life of a particular pool. For pools of fixed rate 30 year mortgages,
common industry practice is to assume that prepayments will result in a 12 year
average life. Pools of mortgages with other maturities or different
characteristics will have varying assumptions concerning average life. The
assumed average life of pools of mortgages having terms of less than 30 years is
less than 12 years, but
<PAGE>7
typically not less than 5 years. Yields on pass-through securities are typically
quoted by investment dealers and vendors based on the maturity of the underlying
instruments and the associated average life assumption. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening the
actual average life of a pool of underlying mortgage-related securities.
Conversely, in periods of rising rates the rate of prepayment tends to decrease,
thereby lengthening the actual average life of the pool. Historically, actual
average life has been consistent with the 12-year assumption referred to above.
Actual prepayment experience may cause the yield of mortgage-related securities
to differ from the assumed average life yield. In addition, as noted in the
Prospectus, reinvestment of prepayments may occur at higher or lower interest
rates than the original investment, thus affecting the yield of the Portfolio
involved.
The coupon rate of interest on mortgage-related securities is lower
than the interest rates paid on the mortgages included in the underlying pool,
but only by the amount of the fees paid to the mortgage pooler, issuer, and/or
guarantor of payment of the securities for the guarantee of the services of
passing through monthly payments to investors. Actual yield may vary from the
coupon rate, however, if mortgage-related securities are purchased at a premium
or discount, traded in the secondary market at a premium or discount, or to the
extent that mortgages in the underlying pool are prepaid as noted above. In
addition, interest on mortgage-related securities is earned monthly, rather than
semi-annually as is the case for traditional bonds, and monthly compounding may
tend to raise the effective yield earned on such securities.
Eligible Securities. The Portfolio will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include (1) U.S. government securities, (2) securities that
(a) are rated (at the time of purchase) by two or more nationally recognized
statistical rating organizations ("NRSROs") in the two highest rating categories
for such securities (e.g., commercial paper rated "A-1" or "A-2" by S&P, or
rated "Prime-1" or "Prime-2" by Moody's), or (b) are rated (at the time of
purchase) by the only NRSRO rating the security in one of its two highest rating
categories for such securities; (3) short-term obligations and long-term
obligations that have remaining maturities of 397 calendar days or less,
provided in each instance that such obligations have no short-term rating and
are comparable in priority and security to a class of short-term obligations of
the issuer that has been rated in accordance with (2)(a) or (b) above
("comparable obligations"); (4) securities that are not rated and are issued by
an issuer that does not have comparable obligations rated by an NRSRO ("Unrated
Securities"), provided that such securities are determined to be of comparable
quality to a security satisfying (2) or (3) above; and (5) long-term obligations
that have remaining maturities in excess of 397 calendar days that are subject
to a demand feature or put (such as a guarantee, a letter of credit or similar
credit enhancement) ("demand instrument") (a) that are unconditional (readily
exercisable in the event of default), provided that the demand feature satisfies
(2), (3) or (4) above, or (b) that are not
<PAGE>8
unconditional, provided that the demand feature satisfies (2), (3) or (4) above,
and the demand instrument or long-term obligations of the issuer satisfy (2) or
(4) above for long-term debt obligations. The Board of Directors will approve or
ratify any purchases by the Money Market Portfolio of securities that are rated
by only one NRSRO or that are Unrated Securities.
Illiquid Securities. The Portfolio may not invest more than 10% of its
net assets in illiquid securities (including, repurchase agreements which have a
maturity of longer than seven days), including securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Securities that have legal or contractual restrictions
on resale but have a readily available market are not considered illiquid for
purposes of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. With respect to the Money Market Portfolio, repurchase agreements
subject to demand are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
SEC Rule 144A allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act for resales of certain securities to
<PAGE>9
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
will expand further as a result of this relatively new regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the NASD.
The Portfolio's investment adviser will monitor the liquidity of
restricted securities in the Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
inter alia, the following factors: (1) the unregistered nature of the security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (4) dealer undertakings to make a market in the security
and (5) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
Investment Limitations.
The Money Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes and
for reverse repurchase agreements and then in amounts not in excess of 10%
of the value of the Portfolio's total assets at the time of such borrowing,
and only if after such borrowing there is asset coverage of at least 300
percent for all borrowings of the Portfolio; or mortgage, pledge,
hypothecate any of its assets except in connection with such borrowings and
then, in amounts not in excess of 10% of the value of the Portfolio's total
assets at the time of such borrowing; or purchase portfolio securities
while borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio's securities by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of the Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up
to 25% of the value of the Portfolio's assets may be invested without
regard to this 5% limitation;
(3) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
<PAGE>10
(4) underwrite securities of other issuers, except to the extent
that, in connection with the disposition of portfolio securities, a
Portfolio may be deemed an underwriter under Federal securities laws and
except to the extent that the purchase of Municipal Obligations directly
from the issuer thereof in accordance with the Portfolio's investment
objective, policies and limitations may be deemed to be an underwriting;
(5) make short sales of securities or maintain a short position
or write or sell puts, calls, straddles, spreads or combinations thereof;
(6) purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development
programs;
(9) make loans except that the Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies and
limitations and may enter into repurchase agreements;
(10) purchase any securities issued by any other investment
company except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the
Money Market Portfolio may not:
(a) Purchase any securities other than Money-Market Instruments, some
of which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would
<PAGE>11
cause, at the time of purchase, more than 25% of the value of its total assets
to be invested in the obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time of
purchase) in securities of issuers (including their predecessors) with less than
three years of continuous operations.
The foregoing investment limitations cannot be changed without the
affirmative vote of the lesser of (a) more than 50% of the outstanding shares of
the Portfolio or (b) 67% or more of the shares of the Portfolio present at a
shareholders' meeting if more than 50% of the outstanding shares of the
Portfolio are represented at the meeting in person or by proxy.
With respect to limitation (b) above concerning industry concentration
(applicable to the Portfolio), the Portfolio will consider wholly-owned finance
companies to be in the industries of their parents if their activities are
primarily related to financing the activities of the parents, and will divide
utility companies according to their services. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this paragraph may be
changed without the affirmative vote of the holders of a majority of the
affected Portfolio's outstanding shares, but any such change may require the
approval of the Securities and Exchange Commission (the "SEC") and would be
disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
Portfolio will meet the following limitations on its investments in addition to
the fundamental investment limitations described above. These limitations may be
changed without a vote of shareholders of the Portfolio.
1. The Portfolio will limit its purchases of the securities of
any one issuer, other than issuers of U.S. Government securities, to 5%
of its total assets, except that the Portfolio may invest more than 5%
of its total assets in First Tier Securities of one issuer for a period
of up to three business days. "First Tier Securities" include eligible
securities that (i) if rated by more than one NRSRO, are rated (at the
time of purchase) by two or more NRSROs in the highest rating category
for such securities, (ii) if rated by only one NRSRO, are rated by such
NRSRO in its highest rating category for such securities, (iii) have no
short-term rating and are comparable in priority and security to a
class of short-term obligations of the issuer of such securities that
have been rated in accordance with (i) or (ii) above, or (iv) are
Unrated Securities that are determined to be of comparable quality to
such securities. Purchases of First Tier Securities that come within
categories (ii) and (iv) above will be approved or ratified by the
Board of Directors.
<PAGE>12
2. The Portfolio will limit its purchases of Second Tier
Securities, which are eligible securities other than First Tier
Securities, to 5% of its total assets.
3. The Portfolio will limit its purchases of Second Tier
Securities of one issuer to the greater of 1% of its total assets or $1
million.
-------------------
In order to permit the sale of its shares in certain states, the Fund
may make commitments more restrictive than the investment limitations described
above. Should the Fund determine that any such commitment is no longer in its
best interest, it will revoke the commitment and terminate sales of its shares
in the state involved.
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their business
addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Principal Occupation
Name and Address Position with Fund During Past Five Years
<S> <C> <C>
Arnold M. Reichman* Director Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M. Warburg, Pincus &
Co., Inc.; Since 1990, Chief
Executive Officer and since 1991,
Secretary, Counsellors Securities
Inc.; Officer of various
investment companies advised by
Warburg, Pincus Counsellors, Inc.
Robert Sablowsky** Director Since 1985, Executive
14 Wall Street Vice President of Gruntal
New York, NY 10005 & Co., Inc., Director,
Gruntal & Co., Inc. and
Gruntal Financial Corp.
</TABLE>
<PAGE>13
<TABLE>
<CAPTION>
Principal Occupation
Name and Address Position with Fund During Past Five Years
<S> <C> <C>
Francis J. McKay Director Since 1963, Executive
7701 Burholme Avenue Vice President, Fox
Philadelphia, PA 19111 Chase Cancer Center (Biomedical
research and medical care).
^
Marvin E. Sternberg Director Since 1974, Chairman,
937 Mt. Pleasant Road Director and President,
Bryn Mawr, PA 19010 Moyco Industries, Inc.
(manufacturer of dental supplies
and precision coated abrasives);
Since 1968, Director and
President, Mart MMM, Inc.
(formerly Montgomeryville
Merchandise Mart, Inc.) and Mart
PMM, Inc. (formerly Pennsauken
Merchandise Mart) (shopping
centers); and Since 1975,
Director and Executive Vice
President, Cellucap Mfg. Co.,
Inc. (manufacturer of disposable
headwear).
Julian A. Brodsky Director Director, and Vice Chairman
1234 Market Street, 16th Fl. 1969 to Present, Comcast
Philadelphia, PA 19107-3723 Corporation; Director, Comcast
Cablevision of Philadelphia
(cable television and
communications) and Nextel
(Wireless Communication).
</TABLE>
<PAGE>14
<TABLE>
<CAPTION>
Principal Occupation
Name and Address Position with Fund During Past Five Years
<S> <C> <C>
Donald van Roden Director Self-employed
1200 Old Mill Lane businessman. From
Wyomissing, PA 19610 February 1980 to March 1987, Vice
Chairman, SmithKline Beckman
Corporation (pharmaceuticals);
Director, AAA Mid-Atlantic (auto
service); Director, Keystone Auto
Insurance Co.
^
Edward J. Roach President and Treasurer Certified Public
Suite 152 Accountant; Vice
Bellevue Park Corporate Chairman of the Board,
Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee Emeritus,
Wilmington, DE 19809 Pennsylvania School for the Deaf;
Trustee Emeritus, Immaculata
College; Vice President and
Treasurer of various investment
companies advised by PNC
Institutional Management
Corporation.
Morgan R. Jones Secretary Chairman of the law firm
1100 PNB Bank Building Drinker Biddle & Reath,
Broad and Chestnut Streets Philadelphia, Pennsylvania;
Philadelphia, PA 19107 Director, Rocking Horse Child
Care Centers of America, Inc.
</TABLE>
<PAGE>15
- -------------------------
* Mr. Reichman is an "interested person" of the Fund as that term is
defined in the 1940 Act by virtue of his position with Counsellors Securities
Inc., the Fund's distributor.
** Mr. Sablowsky is an "interested person" of the Fund as that term is
defined in the 1940 Act by virtue of his position with Gruntal & Co., Inc., a
broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit
Committee of the Board of Directors. The Audit Committee, among other things,
reviews results of the annual audit and recommends to the Fund the firm to be
selected as independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board annually all persons to be nominated as directors of the
Fund.
The Fund pays directors who are not "affiliated persons" (as that term
is defined in the 1940 Act) of the Fund $5,000 annually and $650 per meeting of
the Board or any committee thereof that is not held in conjunction with a Board
meeting. Directors who are not affiliated persons of the Fund are reimbursed for
any expenses incurred in attending meetings of the Board of Directors or any
committee thereof. For the year ended August 31, 1994, Directors and officers of
the Fund received compensation and reimbursement of expenses in the aggregate
amount of $35,999. On October 24, 1990 the Fund adopted, as a participating
employer, the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a
retirement plan for employees (currently Edward J. Roach) pursuant to which the
Fund will contribute on a monthly basis amounts equal to 10% of the monthly
compensation of each eligible employee. By virtue of the services performed by
PNC Institutional Management Corporation ("PIMC"), the Fund's adviser, PNC Bank,
National Association ("PNC Bank"), the Portfolios' sub-advisor and the Fund's
custodian, PFPC Inc. ("PFPC"), and the Fund's transfer and dividend disbursing
agent, and Counsellors Securities Inc. (the "Distributor"), the Fund's
distributor, the Fund itself requires only one part-time employee. No officer,
director or employee of PIMC, PNC Bank, PFPC or the Distributor currently
receives any compensation from the Fund.
For the year ended August 31, 1994, each of the following members of
the Board of Directors received compensation from the Fund for expenses incurred
in attending meetings of the Board of Directors or any other committee thereof;
Julian A. Brodsky in the aggregate amount of ^ $6,950; Francis J. Mckay in the
aggregate amount of ^ $7,600; Marvin E. Sternberg in
<PAGE>16
the aggregate amount of $7,600; and Donald van Roden in the aggregate amount of
$8,600.00.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
Advisory and Sub-Advisory Agreements. The advisory and sub-advisory
services provided by PIMC and PNC Bank and the fees received by PIMC and PNC
Bank for such services are described in the Prospectus. PIMC renders advisory
services to the Portfolio and also renders administrative services to the
Portfolio pursuant to separate investment advisory agreements and PNC Bank
renders sub-advisory services to the Portfolio pursuant to separate Sub-Advisory
Agreement. The Sub-Advisory Agreement is dated August 16, 1988. The advisory
agreement relating to the Portfolio is dated August 16, 1988. Such advisory and
sub-advisory agreements are hereinafter collectively referred to as the
"Advisory Contracts."
For the year ended August 31, 1994, PIMC received (after waivers)
$1,947,768 in advisory fees with respect to the Money Market Portfolio. During
the same year, PIMC waived $2,255,986 of advisory fees with respect to the Money
Market Portfolio. For the year ended August 31, 1993, PIMC received (after
waivers) $1,461,628 in advisory fees with respect to the Money Market Portfolio.
During the same year, PIMC waived $2,343,596 of advisory fees with respect to
the Money Market Portfolio. For the year ended August 31, 1992, PIMC received
(after waivers) $1,322,859 in advisory fees with respect to the Money Market
Portfolio. During that same year, PIMC waived $2,452,731 of advisory fees with
respect to the Money Market Portfolio.
As required by various state regulations, PIMC will reimburse the Fund
or a portfolio affected (as applicable) if and to the extent that the aggregate
operating expenses of the Fund or a portfolio affected exceed applicable state
limits for the fiscal year, to the extent required by such state regulations.
Currently, the most restrictive of such applicable limits is 2.5% of the first
$30 million of average annual net assets, 2% of the next $70 million of average
annual net assets and 1 1/2% of the remaining average annual net assets. Certain
expenses, such as brokerage commissions, taxes, interest and extraordinary
items, are excluded from this limitation. Whether such expense limitations apply
to the Fund as a whole or to the Portfolio on an individual basis depends upon
the particular regulations of such states.
The Portfolio bears all of its own expenses not specifically assumed
by PIMC. General expenses of the Fund not readily identifiable as belonging to a
portfolio of the Fund are allocated among all investment portfolios by or under
the direction of the Fund's Board of Directors in such manner as the Board
determines to be fair and equitable. Expenses borne by a portfolio include, but
are not limited to, the following (or a portfolio's share of the following): (a)
the cost (including brokerage commissions) of securities purchased or sold by a
portfolio and any losses incurred in connection therewith; (b) fees payable to
and expenses incurred on behalf of a portfolio by PIMC; (c) expenses of
organizing the Fund that are not
<PAGE>17
attributable to a class of the Fund; (d) certain of the filing fees and expenses
relating to the registration and qualification of the Fund and a portfolio's
shares under Federal and/or state securities laws and maintaining such
registrations and qualifications; (e) fees and salaries payable to the Fund's
directors and officers; (f) taxes (including any income or franchise taxes) and
governmental fees; (g) costs of any liability and other insurance or fidelity
bonds; (h) any costs, expenses or losses arising out of a liability of or claim
for damages or other relief asserted against the Fund or a portfolio for
violation of any law; (i) legal, accounting and auditing expenses, including
legal fees of special counsel for the independent directors; (j) charges of
custodians and other agents; (k) expenses of setting in type and printing
prospectuses, statements of additional information and supplements thereto for
existing shareholders, reports, statements, and confirmations to shareholders
and proxy material that are not attributable to a class; (l) costs of mailing
prospectuses, statements of additional information and supplements thereto to
existing shareholders, as well as reports to shareholders and proxy material
that are not attributable to a class; (m) any extraordinary expenses; (n) fees,
voluntary assessments and other expenses incurred in connection with membership
in investment company organizations; (o) costs of mailing and tabulating proxies
and costs of shareholders' and directors' meetings; (p) costs of PIMC's use of
independent pricing services to value a portfolio's securities; and (q) the cost
of investment company literature and other publications provided by the Fund to
its directors and officers. Distribution expenses, transfer agency expenses,
expenses of preparation, printing and mailing prospectuses, statements of
additional information, proxy statements and reports to shareholders, and
organizational expenses and registration fees, identified as belonging to a
particular class of the Fund, are allocated to such class.
Under the Advisory Contracts, PIMC and PNC Bank will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund or
a Portfolio in connection with the performance of the Advisory Contracts, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of PIMC or PNC Bank in the performance of their respective duties or from
reckless disregard of their duties and obligations thereunder.
The Advisory Contracts were each most recently approved with respect
to the Portfolio on August 3, 1994 by a vote of the Fund's Board of Directors,
including a majority of those directors who are not parties to the Advisory
Contracts or "interested persons" (as defined in the 1940 Act) of such parties.
The Advisory Contracts were each approved respect to the Money Market Portfolio
by shareholders of the Portfolio at a special meeting held December 22, 1989, as
adjourned. Each Advisory Contract is terminable by vote of the Fund's Board of
Directors or by the holders of a majority of the outstanding voting securities
of the Portfolio, at any time without penalty, on 60 days' written notice to
PIMC or PNC Bank. The Advisory Contracts may also be terminated by PIMC or PNC
Bank, respectively, on 60 days' written notice to the Fund. The Advisory
Contracts terminates automatically in the event of assignment thereof.
<PAGE>18
Custodian and Transfer Agency Agreements. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of the Portfolio (b) holds
and transfers portfolio securities on account of the Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of the Portfolio, (d)
collects and receives all income and other payments and distributions on account
of the Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning each Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon the Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000, exclusive of transaction charges and out-of-pocket
expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Class pursuant to a Transfer Agency Agreement
dated August 16, 1988 (the "Transfer Agency Agreement"), under which PFPC (a)
issues and redeems shares of the Class, (b) addresses and mails all
communications by the Portfolio to record owners of shares of the Class,
including reports to shareholders, dividend and distribution notices and proxy
materials for its meetings of shareholders, (c) maintains shareholder accounts
and, if requested, sub-accounts and (d) makes periodic reports to the Fund's
Board of Directors concerning the operations of the Class. PFPC may, on 30 days'
notice to the Fund, assign its duties as transfer and dividend disbursing agent
to any other affiliate of PNC Bank Corp. For its services to the Fund under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per
account in the Portfolio for orders which are placed by third parties and
relayed electronically to PFPC, and at an annual rate of $17.00 per account in
the Portfolio for all other orders, exclusive of out-of-pocket expenses and also
receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder
servicing agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolio.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolio for purposes of responding to customer inquiries
<PAGE>19
and brokerage instructions. In consideration for providing such services,
Authorized Dealers may receive fees from PFPC. Such fees will have no effect
upon the fees paid by the Fund to PFPC.
Distribution Agreements. Pursuant to the terms of a distribution
contract, dated as of April 10, 1991, and supplements entered into by the
Distributor and the Fund on behalf of the Class (the "Distribution Contract"),
and the Plan of Distribution for the Class (the "Plan"), which was adopted by
the Fund in the manner prescribed by Rule 12b-1 under the 1940 Act, the
Distributor will use its best efforts to distribute shares of the Class. As
compensation for its distribution services, the Distributor will receive,
pursuant to the terms of the Distribution Contract, a distribution fee, to be
calculated daily and paid monthly, at the annual rate set forth in the
Prospectus. The Distributor currently proposes to reallow up to all of its
distribution payments to broker/dealers for selling shares of the Portfolio
based on a percentage of the amounts invested by their customers.
The Plan as amended to reflect a change in the Fund's distributor in
accordance with Rule 12b-1 was most recently approved for continuation, with
respect to the Class on August 3, 1994 by the Fund's Board of Directors,
including the directors who are not "interested persons" of the Fund and who
have no direct or indirect financial interest in the operation of the Plan or
any agreements related to the Plan ("12b-1 Directors"). The Plan was approved by
shareholders of the Class at a special meeting held December 22, 1989, as
adjourned.
Among other things, the Plan provides that: (1) the Distributor shall
be required to submit quarterly reports to the directors of the Fund regarding
all amounts expended under the Plan and the purposes for which such expenditures
were made, including commissions, advertising, printing, interest, carrying
charges and any allocated overhead expenses; (2) the Plan will continue in
effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Fund's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Class under the Plan shall not be materially increased without the
affirmative vote of the holders of a majority of the Fund's shares in the
affected Class; and (4) while the Plan remains in effect, the selection and
nomination of the Fund's directors who are not "interested persons" of the Fund
(as defined in the 1940 Act) shall be committed to the discretion of the
directors who are not interested persons of the Fund.
During the year ended August 31, 1994, the Fund paid distribution fees
to the Fund's Distributor under the Plan for the Class of the Money Market
Portfolio, in the aggregate amount of $4,147,945 of which $4,069,861, was paid
to dealers with whom the Distributor had entered into sales agreements, and
$78,054, was retained by the Distributor and used to pay certain advertising and
promotion, printing, postage, legal fees, travel and entertainment, sales and
marketing and administrative expenses. During the same period, the Distributor
waived no distribution fees for the Class of the
<PAGE>20
Money Market Portfolio. The Fund believes that such Plan may benefit the Fund by
increasing sales of Shares. Mr. Reichman, a Director of the Fund, has an
indirect financial interest in the operation of the Plan by virtue of his
position as Chief Executive Officer and Secretary of the Distributor. Mr.
Sablowsky, a Director of the Fund, has an indirect interest in the operation of
the Plan by virtue of his position as Executive Vice President of Gruntal & Co.,
Inc., a broker-dealer which sells the Fund's shares.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase securities with remaining maturities
of 397 calendar days or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 397 calendar days or
less), and except that the Money Market Portfolio may purchase variable rate
securities with remaining maturities of 397 calendar days or more so long as
such securities comply with conditions established by the SEC under which they
may be considered to have remaining maturities of 397 calendar days or less.
Because the Portfolio intend to purchase only securities with remaining
maturities of one year or less, their portfolio turnover rates will be
relatively high. However, because brokerage commissions will not normally be
paid with respect to investments made by the Portfolio, the turnover rate should
not adversely affect such Portfolio's net asset value or net income. The
Portfolio does not intend to seek profits through short term trading.
Purchases of portfolio securities by the Portfolio are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. The
Portfolio currently expect to incur any brokerage commission expense on such
transactions because money market instruments are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission. The price of the security, however, usually includes a profit to the
dealer. Securities purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. When securities are purchased directly from or sold
directly to an issuer, no commissions or discounts are paid. It is the policy of
the Portfolio to give primary consideration to obtaining the most favorable
price and efficient execution of transactions. In seeking to implement the
policies of the Portfolio, PIMC will effect transactions with those dealers it
believes provide the most favorable prices and are capable of providing
efficient executions. In no instance will portfolio securities be purchased from
or sold to the Distributor, PIMC or PNC Bank or any affiliated person of the
foregoing entities except to the extent permitted by SEC exemptive order or by
applicable law.
PIMC may seek to obtain an undertaking from issuers of commercial
paper or dealers selling commercial paper to consider the repurchase of such
securities from the Portfolio prior to their maturity at their original cost
plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that the Portfolio's anticipated need for
<PAGE>21
liquidity makes such action desirable. Any such repurchase prior to maturity
reduces the possibility that the Portfolio would incur a capital loss in
liquidating commercial paper (for which there is no established market),
especially if interest rates have risen since acquisition of the particular
commercial paper.
Investment decisions for the Portfolio and for other investment
accounts managed by PIMC or PNC Bank are made independently of each other in the
light of differing conditions. However, the same investment decision may
occasionally be made for two or more of such accounts. In such cases,
simultaneous transactions are inevitable. Purchases or sales are then averaged
as to price and allocated as to amount according to a formula deemed equitable
to each such account. While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as the Portfolio is
concerned, in other cases it is believed to be beneficial to the Portfolio. The
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such security of which PIMC or PNC Bank or any
affiliated person (as defined in the 1940 Act) thereof is a member except
pursuant to procedures adopted by the Fund's Board of Directors pursuant to Rule
10f-3 under the 1940 Act. Among other things, these procedures, which will be
reviewed by the Fund's directors annually, require that the commission paid in
connection with such a purchase be reasonable and fair, that the purchase be at
not more than the public offering price prior to the end of the first business
day after the date of the public offer, and that PIMC and PNC Bank not
participate in or benefit from the sale to the Portfolio.
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase of the
Portfolio's shares by making payment in whole or in part in securities chosen by
the Fund and valued in the same way as they would be valued for purposes of
computing the Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that the Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of the Portfolio.
Under the 1940 Act, the Portfolio may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which the
New York Stock Exchange (the "NYSE") 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
Portfolio may also suspend or postpone the
<PAGE>22
recordation of the transfer of its shares upon the occurrence of any of the
foregoing conditions.)
Redemption by Check. Upon request, the Fund will provide any direct
investor and any investor who does not have check writing privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These
checks may be made payable to the order of anyone. The minimum amount of a
check is $100; however, a broker/dealer may establish a higher minimum. An
investor wishing to use this check writing redemption procedure should
complete specimen signature cards, and then forward such signature cards
to PFPC. PFPC will then arrange for the checks to be honored by PNC Bank.
Investors who own shares through an Account should contact their brokers
for signature cards. Investors of joint accounts may elect to have checks
honored with a single signature. Check redemptions will be subject to PNC
Bank's rules governing checks. An investor will be able to stop payment on
a check redemption. The Fund or PNC Bank may terminate this redemption
service at any time, and neither shall incur any liability for honoring
checks, for effecting redemptions to pay checks, or for returning checks
which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as
the investor's agent, will cause the Fund to redeem a sufficient number of
full and fractional shares owned by the investor to cover the amount of the
check. This procedure enables the investor to continue to receive dividends
on those Shares equalling the amount being redeemed by check until such time
as the check is presented to PNC Bank. Checks may not be presented for cash
payment at the offices of PNC Bank because, under 1940 Act rules, redemptions
may be effected only at the redemption price next determined after the
redemption request is presented to PFPC. This limitation does not affect
checks used for the payment of bills or cash at other banks.
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset
value of the Portfolio at $1.00 per share. Net asset value per share, the value
of an individual share in the Portfolio, is computed by dividing the Portfolio's
net assets by the number of outstanding shares of the Portfolio. The Portfolio's
"net assets" equal the value of the Portfolio's investments and other securities
less its liabilities. The Fund's net asset value per share is computed twice
each day, as of 12:00 noon (Eastern Time) and as of 4:00 p.m. (Eastern Time) on
each Business Day. "Business Day" means each day, Monday through Friday, when
both the NYSE and the Federal Reserve Bank of Philadelphia (the "FRB") are open.
Currently, the NYSE or the FRB, or both, are closed on New Year's Day, Martin
Luther King's ^ Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day (observed), Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas Day (observed).
The Fund calculates the value of the portfolio securities of the
Portfolio by using the amortized cost method of valuation. Under this method the
market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased,
the Portfolio may have to sell portfolio securities prior to maturity and at a
price which might not be as desirable.
The amortized cost method of valuation may result in the value
of a security being higher or lower than its market price, the price the
Portfolio would receive if the security were sold prior to maturity. The
Fund's Board of Directors has established procedures for the purpose of
maintaining a constant net asset value of $1.00 per share for the Portfolio,
which include a review of the extent of any deviation of net asset value per
share, based on available market quotations, from the $1.00 amortized cost
per share. Should that deviation exceed 1/2 of 1% for the Portfolio, the
Board of Directors will promptly consider whether any action should be
initiated to eliminate or reduce material dilution or other unfair results
to shareholders. Such action may include redeeming shares in kind, selling
portfolio securities prior to maturity, reducing or withholding dividends,
and utilizing a net asset value per share as determined by using available
market quotations.
The Portfolio will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
<PAGE>23
maturity under Rule 2a-7 of the 1940 Act greater than 397 calendar days will
limit portfolio investments, including repurchase agreements (where permitted),
to those United States dollar-denominated instruments that PIMC determines
present minimal credit risks pursuant to guidelines adopted by the Board of
Directors, and PIMC will comply with certain reporting and recordkeeping
procedures concerning such credit determination. There is no assurance that
constant net asset value will be maintained. In the event amortized cost ceases
to represent fair value in the judgment of the Fund's Board of Directors, the
Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio investments,
the Fund may employ outside organizations, which may use a matrix or formula
method that takes into consideration market indices, matrices, yield curves and
other specific adjustments. This may result in the securities being valued at a
price different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
Performance Information. The Portfolio's current and effective yields
are computed using standardized methods required by the SEC. The annualized
yields for the Portfolio are computed by: (a) determining the net change in the
value of a hypothetical account having a balance of one share at the beginning
of a seven-calendar day period; (b) dividing the net change by the value of the
account at the beginning of the period to obtain the base period return; and (c)
annualizing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares
purchased with dividends declared and all dividends declared on both the
original share and such additional shares, but does not include realized gains
and losses or unrealized appreciation and depreciation. Compound effective
yields are computed by adding 1 to the base period return (calculated as
described above), raising the sum to a power equal to 365/7 and subtracting 1.
The yield for the seven (7) day period ending August 31, 1994 for the
Bedford Class of the Money Market Portfolio, were 3.82%. The effective yield for
the same period for the same Class was 3.89%.
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of the Portfolio will fluctuate, they cannot
be compared with yields on savings account or other investment alternatives that
provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of a
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
<PAGE>24
The yields on certain obligations, including the money market
instruments in which the Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by the Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, PIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders,
the yields of the Portfolio 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 the Portfolio may be compared to the Donoghue's Money
Fund Average, which is an average compiled by IBC/Donoghue's MONEY FUND REPORT
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., a widely-recognized independent service that
monitors the performance of mutual funds.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolio and its shareholders that are
not described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolio or their shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning. Investors are urged to consult their tax advisers with
specific reference to their own tax situation.
The Portfolio has elected to be taxed as a regulated investment
company under Part I of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, the Portfolio is exempt
from Federal income tax on its net investment income and realized capital gains
which it distributes to shareholders, provided that it distributes an amount
equal to the sum of (a) at least 90% of its investment company taxable income
(net investment income and the excess of net short-term capital gain over net
long-term capital loss), if any, for the year and (b) at least 90% of its net
tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the
<PAGE>25
taxable year will satisfy the Distribution Requirement. The Distribution
Requirement for any year may be waived if a regulated investment company
establishes to the satisfaction of the Internal Revenue Service that it is
unable to satisfy the Distribution Requirement by reason of distributions
previously made for the purpose of avoiding liability for Federal excise tax
(discussed below).
In addition to satisfaction of the Distribution Requirement the
Portfolio must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans and gains from the sale or
other disposition of stock or securities or foreign currencies, or from other
income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement") and derive less than 30% of
its gross income from the sale or other disposition of any of the following
investments if such investments were held for less than three months: (a) stock
or securities (as defined in Section 2(a)(36) of the 1940 Act); (b) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies); and (c) foreign currencies (or options, futures or
forward contracts on foreign currencies) but only if such currencies (or
options, futures or forward contracts) are not directly related to the regulated
investment company's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities) (the "Short-Short Gain
Test"). Interest (including original issue discount and, in the case of debt
securities bearing taxable interest income "accrued market discount") received
by the Portfolio at maturity or on disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security for purposes of the Short-Short Gain Test. However,
any other income which is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
Income derived by a regulated investment company from a partnership or
trust will satisfy the Income Requirement only to the extent such income is
attributable to items of income of the partnership or trust that would satisfy
the Income Requirement if they were realized by a regulated investment company
in the same manner as realized by the partnership or trust.
In addition to the foregoing requirements, at the close of each
quarter of its taxable year, at least 50% of the value of the Portfolio's assets
must consist of cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and securities of other issuers (as to
which the Portfolio has not invested more than 5% of the value of its total
assets in securities of such issuer and as to which the Portfolio does not hold
more than 10% of the outstanding voting securities of such issuer), and no more
than 25% of the value of the Portfolio's total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which the Portfolio controls and which are engaged in the same or similar trades
or businesses (the "Asset Diversification Requirement").
<PAGE>26
The Internal Revenue Service has taken the position, in informal
rulings issued to other taxpayers, that the issuer of a repurchase agreement is
the bank or dealer from which securities are purchased. The Money Market
Portfolio will not enter into repurchase agreements with any one bank or dealer
if entering into such agreements would, under the informal position expressed by
the Internal Revenue Service, cause either one of them to fail to satisfy the
Asset Diversification Requirement.
All shareholders required to file a Federal income tax return are
required to report the receipt of exempt interest dividends and other exempt
interest on their returns. Moreover, while such dividends and interest are
exempt from regular Federal income tax, they may be subject to alternative
minimum tax as described in the Prospectus. By operation of the adjusted current
earnings alternative minimum tax adjustment, exempt interest income received by
certain corporations may be taxed at an effective rate of 15%. In addition,
corporate investors should note that, under the Superfund Amendments and
Reauthorization Act of 1986, an environmental tax is imposed for taxable years
beginning after 1986 and before 1996 at the rate of 0.12% on the excess of the
modified alternative minimum taxable income of corporate taxpayers over $2
million, regardless of whether such taxpayers are liable for alternative minimum
tax. Receipt of exempt interest dividends may result in collateral Federal
income tax consequences to certain other taxpayers, including financial
institutions, property and casualty insurance companies, individual recipients
of Social Security or Railroad Retirement benefits, and foreign corporations
engaged in a trade or business in the United States. Prospective investors
should consult their own tax advisors as to such consequences.
The Money Market Portfolio may acquire standby commitments with
respect to Municipal Obligations held in its portfolio and will treat any
interest received on Municipal Obligations subject to such standby commitments
as tax-exempt income. In Rev. Rul. 82-144, 1982-2 C.B. 34, the Internal Revenue
Service held that a mutual fund acquired ownership of municipal obligations for
Federal income tax purposes, even though the fund simultaneously purchased "put"
agreements with respect to the same municipal obligations from the seller of the
obligations. The Fund will not engage in transactions involving the use of
standby commitments that differ materially from the transaction described in
Rev. Rul. 82-144 without first obtaining a private letter ruling from the
Internal Revenue Service or the opinion of counsel.
Distributions of net investment income received by the Portfolio from
investments in debt securities (other than interest on tax-exempt Municipal
Obligations that is distributed as exempt interest dividends) and any net
realized short-term capital gains distributed by the Portfolio will be taxable
to shareholders as ordinary income and will not be eligible for the dividends
received deduction for corporations.
While the Portfolio expect to realize long-term capital gains, any net
realized long-term capital gains, such as gains from the sale of debt securities
and realized market discount on tax-exempt Municipal Obligations,
<PAGE>27
will be distributed annually. The Portfolio will not have tax liability with
respect to such gains and the distributions will be taxable to Portfolio
shareholders as long-term capital gains, regardless of how long a shareholder
has held Portfolio shares. The aggregate amount of distributions designated by
the Portfolio as capital gain dividends may not exceed the net capital gain of
the Portfolio for any taxable year, determined by excluding any net capital loss
or any net long-term capital loss attributable to transactions occurring after
October 31 of such year and by treating any such loss as if it arose on the
first day of the following taxable year. Such distributions will be designated
as a capital gains dividend in a written notice mailed by the Fund to
shareholders not later than 60 days after the close of the Portfolio's
respective taxable year.
Investors should note that changes made to the Code by the Tax Reform
Act of 1986 and subsequent legislation have not entirely eliminated the
distinction between the tax treatment of capital gain and ordinary income
distributions. The nominal maximum marginal rate on ordinary income for
individuals, trusts and estates is currently 31%, but for individual taxpayers
whose adjusted gross income exceeds certain threshold amounts (that differ
depending on the taxpayer's filing status) in taxable years beginning before
1996, provisions phasing out personal exemptions and limiting itemized
deductions may cause the actual maximum marginal tax rate to exceed 31%. The
maximum rate on the net capital gain of individuals, trusts and estates,
however, is in all cases 28%. Capital gains and ordinary income of corporate
taxpayers are taxed a nominal maximum rate of 34% (an effective marginal rate of
39% applies in the case of corporations having taxable income between $100,000
and $335,000).
If for any taxable year the Portfolio does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and all
distributions will be taxable as ordinary dividends (including amounts derived
from interest on municipal obligations) to the extent of the Portfolio's current
and accumulated earning and profits. Such distributions will be eligible for the
dividends received deduction in the case of corporate shareholders.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute with respect to each calendar year
an amount equal to 98 percent of their ordinary income for the calendar year
plus 98 percent of their capital gain net income for the 1-year period ending on
October 31 of such calendar year. The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a company is treated
as having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. Because the Portfolio intends to
distribute all of its taxable income currently, it does not anticipate incurring
any liability for this excise tax.
The Fund will be required in certain cases to withhold and remit to
the United States Treasury 31% of dividends (other than exempt interest
<PAGE>28
dividends) paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of Federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Although the Portfolio expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, the
Portfolio may be subject to the tax laws of such states or localities.
ADDITIONAL INFORMATION CONCERNING FUND SHARES
The Fund does not currently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Fund's amended By-Laws provide that shareholders owning at least ten percent of
the outstanding shares of all classes of Common Stock of the Fund have 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 Fund will assist in shareholder
communication in such matters.
As stated in the Prospectus, holders of shares of each class of the
Fund will vote in the aggregate and not by class on all matters, except where
otherwise required by law. Further, shareholders of the Fund 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 Fund 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
<PAGE>29
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 public 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 an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote
of shares of the Fund's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
Counsel. The law firm of Ballard Spahr Andrews & Ingersoll, 1735
Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as counsel
to the Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle & Reath,
1100 Philadelphia National Bank Building, Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107, serves as counsel to the Fund's independent
directors.
Independent Accountants. Coopers & Lybrand L.L.P., 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants. The Fund's financial statements which appear in this Statement of
Additional Information have been audited by Coopers & Lybrand L.L.P., as set
forth in their report, which also appears in this Statement of Additional
Information, and have been included herein in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
Control Persons. As of January 27, 1995, to the Fund's knowledge, the
following named persons at the addresses shown below owned of record
approximately 5% or more of the total outstanding shares of the class of the
Fund indicated below. Such classes are described in the Prospectus. The Fund
does not know whether such persons also beneficially own such shares.
<PAGE>30
<TABLE>
<CAPTION>
Percent of
Outstanding
Names and Addresses Shares of
Class of Common Stock of Record Owners Class Owned
<S> <C> <C>
Class A
(Growth & Income) Boston Financial Data Services 99%
Omnibus Account
Attn.: Warburg Pincus, 3rd Fl.
2 Heritage Drive
Quincy, MA 02171
Class C
(Balanced) Warburg, Pincus Counsellors, 44%
Inc.
466 Lexington Avenue
New York, NY 10017
Class C
(Balanced) Planco Inc. 30%
Profit Sharing Plan Trust
16 Industrial Blvd.
Paoli, PA 19301
Class C
(Balanced) Jane T. Bell 9%
15 Schooner Drive
Mystic, CT 06335
Class D
(Tax-Free) Gruntal Co. 8%
FBO 955-16852-14
14 Wall Street
New York, NY 10005
Class D
(Tax-Free) Gruntal Co. 9%
FBO 955-10773-13
14 Wall Street
New York, NY 10005
Class D
(Tax-Free) Gruntal Co. 9%
FBO 955-10702-19
14 Wall Street
New York, NY 10005
Class D
(Tax-Free) Gruntal Co. 5%
FBO 541-75585-16
14 Wall Street
New York, NY 10005
Class E
(Money) PNC Bank, NA Custodian FBO 14%
Harold T. Erfer
414 Charles Lane
Wynnewood, PA 19096
</TABLE>
<PAGE>31
<TABLE>
<CAPTION>
Percent of
Outstanding
Names and Addresses Shares of
Class of Common Stock of Record Owners Class Owned
<S> <C> <C>
Class E
(Money) PNC Bank, NA Custodian FBO 18%
Karen M. McElhinney and
Contribution Acct.
4493 King Arthur Drive
Erie, PA 16506
Class E
(Money) E.L. Haines, Jr. and 8%
Betty J. Haines
2341 Pinebluff Drive
Dallas, TX 75228
Class E
(Money) John Robert Estrada and 16%
Shirley Ann Estrada
3700 Raton Drive
Arlington, TX 76018
Class E
(Money) Eric Levine and 31%
Linda & Howard Levine JT TEN WROS 67
Lanes Pond Road Howell, NJ 07731
Class F
(Municipal) SEYMOUR FEIN 91%
P.O. 486 Tremont Post Office
Bronx, NY 10457-0848
Class F
(Municipal) William B. Pettus & Augustine W. 9%
Pettus Trust
827 Winding Path Lane
St. Louis, MO 63021-6635
Class G
(Money) Saver's Marketing Inc. 21%
c/o Planco
16 Industrial Blvd.
Paoli, PA 19301
Class G
(Money) Lynda R. Campbell Succ. Trustee 7%
For IN TR Under the Lynda R. Campbell
Caring Trust dtd. 10/19/92
935 Rutger Street
St. Louis, MO 63104
Class G
(Money) Jewish Family and Childrens Agency of 42%
Philadelphia Capital Campaign
1610 Spruce Street
Philadelphia, PA 19103
Attn: S. Ramm
</TABLE>
<PAGE>32
<TABLE>
<CAPTION>
Percent of
Outstanding
Names and Addresses Shares of
Class of Common Stock of Record Owners Class Owned
<S> <C> <C>
Class H
(Municipal) Deborah C. Brown, Trustee 27%
Barbara J, C, Curtis, Trustee
The Crowe Trust dtd 11/23/88
9921 West 128th Terr
Overlond Dale, KS 662133
Class H
(Municipal) Kelly H. Vandelight 7%
Crystal C. Vandelight
P.O. Box 296
Belle, MO 65013
Class H
(Municipal) Kenneth Farnell and 5%
Valerie Farnell
3854 Sullivan
St. Louis, MO 63107
Class H
(Municipal) Gary L. Lange 8%
Susan D. Lange
13 Muirfield Court North
St. Charles, MO 63304
Class H
(Municipal) Marcella L. Haugh 7%
Caring TR
DTD 8/12/91
40 Plaza Sq. Apt. 202
St. Louis, MO 63103
Class H
(Municipal) Larnie Johnson 8%
Mary Alice Johnson
4927 Lee Avenue
St. Louis, MO 63115-1726
Class I
(Money) Wasner & Co. 83%
For Account of Paine Webber
Managed Assets-Sundry
Holdings
Attn: Judy Guille 01-04-01
1632 Chestnut St.
Philadelphia, PA 19103
Class I
(Municipal) Wasner & Co. 13%
For Account of Paine Webber
Managed Assets - Sunday Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
</TABLE>
<PAGE>33
<TABLE>
<CAPTION>
Percent of
Outstanding
Names and Addresses Shares of
Class of Common Stock of Record Owners Class Owned
<S> <C> <C>
Class P
(Government) Home Insurance Company 73%
Att. Edward F. Linekin
59 Maiden Lane
21st Floor
New York, NY 10038
Class U
(Strategic) State of Oregon 43%
Treasury Department
159 State Capital Building
Salem, Oregon 9731043%
Class U
(Strategic) The Chase Manhattan Bankers Trust 14%
For Kendale Company Master
Pension Plan
Attn: Mark Tesoriero
3 Metrotech Ctr. 6th Fl.
Brooklyn, NY 11245
Class V
(Emerging) Amherst H. Wilder Foundation 5%
919 Lafond Avenue
Saint Paul, MN 55104
Class V
(Emerging) Northern Trust Company TTEE 21%
Texas Instruments Employee Plan
P.O. Box 92956
AC 22-69966/2-059328
Chicago, IL 60675-2956
Class V
(Emerging) Wachovia Bank North Carolina 5%
Fleming Companies Inc.
Noster Pension Trust
307 North Hain St.
P. O. Box 3099
Winston Salem, NC 27150
Class V
(Emerging) Bryn Mawr College 11%
101 North Merion Avenue
Bryn Mawr, PA 19010-2899
Class V
(Emerging) Wachovia Bank North Carolina 9%
Carolina Power & Light Co.
Supplemental Retirement Trust
301 Main St.
Winston Salem, NC 27150
Class V
(Emerging) Northern Trust 7%
Trust Pillsbury
P.O. Box 92956
Chicago, IL 60675
</TABLE>
<PAGE>34
<TABLE>
<CAPTION>
Percent of
Outstanding
Names and Addresses Shares of
Class of Common Stock of Record Owners Class Owned
<S> <C> <C>
Class W
(Equity) PNC Bank, N.A.Cust. FBO Victor 9%
A. Canto
P. O. Box 1471
Ranclo Santa Fe, CA
Class W
(Equity) John Hancock Clearing 29%
Corporation
Special Custody Acct. and the
Exclusive Benefit of Customers
One WFC 200 Liberty St.
New York, NY 10281
Class W
Equity Lois G. Smith FBO 7%
Lois G. Smith Trust
12035 Hooiser CRT Apt. 103
Bayonne Point, FL 34667-3143
Class X
(Core Equity) Bank of New York 87%
Trust APU Buckeye Pipeline
One Wall Street
New York, NY 10286
Class X
(Core Equity) Werner & Pfleiderer 9%
Pension Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07466
Class Y
(Core Fixed Income) New England UFCW & Employers 40%
Pension Fund Board of Trustees
161 Forbes Rd., Suite 201
Braintree, MA 02184
Class Y
(Core Fixed Income) Bankers Trust 35%
Pechiney Corporation Pension
Master Trust
34 Exchange Place, 4th Fl.
Jersey City, NJ 07302
Class Y
(Core Fixed Income) Kollhorgen Corporation Pension 8%
Trust
1601 Thapelco Rd.
Waltham, MA 02154
Class Z
(Global Fixed Income) Bank of New York 36%
Eastern Enterprises
Retirement Plain Trust
One Wall Street, 8th Fl.
New York, NY 10286
</TABLE>
<PAGE>35
<TABLE>
<CAPTION>
Percent of
Outstanding
Names and Addresses Shares of
Class of Common Stock of Record Owners Class Owned
<S> <C> <C>
Class Z
(Global Fixed Income) Sunkist Master Trust 64%
14130 Riverside Drive
Sherman Oaks, CA 91423
Class AA
(Municipal Bond) William A. Marguard 13%
2199 Mayoville Road
Carlisle, KY 40311
Class AA
(Municipal Bond) John C. Cahill 6%
c/o David Holmgren
30 White Birch Lane
^ Cos Cobb, CT 06870
As of such date, no person owned of record or, to the Fund's
knowledge, beneficially, more than 25% of the outstanding shares of all classes
of the Fund.
As of the above date, directors and officers as a group owned less
than one percent of the shares of the Fund.
Litigation. There is currently no material litigation affecting the
Fund.
<PAGE>A-1
Appendix
Description of Bond Ratings
The following summarizes the highest two ratings used by Standard &
Poor's Corporation for bonds:
AAA-Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA-Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree. The
"AA" rating may be modified by the addition of a plus or minus sign to
show relative standing within the AA rating category.
The following summarizes the highest two ratings used by Moody's
Investors Service, Inc. for bonds:
Aaa-Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." 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.
Aa-Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
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.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds rated Aa.
The modifier 1 indicates that the bond being rated 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 bond ranks in the lower end of its generic
rating category.
The rating SP-1 is the highest rating assigned by Standard & Poor's to
municipal notes and indicates very strong or strong capacity to pay principal
and interest. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation.
<PAGE>A-2
A-2 The following summarizes the two highest ratings used by Moody's
for short-term notes and variable rate demand obligations:
MIG-1/VMIG-1. Obligations bearing these designations 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. Obligations bearing these designations are of high
quality with margins of protection ample although not as large as in the
preceding group.
Description of Commercial Paper Ratings
Commercial paper rated A-1 by Standard & Poor's indicates that the
degree of safety regarding timely payment is either overwhelming or very strong.
Those issues determined to possess overwhelming safety characteristics are
designated A-1+. Capacity for timely payment on commercial paper rated A-2 is
strong, but the relative degree of safety is not as high as for issues
designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
<PAGE>F-1
THE Bedford Family
The RBB Fund, Inc.
Annual Investment Adviser's Report
What a difference a year makes. One year ago, the nation's economy was
demonstrating only faint signs of a recovery and short-term interest rates, the
Federal Reserve's tool to govern the rate of economic growth, were being
maintained at a very stimulative level of 3%. Inflation was a mild 2.5%. In the
four quarters since last summer, the financial markets have witnessed a pick up
in all three areas the economy, interest rates and inflation. In the first two
quarters of 1994, real gross domestic product (GDP) grew by 3.3% and 3.8%,
versus 1.2% and 2.4% in 1993. Short-term interest rates jumped to 4.75%, an
increase of 175 basis points, as the Federal Reserve took preemptive actions
against inflation and raised the federal funds rate on five separate occasions.
Presently, it's too early to determine the effect of this more restrictive
monetary policy, however, inflation has shown signs of escalating and is
averaging about 3.0-3.5%. Pressure on consumer and producer prices has been
evidenced by large jumps in commodity prices and capacity utilization, the
latter hitting a five-year high in August at 84.7%.
In the taxable money markets, the key event was a series of Fed
tightenings, in February, March, April, May and August, that increased
short-term interest rates by 175 basis points. Each move was targeted to keep
inflation from rekindling. For much of the period, the actual news on inflation
remained quite mild, and the Fed's actions were viewed with a degree of
skepticism by investors. The reality of the dramatic change in policy, however,
encouraged even the most bullish investor to shorten the maturities of
investments and increase holdings in variable rate obligations.
Municipal bond prices tumbled in the aftermath of the five Federal Reserve
tightenings. Tax-exempt bonds fell in tandem with prices in the U.S. Treasury
market amid concerns that the economy would begin generating inflation.
Investors shifted their municipal investments out of longer-term municipal bond
funds, causing the tax-exempt money market sector to experience tremendous asset
growth during the period. Total tax-exempt assets grew almost $10 billion during
the period and peaked out at $118.8 billion during April, according to
IBC/Donoghue's Money Fund Report. This increase in assets, coupled with a
general lack of supply and portfolio managers' concerns over future rate
increases caused variable rate demand instruments to remain below 2% for much of
the period. During the summer, investors began feeling comfortable that further
tightening would be put on hold for the near-term and assets began moving back
into longer-term, higher yielding instruments.
PNC Institutional Management Corporation
(Please dial toll-free 800-533-7719 for questions
regarding your account or contact your broker.)
<PAGE>F-2
Report of Indepenent Accountants
To the Shareholders and Board of Directors of the RBB Fund, Inc.:
We have audited the accompanying statements of net assets of the Money
Market, Municipal Money Market and Government Obligations Money Market
Portfolios of The RBB Fund, Inc., as of August 31, 1994, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of two years in the period then ended, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included physical inspection and confirmation of
investments held by the custodians and others as of August 31, 1994. An audit
also included assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Money Market, Municipal Money Market and Government Obligations Money Market
Portfolios of The RBB Fund, Inc., as of August 31, 1994, the results of their
operations for the year then ended, the changes in their net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 14, 1994
<PAGE>F-3
THE BEDFORD FAMILY
THE RBB FUND, INC.
Money Market Portfolio
Statement of Net Assets
August 31, 1994
Par
(000) Value
----- -------
AGENCY OBLIGATIONS -- 9.7%
Federal National Mortgage Association -- 4.6%
3.23% 09/26/94 $25,000 $24,943,924
3.34% 09/27/94 25,000 24,939,694
------ ----------
49,883,618
----------
Student Loan Marketing Association Variable
Rate Notes -- 5.1%+
4.93% 09/06/94 10,000 10,000,000
4.88% 09/06/94 25,000 25,000,000
4.92% 09/06/94 20,000 20,000,000
----------
55,000,000
----------
TOTAL AGENCY OBLIGATIONS
(Cost $104,883,618) 104,883,618
-----------
BANK NOTES -- 8.8%
Bank of New York
5.03% 09/06/94 50,000 50,000,000
NationsBank North Carolina
3.37% 09/30/94 25,000 24,997,957
5.35% 06/07/95 5,000 4,999,825
Northern Trust Bank
5.25% 06/16/95 15,000 14,992,070
----------
TOTAL BANK NOTES
(Cost $94,989,852) 94,989,852
----------
CERTIFICATES OF DEPOSIT -- 9.3%
Banks -- 5.1%
First National Bank of Chicago
4.82% 09/01/94 55,000 54,979,432
Yankee Certificates of Deposit -- 4.2%
RaboBank Nederland
4.70% 12/12/94 25,000 25,000,000
Sanwa Bank Ltd. Japan
4.54% 09/12/94 20,000 19,998,398
----------
44,998,398
----------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $99,977,830) 99,977,830
----------
Par
(000) Value
----- -------
COMMERCIAL PAPER -- 23.3%
Banks -- 8.6%
AMRO N.A. Finance, Inc.
4.45% 09/19/94 $20,000 $19,955,500
National City Corp.
4.75% 12/12/94 10,000 9,865,417
4.80% 11/28/94 20,000 19,765,333
4.80% 12/19/94 5,000 4,927,333
5.10% 02/08/95 10,000 9,773,333
Republic National Bank New York
4.85% 01/04/95 15,000 14,747,396
Toronton Dominion Holdings Corp.
4.95% 02/06/95 15,000 14,674,125
----------
93,708,437
----------
Finance -- 2.3%
Preferred Receivables Funding Corp.
4.45% 09/13/94 25,000 24,962,917
----------
Finance Lessors -- 2.3%
General Electric Capital Corp.
4.75% 10/21/94 25,000 25,000,000
----------
Life Insurance -- 0.9%
Lincoln National Corp.
4.80% 11/08/94 10,000 9,909,333
----------
Personal Credit Institutions -- 5.5%
Ford Motor Credit Corp.
4.67% 09/30/94 30,000 29,887,142
Household Finance Corp.
4.57% 10/12/94 20,000 19,895,906
4.75% 10/04/94 10,000 9,956,458
----------
59,739,506
----------
Short-Term Business Credit Institutions -- 3.7%
Asset Securitization Cooperative Corp.
4.65% 10/24/94 15,000 14,897,313
Sears Roebuck Acceptance Corp.
4.88% 11/15/94 25,000 24,745,833
----------
39,643,146
----------
TOTAL COMMERCIAL PAPER
(Cost $252,963,339) 252,963,339
-----------
See Accompanying Notes to Financial Statements
<PAGE>F-4
THE BEDFORD FAMILY
THE RBB FUND, INC.
Money Market Portfolio
Statement of Net Assets (Concluded)
August 31, 1994
Par
(000) Value
----- -------
TIME DEPOSITS -- 2.3%
Bank of Tokyo
4.84% 10/03/94 $25,000 $25,000,000
-----------
TOTAL TIME DEPOSITS
(Cost $25,000,000) 25,000,000
-----------
UNITED STATES TREASURY OBLIGATIONS -- 2.3%
U.S. Treasury Notes -- 2.3%
6.00% 11/15/94 25,000 25,128,921
-----------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $25,128,921) 25,128,921
-----------
CORPORATE OBLIGATIONS -- 24.8%
Bear Stearns Treasury Rate Note
4.94% 09/06/94 15,000 15,000,000
Bear Stearns & Co., Inc+
5.10% 09/06/94 40,000 40,000,000
Goldman Sachs Group L.P.+
5.12% 10/11/94 53,000 53,000,000
International Lease &
Finance Corporation
7.20% 10/26/94 10,000 10,052,659
J.P. Morgan Securities, Inc.+
5.00% 11/11/94 55,000 55,000,000
Lehman Brothers Holdings, Inc.+
4.75% 09/07/94 48,000 48,000,000
Morgan Stanley Group+
4.78% 01/18/95 15,000 15,000,000
4.98% 09/06/94 33,500 33,497,447
-----------
TOTAL CORPORATE OBLIGATIONS
(Cost $269,550,106) 269,550,106
-----------
REPURCHASE AGREEMENTS - 21.5%
Kidder, Peabody & Co.
4.95% 09/01/94 23,720 23,720,000
5.02% 09/01/94 100,000 100,000,000
(Agreements dated 08/31/94 to be
repurchased at $123,737,206,
collateralized by $56,672,591
Federal National Mortgage
Par
(000) Value
----- -------
REPURCHASE AGREEMENTS (continued)
Kidder, Peabody & Co. (continued)
Assoc. 6.52% due 12/01/23 to
07/01/24, $111,702,857 Federal
National Mortgage Corp. 5.90% to
6.00% due 06/01/20 to 05/01/24. Market
value of collateral is $127,431,601).
Morgan Stanley & Co.
4.95% 09/01/94 $110,000 $110,000,000
(Agreement dated 08/31/94 to be
repurchased at $110,015,125,
collateralized by $41,988,000
Federal Home Loan Mortgage
Corp. due 09/16/94 to 10/24/94,
$69,040,000 Federal National
Mortgage Assoc. 5.18% to 8.80%
due 11/23/94 to 02/01/99. Market
Value of collateral is $112,306,235).
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost $233,720,000) 233,720,000
-----------
TOTAL INVESTMENTS AT VALUE
(Cost $1,106,213,666*)-- 102.0% $1,106,213,666
LIABILITIES IN EXCESS
OF OTHER ASSETS--(2.0%) (21,453,713)
-----------
NET ASSETS (Applicable to
710,738,832 Bedford Shares,
231,180 Cash Preservation shares,
45,314 RBB shares, 373,745,889
Sansom Street shares and 800
other shares) -- 100.0% $1,084,759,953
==============
NET ASSET VALUE, offering and
redemption price per share
($1,084,759,953 / 1,084,762,015) $1.00
=====
* Also cost for Federal income tax
purposes.
+ Variable Rate Obligations The
interest rate shown is the rate as
of August 31, 1994 and the maturity
date shown is the longer of the
next interest readjustment date or
the date the principal amount shown
can be recovered through demand.
See Accompanying Notes to Financial Statements.
<PAGE>F-5
THE BEDFORD FAMILY
THE RBB FUND, INC.
Money Market Portfolio
Statement of Operations
For the Year Ended
August 31, 1994
Investment Income
Interest $40,811,764
-----------
Expenses
Investment advisory fees 4,203,754
Distribution fees 4,308,983
Service organization fees 311,525
Directors' fees 15,213
Custodian fees 192,965
Transfer agent fees 1,408,929
Legal fees 60,110
Audit fees 75,056
Registration fees 79,005
Amortization expense 3,565
Insurance expense 33,413
Printing fees 212,520
Miscellaneous 14,594
-----------
10,919,632
Less fees waived (2,268,713)
Less expense reimbursement by advisor (8,339)
-----------
TOTAL EXPENSES 8,642,580
-----------
NET INVESTMENT INCOME 32,169,184
-----------
NET REALIZED LOSS ON INVESTMENTS (2,062)
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $32,167,122
===========
Statement of Changes in Net Assets
For the For the
Year Ended Year Ended
August 31, 1994 August 31, 1993
Increase (decrease) in
net assets:
Operations:
Net investment income $32,169,184 $25,122,063
Net gain (loss)
on investments (2,062) 63,647
------ ------
Net increase in net assets
resulting from
operations 32,167,122 25,185,710
---------- ----------
Distributions to shareholders:
Dividends to shareholders from
net investment income:
Bedford shares ($.0278 and
$.0243, respectively,
per share) (21,525,364) (18,722,273)
Cash Preservation shares
($.0278 and $.0243,
respectively, per share) (26,296) (25,171)
RBB shares ($.0273 and
$.0238, respectively,
per share) (1,576) (2,107)
Sansom Street shares
($.0334 and $.0304,
respectively, per share) (10,615,948) (6,372,512)
Distributions to shareholders from
net realized short-term gains:
Bedford shares (48,280) (8,127)
Cash Preservation shares (40) (6)
RBB shares (5) (7)
Sansom Street shares (15,323) (2,727)
------- ------
Total distributions to
shareholders (32,232,832) (25,132,930)
----------- -----------
Net capital share
transactions 110,590,287 7,953,674
----------- ---------
Total increase in net assets 110,524,577 8,006,454
Net Assets:
Beginning of year 974,235,376 966,228,922
----------- -----------
End of year $1,084,759,953 $974,235,376
============== ============
See Accompanying Notes to Financial Statements.
<PAGE>F-6
THE BEDFORD FAMILY
THE RBB FUND, INC.
Municipal Money Market Portfolio
Statement of Net Assets
August 31, 1994
Par
(000) Value
----- -------
ALABAMA -- 2.0%
Alabama Housing Finance Authority DN
(Heatherbrooke Apartments Projects)
(Series O) / (Amsouth LOC) + (A-1)
3.25% 09/07/94 $1,600 $1,600,000
Demopolis DN / (Banque Nationale
de Paris LOC) + (A-1+)
3.30% 09/07/94 3,000 3,000,000
Livingston Alabama IDR DN (Toin Corp.
USA Project) / (Industrial Bank of
Japan LOC) + (A-1+)
3.45% 09/07/94 1,000 1,000,000
-----------
5,600,000
-----------
ARIZONA -- 3.1%
Apache County DN / (Chemical Bank
LOC) + (A-1)
2.90% 09/07/94 1,000 1,000,000
Flagstaff IDA DN / (FGIC Insurance)+
(A-1) 3.25% 09/07/94 5,855 5,855,000
Pima County IDA PCR DN (Tucson
Electric Power Project)/(Barclays
Bank LOC)+
3.10% 09/07/94 2,000 2,000,000
-----------
8,855,000
-----------
ARKANSAS -- 0.4%
Warren Park Solid Waste DN / (Credit
Suisse LOC)+ (A-1+)
3.15% 09/07/94 1,000 1,000,000
-----------
CALIFORNIA -- 19.8%
ABAG Finance Authority for Non-Profit
Organizations Series 1993 DN /
(AMBAC Insurance)+ (A-1+)
2.85% 09/07/94 1,100 1,100,000
California Higher Education
Loan Authority Student Loan Revenue
Refunding Series 1987a /
(National Westminster LOC)++
(VMG1) 3.60% 09/07/94 3,000 3,000,000
Par
(000) Value
----- -------
CALIFORNIA - (continued)
Eastern Municipal Water District DN
Co-op Series 1993B /(FGIC
Insurance)+ (A-1+)
2.85% 09/07/94 $900 $900,000
Irvine Calif. Assessment Distict 89-10
DN / (National Westminster LOC)+
(A-1+) 2.80% 09/07/94 2,000 2,000,000
Irvine Ranch Water District DN /
(Bank of America LOC)+(A-1)
2.85% 09/01/94 4,300 4,300,000
Irvine Ranch Water District DN /
(Morgan Guaranty LOC) +
(A-1+) 3.05% 09/01/94 1,600 1,600,000
Irvine Ranch Water District
Orange County Sewer Bonds DN
Series 1988 A / (Sumitomo Bank
LOC)+ (A-1+) 2.85% 09/01/94 2,100 2,100,000
Irvine Ranch Water District
Orange County DN Series 1985 +
(A-1) 3.10% 09/01/94 1,600 1,600,000
Loma Linda DN / (Industrial Bank
of Japan LOC)+ (A-1+) 2.75% 09/07/94 1,100 1,100,000
Los Angeles County Transportation
MB (SP-1) 4.50% 06/30/95 4,000 4,020,709
Los Angeles Unified School District
TRAN MB (SP-1)
4.50% 07/10/95 5,000 5,039,169
4.50% 07/10/95 4,000 4,029,682
Orange County Sanitation
District DN / (AMBAC Insurance LOC)+
(A-1+) 2.80% 09/01/94 2,100 2,100,000
San Francisco City & County Agency
DN Redevelopment Agency Multi-family
Housing Revenues Bonds (Bayside Village
Project) Series B / (Industrial Bank of
Japan LOC)+ (A-1+) 3.05% 09/07/94 8,100 8,100,000
See Accompanying Notes to Financial Statements.
<PAGE>F-7
THE BEDFORD FAMILY
THE RBB FUND, INC.
Municipal Money Market Portfolio
Statement of Net Assets (Continued)
August 31, 1994
Par
(000) Value
----- -------
CALIFORNIA -- (continued)
Santa Clara TRAN MB (SP-1)
4.25% 07/07/95 $5,000 $5,031,489
State of California 1994-95 RAN DN
Series B + (A-1)
3.24% 09/30/94 10,000 10,000,000
----------
56,021,049
----------
COLORADO -- 1.2%
Moffat County DN + (A-1+)
3.15% 09/07/94 3,400 3,400,000
----------
CONNECTICUT -- 2.1%
New Hampshire Housing Finance
Authority DN Series 1994 + (VMIG1)
3.15% 09/07/94 6,000 6,000,000
----------
DISTRICT OF COLUMBIA -- 1.7%
District of Columbia Hospital for Women DN
Series 88A / (Mitsubishi Bank LOC) +
(VMIG1) 3.15% 09/07/94 2,900 2,900,000
District of Columbia Catholic University
of America DN / (Sanwa Bank LOC)+
3.15% 09/07/94 1,900 1,900,000
----------
4,800,000
----------
FLORIDA -- 3.9%
Florida Housing Finance Agency DN /
(Wells Fargo Bank LOC)+ (A-1)
3.10% 09/30/94 3,000 3,000,000
Hillborough County IDR DN + (A-1+) 3.20%
09/01/94 2,200 2,200,000
Orange County DN Health Facilities
Authority Refunding Program
Revenue Bonds Pooled Hospital
Loan Program / (Banque Nationale
de Paris LOC)+ (VMIG1)
3.15% 09/01/94 5,850 5,850,000
----------
11,050,000
----------
Par
(000) Value
----- -------
GEORGIA -- 2.8%
Municipal Electric Authority of Georgia
MB Variable Rate Subordinated
Bonds++ (A-1)
3.05% 02/28/95 $8,000 $8,000,000
----------
ILLINOIS -- 8.5%
City of Chicago GO DN /
(Sanwa Bank LOC)+
2.90% 09/07/94 5,640 5,640,000
Illinois Development Facility Harris
DN / (FNMA LOC)+ (A-1+) 3.50%
09/07/94 7,500 7,500,000
Health Facility Authority DN (Revolving
Fund Pooled Finance) / (Swiss Bank
LOC)+ (A-1+)
3.05% 09/07/94 1,400 1,400,000
Chicago Illinois Supply Revenue Peoples
Gas Light & Coke MB++ (A-1+)
2.55% 12/01/94 6,000 6,000,000
Illinios Health Facility Highland Park /
(FGIC Insurance)++
3.75% 06/01/95 3,500 3,500,000
----------
24,040,000
----------
INDIANA -- 2.5%
Tippencanoe DN / (Bank of
New York LOC)+
3.25% 09/07/94 7,000 7,000,000
----------
IOWA -- 0.8%
Polk County Hospital Equipment
Authority DN / (MBIA Insurance)+
(A-1+)
3.10% 09/07/94 2,200 2,200,000
----------
KENTUCKY -- 1.5%
Bowling Green Twin Fastner DN /
(Industrial Bank of Japan LOC)+
(A-1+)
3.45% 09/07/94 1,100 1,100,000
Ohio County PCR DN (Big Rivers) /
(Bank of New York LOC)+ (A-1+)
3.25% 09/07/94 3,000 3,000,000
----------
4,100,000
----------
See Accompanying Notes to Financial Statements.
<PAGE>F-8
THE BEDFORD FAMILY
THE RBB FUND, INC.
Municipal Money Market Portfolio
Statement of Net Assets (Continued)
August 31, 1994
Par
(000) Value
----- -------
LOUISIANA -- 1.8%
Louisiana Health Public Facilities
Authority DN / (Sumitomo Bank
LOC)+ (A-1+)
3.30% 09/07/94 $1,000 $1,000,000
Plaquesmines Louisiana Port Harbor
Terminal District Revenue
Series A MB / (Morgan
Guaranty LOC)++ (P-1)
3.40% 03/15/95 4,000 4,000,000
-----------
5,000,000
-----------
MAINE -- 2.7%
Jay Maine Solid Waste Disposal
Revenue MB++
3.95% 06/01/95 7,500 7,500,000
-----------
MARYLAND -- 6.7%
Baltimore County Putters 20 DN Series 20,
Tender Agreement Morgan Guaranty /
(Morgan Guaranty LOC)+ (VMIG1)
3.20% 09/01/94 4,500 4,500,000
City Council of Baltimore IDA DN (capital
Acquisition Program) Series 86 /
(Dai-Ichi Kangyo LOC)+ (A-1)
3.15% 09/07/94 3,500 3,500,000
Health and Higher Education Facility
(Johns Hopkins Hospital) DN
(Parking Facility)+
3.50% 09/01/94 2,200 2,200,000
Health and Higher Education Facility
(Pooled Loan) DN Series A /
(Dai-Ichi Kangyo LOC)+ (VMIG1)
3.25% 09/07/94 6,800 6,800,000
Montgomery County Single Family
Housing Mortgage Revenue Bonds
Series 1993B MB (VMIG1)
2.85% 09/07/94 2,000 2,000,000
-----------
19,000,000
-----------
MICHIGAN -- 2.2%
Detroit Downtown Development
Authority DN (Millender Project) /
(Sumitomo Bank LOC)+
3.20% 09/07/94 5,300 5,300,000
Par
(000) Value
----- -------
MICHIGAN -- (continued)
Northville IDA DN (Thrifty Northville
Project) / (Westpac Banking Corp
LOC)+ (P-1)
3.52% 09/07/94 $1,000 $1,000,000
-----------
6,300,000
-----------
MISSISSIPPI -- 0.3%
Jackson County Chevron DN+ (A-1+)
3.00% 09/01/94 900 900,000
-----------
MISSOURI -- 3.7%
Kansas City IDA DN (Mid-America
Health) / (Bank of New York LOC)+
(A-1)
3.35% 09/07/94 700 700,000
Missouri Higher Education Student
Loan Authority DN / (Dai-Ichi
Kangyo LOC)+ (A-1)
3.20% 09/07/94 3,700 3,700,000
Missouri Higher Education DN /
(National Westminster LOC)+ (A-1+)
3.20% 09/07/94 4,000 4,000,000
Missouri Custodial Receipts GO DN
Series 1992A+
3.35% 09/07/94 2,000 2,000,000
-----------
10,400,000
-----------
NEBRASKA -- 2.0%
Lancaster Nebraska DN Sun-Husker
Foods Inc. Project / (Bank of Tokyo
LOC)+ (A-1+)
3.30% 09/07/94 3,800 3,800,000
Nebraska Investment Finance Authority
Multifamily DN (Applecreek
Associates) / (Citibank LOC)+ (A-1)
3.50% 09/30/94 1,900 1,900,000
-----------
5,700,000
-----------
NEVADA -- 0.4%
Clark County Nevada IDR DN Nevada
Cogeneration Association / (Swiss
Bank LOC)+ (A-1+)
3.25% 09/07/94 1,200 1,200,000
-----------
See Accompanying Notes to Financial Statements.
<PAGE>F-9
THE BEDFORD FAMILY
THE RBB FUND, INC.
Municipal Money Market Portfolio
Statement of Net Assets (Continued)
August 31, 1994
Par
(000) Value
----- -------
NEW YORK -- 2.1%
Triborough Bridge and Tunnel Authority
DN / (FGIC Insurance)+ (A-1+)
3.00% 09/07/94 $6,000 $6,000,000
-----------
OREGON -- 1.0%
State of Oregon DN GO
Veterans Welfare Series 73-E /
(Dai-Ichi Kangyo LOC) (VMIG1)
3.25% 09/07/94 2,900 2,900,000
-----------
PENNSYLVANIA -- 1.6%
Clinton County Solid Waste MB++
2.90% 01/15/95 4,500 4,500,000
-----------
PUERTO RICO -- 0.6%
Puerto Rico Government Development
Bank Series 85 DN / (Credit
Suisse LOC)+ (A-1+)
2.90% 09/07/94 1,800 1,800,000
-----------
RHODE ISLAND -- 0.1%
Rhode Island Housing & Mortgage
Finance Corp DN Homeownership
Opportunity Bonds Series 9-B+ (A-1+)
3.25% 09/07/94 200 200,000
-----------
SOUTH DAKOTA -- 2.5%
Lawrence County DN Homestake Mining Company /
(Westpac Banking
Corp LOC)+ (A-1)
3.30% 09/07/94 6,900 6,900,000
-----------
TEXAS -- 8.5%
Capital Health Facilities Texas DN (Island
Lake Travis Project) / (Algemene LOC)+
(A-1+)
3.30% 09/07/94 2,500 2,500,000
City of Houston Health Facilities
Development Corp. DN (Methodist
Hospital Project)+ (A-1+)
3.75% 09/01/94 5,000 5,000,000
Par
(000) Value
----- -------
TEXAS -- (continued)
North Texas Higher Education
Authority Inc. DN Student Loan
Revenue Senior Series 87 /
(Fuji Bank LOC)+ (VMIG1)
3.40% 09/07/94 $4,900 $4,900,000
Port of Port Arthur Navigation District
Jefferson Texas PCR 94
Texaco for State Enterprises DN /
(Swiss Bank LOC)+ (A-1+)
3.15% 09/07/94 5,000 5,000,000
Panhandle Plains Higher Education
Authority Student Loan Revenue
Bonds Series A MB / (Student Loan
Marketing Assoc. LOC)++ (VMIG1)
3.35% 03/31/95 1,500 1,500,000
Texas State Public Facilities Authority
Series GG1 MB++ (A-1+) 3.50%
10/04/94 4,000 4,000,000
West Side Calhoun County Development
Authority British Petroleum MB
3.20% 10/03/94 1,200 1,200,000
-----------
24,100,000
-----------
UTAH -- 3.5%
Intermountain Power Agency MB (A-1)
3.55% 06/15/95 5,000 5,000,000
Salt Lake Airport Revenue DN+ (A-1+)
3.25% 09/07/94 3,000 3,000,000
Intermountain Power Agency Series
85E MB++ (A-1+)
3.00% 09/15/94 2,000 2,000,000
-----------
10,000,000
-----------
VIRGINIA -- 1.3%
Lynchburg Variable Rate Hospital
Revenue Bonds DN Health Facilities
Authority MidAtlantic Series 1985E /
(AMBAC Insurance LOC)+ (A-1)
3.15% 09/07/94 1,000 1,000,000
Virginia Housing Development Series
1993B MB++ (A-1+)
2.90% 11/04/94 2,500 2,500,000
See Accompanying Notes to Financial Statements.
<PAGE>F-10
THE BEDFORD FAMILY
THE RBB FUND, INC.
Municipal Money Market Portfolio
Statement of Net Assets (Continued)
August 31, 1994
Par
(000) Value
----- -------
VIRGINIA-- (continued)
York County IDA PCR Series 1985
MB Virginia Electric Power Company++
(A-1)
2.85% 09/06/94 $200 $200,000
-----------
3,700,000
-----------
WASHINGTON -- 6.5%
Port of Seattle Industrial Development
Corp. DN (Alaska Airlines Project) /
(Bank of New York LOC)+ (A-1)
3.50% 09/07/94 5,300 5,300,000
Washington State Public Power MB++
2.65% 11/01/94 9,905 9,905,000
Washington State Housing Finance
Commission Single Family Mortgage
Series 94D MB / (FGIC Insurance)++
(A-1+)
3.90% 06/01/95 3,000 3,000,000
-----------
18,205,000
-----------
WEST VIRGINIA --1.8%
Marion County Solid Waste DN /
(National Westminster LOC)+ (A-1+)
3.25% 09/07/94 1,800 1,800,000
Marion County DN / (National
Westminster LOC)+ (A-1+)
3.25% 09/07/94 3,300 3,300,000
-----------
5,100,000
-----------
WYOMING
Wyoming Community Development
Authority MB++ (A-1+)
2.80% 10/27/94 110 110,000
-----------
TOTAL INVESTMENTS AT VALUE -- 99.6%
(Cost $281,581,049*) 281,581,049
OTHER ASSETS IN EXCESS
OF LIABILITIES-- 0.4% 1,122,702
-----------
Value
-----
NET ASSETS (Applicable to
182,480,840 Bedford shares,
100,090,465 Bradford shares,
200,846 Cash Preservation
shares, 4,861 RBB shares and
800 other shares)-- 100.0% $282,703,751
============
NET ASSETS VALUE offering and
redemption price per share
($282,703,751 / 282,777,812) $1.00
=====
* Also cost for Federal Income tax purposes.
+ Variable Rate Demand Notes -- The interest rate shown is the rate as of
August 31, 1994 and the maturity shown is the longer of the next interest
readjustment date or the date the principal amount shown can be recovered
through demand.
++ PutBonds -- maturity date is the put date.
The Moody's Investors Service, Inc. and Standard & Poor's Corporation's ratings
indicated are the most recent ratings available at August 31, 1994. These
ratings have not been audited by the Independent Accountants, and, therefore,
are not covered by the Report of Independent Accountants.
INVESTMENT ABBREVIATIONS
BAN ..........................Bond Anticipation Note
DN ...........................Demand Note
GO ...........................General Obligations
LOC ..........................Letter of Credit
IDA ..........................Industrial Development Authority
MB ...........................Municipal Bond
PCR ..........................Pollution Control Revenue
RAN ..........................Revenue Anticipation Note
RAW ..........................Revenue Anticipation Warrants
RB ...........................Revenue Bond
TAN ..........................Tax Anticipation Note
TECP .........................Tax Exempt Commercial Paper
TRAN .........................Tax and Revenue Anticipation Note
See Accompanying Notes to Financial Statements.
<PAGE>F-11
THE BEDFORD FAMILY
THE RBB FUND, INC.
Municipal Money Market Portfolio
Statement of Operations
For the Year Ended
August 31, 1994
Investment Income
Interest $8,803,458
----------
Expenses
Investment advisory fees 1,099,379
Administration fees 324,791
Distribution fees 1,717,912
Directors' fees 4,538
Custodian fees 70,948
Transfer agent fees 186,844
Legal fees 17,914
Audit fees 22,427
Registration fees 114,612
Amortization expense 13,870
Insurance expense 9,946
Printing expense 67,919
Miscellaneous 315
---
3,651,415
Less fees waived (1,141,196)
Less expense reimbursement (8,481)
------
Total Expenses 2,501,738
NET INVESTMENT INCOME 6,301,720
---------
REALIZED LOSS ON INVESTMENTS
Net realized loss on investments (9,789)
Amortized market discount (1,044)
------
NET LOSS ON INVESTMENTS (10,833)
-------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $6,290,887
----------
Statement of Changes in Net Assets
For the For the
Year Ended Year Ended
August 31, 1994 August 31, 1993
--------------- ---------------
Increase (decrease) in net
assets:
Operations:
Net investment income $6,301,720 $5,507,026
Net loss on investments (10,833) (13)
------- ---
Net increase in net assets
resulting from operations 6,290,887 5,507,013
--------- ---------
Dividends to shareholders from
net investment income:
Bedford shares ($.0195 and
$.0195, respectively,
per share) (4,374,300) (3,841,547)
Bradford shares ($.0195 and
$.0195, respectively,
per share) (1,924,607) (1,628,082)
Cash Preservation shares
($.0174 and $.0174,
respectively, per share) (2,703) (3,216)
RBB shares ($.0172 and
$.0172, respectively,
per share) (90) (76)
Sansom Street shares ($.0185
and $.0233, respectively,
per share) (20) (34,105)
--- -------
Total dividends to
shareholders (6,301,720) (5,507,026)
---------- ----------
Net capital share transactions (10,002,056) 42,935,584
----------- ----------
Total increase in net assets (10,012,889) 42,935,571
Net Assets:
Beginning of year 292,716,640 249,781,069
----------- -----------
End of year $282,703,751 $292,716,640
============ ============
See Accompanying Notes to Financial Statements.
<PAGE>F-12
THE BEDFORD FAMILY
THE RBB FUND, INC.
Government Obligations Money Market Portfolio
Statement of Net Assets
August 31, 1994
Par
(000) Value
----- -----
AGENCY OBLIGATIONS -- 88.5%
Federal Farm Credit Bank
Discount Notes
4.95% 11/07/94 $3,000 $2,972,363
Federal Home Loan Bank Note
4.65% 11/02/94+ 10,000 9,990,080
4.30% 09/27/94 7,000 6,978,261
4.69% 01/11/95 8,000 7,862,427
4.66% 12/20/94 5,000 4,928,806
4.66% 10/11/94 10,000 9,948,222
Federal Home Loan Mortgage
Corporation Discount Note
3.24% 09/22/94 6,500 6,487,715
3.34% 09/19/94 5,000 4,991,650
4.00% 09/16/94 5,000 4,991,667
3.95% 09/16/94 7,000 6,988,479
3.96% 09/01/94 5,000 5,000,000
4.60% 11/01/94 5,000 4,961,028
4.89% 11/07/94 4,000 3,963,597
4.75% 11/29/94 5,000 4,941,285
4.75% 11/29/94 5,000 4,941,285
4.64% 10/27/94 10,000 9,927,822
4.62% 10/27/94 10,000 9,928,133
5.00% 02/03/95 5,000 4,892,361
5.09% 02/17/95 4,000 3,904,421
Federal Home Loan Mortgage
Corporation
4.53% 10/24/94 5,000 4,966,654
Federal National Mortgage
Association Note
5.13% 09/06/94 10,000 10,000,000
Student Loan Marketing Association
Variable Rate Notes +
5.03% 09/06/94 10,000 10,007,311
5.08% 09/06/94 10,000 10,013,437
4.91% 09/06/94 15,000 15,000,000
4.92% 09/06/94 9,000 8,997,614
4.93% 09/06/94 5,000 5,000,000
----------
TOTAL AGENCY OBLIGATIONS
(Cost $182,584,618) 182,584,618
-----------
Par
(000) Value
----- -----
United States TREASURY OBLIGATIONS -- 2.0%
U.S. Treasury Notes
7.62% 12/31/94 $4,000 $4,033,950
----------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $4,033,950) 4,033,950
----------
REPURCHASE AGREEMENTS -- 9.5%
Kidder, Peabody & Co.
4.95% 09/01/94 19,513 19,513,000
(Agreement dated 08/31/94 to be
repurchased at $19,515,686,
collateralized by $21,156,200
Federal National Mortgage Corp.
due 09/01/24. Market Value of
collateral is $20,098,390)
----------
TOTAL REPURCHASE AGREEMENTS
(Cost $19,513,000) 19,513,000
----------
TOTAL INVESTMENTS AT VALUE -- 100.0%
(Cost $206,131,568*) 206,131,568
OTHER ASSETS IN EXCESS
OF LIABILITIES 19,439
----------
NET ASSETS (Applicable to 166,424,677
Bedford Shares, 39,733,996
Bradford Shares and 800 other
shares) -- 100.0% $206,151,007
============
NET ASSET VALUE, offering and
redemption price per share
($206,151,007 / 206,159,473) $1.00
=====
* Also cost for Federal income tax purposes.
+ Variable Rate Obligations -- The interest rate is the rate as of August 31,
1994 and the maturity shown is the longer of the next interest readjustment
date or the date the principal amount shown can be recovered through
demand.
See Accompanying Notes to Financial Statements.
<PAGE>F-13
THE BEDFORD FAMILY
THE RBB FUND, INC.
Government Obligations Money Market Portfolio
Statement of Operations
For the Year Ended
August 31, 1994
Investment Income
Interest $8,446,567
----------
Expenses
Investment advisory fees 1,042,373
Distribution fees 1,270,581
Directors' fees 3,268
Custodian fees 52,033
Transfer agent fees 179,217
Legal fees 12,943
Audit fees 16,205
Registration fees 96,930
Amortization expense 7,878
Insurance expense 7,223
Printing expense 32,475
Miscellaneous 179
---------
2,721,305
Less fees waived (461,938)
---------
Total Expenses 2,259,367
---------
NET INVESTMENT INCOME 6,187,200
---------
NET REALIZED GAIN ON INVESTEMENTS 23,663
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $6,210,863
==========
Statements of Changes in Net Assets
For the For the
Year Ended Year Ended
August 31, 1994 August 31, 1993
Increase (decrease) in net assets:
Operations:
Net investment income $6,187,200 $6,102,160
Net gain (loss) on investments 23,663 (32,129)
------ -------
Net increase in net assets
resulting from operations 6,210,863 6,070,031
--------- ---------
Dividends to shareholders from
net investment income:
Bedford shares ($.0270 and
$.0231, respectively,
per share) (5,073,158) (5,061,061)
Bradford shares ($.0270 and
$.0231, respectively,
per share) (1,114,042) (1,041,099)
---------- ----------
Total dividends to
shareholders (6,187,200) (6,102,160)
---------- ----------
Net capital share transactions (58,137,875) (3,281,398)
----------- ----------
Total decrease in net assets (58,114,212) (3,313,527)
Net Assets:
Beginning of year 264,265,219 267,578,746
----------- -----------
End of year $206,151,007 $264,265,219
============ ============
See Accompanying Notes to Financial Statements.
<PAGE>F-14
THE BEDFORD FAMILY
THE RBB FUND, INC.
Financial Highlights (b)
(For a Share Outstanding Throughout each Period)
</TABLE>
<TABLE>
<CAPTION>
Money Market Portfolio
--------------------------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, 1994 August 31, 1993 August 31, 1992 August 31, 1991 August 31, 1990
--------------- --------------- --------------- --------------- ---------------
<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 .0278 .0243 .0375 .0629 .0765
Net gains on securities
(both realized
and unrealized) -- -- .0007 -- --
------ ------ ------ ------ ------
Total from investment
operations .0278 .0243 .0382 .0629 .0765
------ ------ ------ ------ ------
Less distributions
Dividends (from net
investment income) (.0278) (.0243) (.0375) (.0629) (.0765)
Distributions (from
capital gains) -- -- (.0007) -- --
------ ------ ------ ------ ------
Total distributions (.0278) (.0243) (.0382) (.0629) (.0765)
------ ------ ------ ------ ------
Net asset value,
end of year $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total Return 2.81% 2.46% 3.89% 6.48% 7.92%
Ratios /Supplemental Data
Net assets, end of year $710,737,481 $782,153,438 $736,841,928 $747,530,400 $709,757,157
Ratios of expenses to
average net assets .95%(a) .95%(a) .95%(a) .92%(a) .92%(a)
Ratios of net investment
income to average net
assets 2.78% 2.43% 3.75% 6.29% 7.65%
</TABLE>
<TABLE>
<CAPTION>
Municipal Money Market Portfolio
--------------------------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, 1994 August 31, 1993 August 31, 1992 August 31, 1991 August 31, 1990
--------------- --------------- --------------- --------------- ---------------
<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 .0195 .0195 .0287 .0431 .0522
Net gains on securities
(both realized
and unrealized) -- -- -- -- --
----- ----- ----- ----- -----
Total from investment
operations .0195 .0195 .0287 .0431 .0522
----- ----- ----- ----- -----
Less distributions
Dividends (from net
investment income) (.0195) (.0195) (.0287) (.0431) (.0522)
Distributions (from
capital gains) -- -- -- -- --
----- ----- ----- ----- -----
Total distributions (.0195) (.0195) (.0287) (.0431) (.0522)
------ ------ ------ ------ ------
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total Return 1.97% 1.96% 2.90% 4.40% 5.35%
Ratios /Supplemental Data
Net assets, end of year $182,408,069 $215,577,193 $176,949,886 $215,139,746 $195,565,829
Ratios of expenses to
average net assets .77%(a) .77%(a) .77%(a) .74%(a) .75%(a)
Ratios of net investment
income to average
net assets 1.95% 1.95% 2.87% 4.31% 5.22%
<FN>
(a) Without the waiver of advisory and administration fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Money Market Portfolio would have been 1.16%,
1.19%, 1.20%, 1.17% and 1.16% for the years ended August 31, 1994, 1993,
1992, 1991 and 1990, respectively. For the Municipal Money Market
Portfolio, the ratios of expenses to average net assets would have been
1.12%, 1.16%, 1.15%, 1.13% and 1.14% for the years ended August 31, 1994,
1993, 1992, 1991 and 1990, respectively.
(b) Financial Highlights relate solely to the Bedford Class of shares within
each portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
<PAGE>F-15
THE BEDFORD FAMILY
THE RBB FUND, INC.
Financial Highlights (b)
(For a Share Outstanding Throughout each Period)
<TABLE>
<CAPTION>
Government Obligations Money Market Portfolio
--------------------------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, 1994 August 31, 1993 August 31, 1992 August 31, 1991 August 31, 1990
<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 .0270 .0231 .0375 .0604 .0748
Net gains on securities
(both realized and
unrealized) -- -- .0009 -- --
------ ------ ------ ------ ------
Total from investment
operations .0270 .0231 .0384 .0604 .0748
------ ------ ------ ------ ------
Less distributions
Dividends (from net
investment income) (.0270) (.0231) (.0375) (.0604) (.0748)
Distributions (from
capital gains) -- -- (.0009) -- --
Total distributions (.0270) (.0231) (.0384) (.0604) (.0748)
------ ------ ------ ------ ------
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total Return 2.73% 2.33% 3.91% 6.21% 7.74%
Ratios /Supplemental Data
Net assets, end of year $166,417,793 $213,741,440 $225,100,981 $368,898,941 $209,377,724
Ratios of expenses to
average net assets .975%(a) .975%(a) .975%(a) .95%(a) .95%(a)
Ratios of net investment
income to average net
assets 2.70% 2.31% 3.75% 6.04% 7.48%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for Government Obligations Money Market Portfolio would have been 1.17%,
1.18%, 1.12%, 1.13% and 1.17% for the years ended August 31, 1994, 1993,
1992, 1991 and 1990, respectively.
(b) Financial Highlights relate solely to the Bedford Class of shares within
each portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
<PAGE>F-16
THE BEDFORD FAMILY
THE RBB FUND, INC.
Notes to Financial Statements
August 31, 1994
Note 1. Summary of Significant Accounting Policies
The RBB Fund, Inc. (the Fund ) is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Fund
was incorporated in Maryland on February 29, 1988.
The Fund has authorized capital of thirty billion shares of common stock of
which 25.9 billion shares are currently classified into fifty-five classes. Each
class represents an interest in one of seventeen investment portfolios of the
Fund, sixteen of which are currently in operation. The classes have been grouped
into fifteen separate families , seven of which have begun investment
operations: the RBB Family, the BEA Family, the Sansom Street Family, the
Bedford Family, the Cash Preservation Family, Laffer/Canto Equity Portfolio and
the Bradford Family. The Bedford Family represents interests in four portfolios,
three of which are covered in this report.
A) SECURITY VALUATION Portfolio securities are valued under the
amortized cost method, which approximates current market value. Under this
method, securities are valued at cost when purchased and thereafter a
constant proportionate amortization of any discount or premium is recorded
until maturity of the security. Regular review and monitoring of the
valuation is performed in an attempt to avoid dilution or other unfair
results to shareholders. The Fund seeks to maintain net asset value per
share at $1.00 for these portfolios.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions
are accounted for on the trade date. The cost of investments sold is
determined by use of the specific identification method for both financial
reporting and income tax purposes. Interest income is recorded on the
accrual basis. Certain expenses, principally distribution, transfer agency
and printing, are class specific expenses and vary by class. Expenses not
directly attributable to a specific portfolio or class are allocated based
on relative net assets of each portfolio and class, respectively.
C) DISTRIBUTIONS TO SHAREHOLDERS Dividends from net investment income
are declared daily and paid monthly. Any net realized capital gains will be
distributed at least annually.
D) FEDERAL INCOME TAXES No provision is made for Federal taxes as it
is the Fund's intention to have each portfolio and to continue to qualify
for and elect the tax treatment applicable to regulated investment
companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it
from Federal income and excise taxes.
E) ORGANIZATION COSTS Costs incurred by the Fund in connection with
its organization and initial registration and public offering of shares
have been deferred by the Fund. Organization costs are being amortized on a
straight-line basis for a five-year period which began upon the
commencement of operations of the Fund.
F) REPURCHASE AGREEMENTS Money market instruments may be purchased
subject to the seller's agreement to repurchase them at an agreed upon date
and price. The seller will be required on a daily basis to maintain the
value of the securities subject to the agreement at not less than the
repurchase price. The agreements are conditioned upon the collateral being
deposited under the Federal Reserve book-entry system or with the Fund's
custodian or a third party sub-custodian.
<PAGE>F-17
THE BEDFORD FAMILY
THE RBB FUND, INC.
Notes to Financial Statements (Continued)
August 31, 1994
Note 2. Transactions with Affiliates and Related Parties
Pursuant to Investment Advisory Agreements, PNC Institutional Management
Corporation ( PIMC ), a wholly owned subsidiary of PNC Bank, National
Association ( PNC Bank ), serves as investment advisor for the three portfolios
described herein. PNC Bank serves as the sub-advisor for the Money Market, the
Municipal Money Market and the Government Obligations Money Market Portfolios.
For its advisory services, PIMC is entitled to receive the following fees,
computed daily and payable monthly based on each of the three portfolio's
average daily net assets:
<TABLE>
<CAPTION>
Portfolio Annual Rate
--------- -----------
<S> <C>
Money Market and Government .45% of first $250 million of net assets;
Obligations Money Market Portfolios .40% of next $250 million of net assets;
.35% of net assets in excess of $500 million.
Municipal Money Market .35% of first $250 million of net assets;
Portfolio .30% of next $250 million of net assets;
.25% of net assets in excess of $500 million.
</TABLE>
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for these portfolios. For each class of shares within a respective
portfolio, the net advisory fee charged to each class is the same on a relative
basis. For the year ended August 31, 1994, advisory fees and waivers for the
three investment portfolios were as follows:
<TABLE>
<CAPTION>
Gross Net
Advisory Advisory
Fee Waiver Fee
--------- ------ --------
<S> <C> <C> <C>
Money Market Portfolio $4,203,754 $(2,255,986) $1,947,768
Municipal Money Market Portfolio 1,099,379 (1,091,646) 7,733
Government Obligations Money Market Portfolio 1,042,373 (461,938) 580,435
</TABLE>
PNC Bank, as sub-advisor, receives a fee directly from PIMC, not the
portfolios. In addition, PNC Bank serves as custodian for each of the Fund's
portfolios. PFPC Inc. ( PFPC ), an indirect wholly owned subsidiary of PNC Bank
Corp., serves as each class's transfer and dividend disbursing agent.
<PAGE>F-18
THE BEDFORD FAMILY
THE RBB FUND, INC.
Notes to Financial Statements (Continued)
August 31, 1994
Note 2. Transactions with Affiliates and Related Parties (continued)
PFPC may, at its discretion, voluntarily waive all or any portion of its
transfer agency fee for any class of shares. For the year ended August 31, 1994,
transfer agency fees and waivers for each class of shares within the three
investment portfolios were as follows:
<TABLE>
<CAPTION>
Gross Net
Transfer Agency Transfer Agency
Fee Waiver Fee
--------------- ------ ---------------
<S> <C> <C> <C>
Money Market Portfolio
Bedford Class $1,385,000 $ -- $1,385,000
Cash Preservation Class 8,249 (5,071) 3,178
RBB Class 7,880 (7,656) 224
Sansom Street Class 7,800 -- 7,800
---------- ----------- ----------
Total Money Market Portfolio $1,408,929 $(12,727) $1,396,202
========== ======== ==========
Municipal Money Market Portfolio
Bedford Class $116,500 $ -- $116,500
Bradford Class 47,800 -- 47,800
Cash Preservation Class 8,340 (7,705) 635
RBB Class 7,855 (7,830) 25
Sansom Street Class 6,349 (6,349) --
---------- ----------- ----------
Total Municipal Money Market Portfolio $186,844 $(21,884) $164,960
======== ======== ========
Government Obligations
Money Market Portfolio
Bedford Class $140,393 $ -- $140,393
Bradford Class 38,824 -- 38,824
---------- ----------- ----------
Total Government Obligations Money
Market Portfolio $179,217 $ -- $179,217
======== =========== ========
</TABLE>
In addition, PFPC serves as administrator for the Municipal Money Market
Portfolio. The administration fee is computed daily and payable monthly at an
annual rate of .10% of the Portfolio's average daily assets. PFPC may, at its
discretion, voluntarily waive all or any portion of its administration fee for
the portfolio. For the year ended August 31, 1994, the administration fees and
waivers for the Municipal Money Market Portfolio were as follows:
<TABLE>
<CAPTION>
Gross Net
Administration Administration
Fee Waiver Fee
-------------- ------ -------------
<S> <C> <C> <C>
Municipal Money Market Portfolio $324,791 $(27,666) $297,125
</TABLE>
The Fund, on behalf of each class of shares within the three investment
portfolios, has adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, and has entered into Distribution
Contracts with Counsellors Securities Inc. ( Counsellors ), which provide for
each class to make monthly payments, based on average net assets, to Counsellors
of up to .65% on an annualized basis for the Bedford, Bradford, Cash
Preservation and RBB Classes and up to .20% on an annualized basis for the
Sansom Street Class.
<PAGE>F-19
THE BEDFORD FAMILY
THE RBB FUND, INC.
Notes to Financial Statements (Continued)
August 31, 1994
Note 2. Transactions with Affiliates and Related Parties (continued)
Counsellors may, at its discretion, voluntarily waive all or any portion of
its distribution fee. For the year ended August 31, 1994, distribution fees for
each class were as follows:
<TABLE>
<CAPTION>
Distribution
Fee
------------
<S> <C>
Money Market Portfolio
Bedford Class $4,147,915
Cash Preservation Class 3,860
RBB Class 236
Sansom Street Class 156,972
-------
Total Money Market Portfolio $4,308,983
==========
Municipal Money Market Portfolio
Bedford Class $1,214,361
Bradford Class 502,911
Cash Preservation Class 619
RBB Class 21
Sansom Street Class --
-------
Total Municipal Money Market
Portfolio $1,717,912
==========
Government Obligations
Money Market Portfolio
Bedford Class $1,057,684
Bradford Class 212,897
-------
Total Government Obligations Money
Market Portfolio $1,270,581
==========
</TABLE>
The Fund has entered into service agreements with banks affiliated with PNC
Bank who render support services to customers who are the beneficial owners of
the Sansom Street Class in consideration of the payment of .10% of the daily net
asset value of such shares. For the year ended August 31, 1994, service
organization fees were $311,525 for the Money Market Portfolio and $0 for the
Municipal Money Market Portfolio.
<PAGE>F-20
THE BEDFORD FAMILY
THE RBB FUND, INC.
Notes to Financial Statements (Continued)
August 31, 1994
Note 3. Capital Shares
Transactions in capital shares (at $1 per capital share) for each year were as
follows:
<TABLE>
<CAPTION>
Government Obligations
Money Market Portfolio Municipal Money Market Portfolio Money Market Portfolio
---------------------------------------------------------------------------------------------------
For the For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, 1994 August 31, 1993 August 31, 1994 August 31, 1993 August 31, 1994 August 31, 1993
Value Value Value Value Value Value
--------------- ---------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold:
Bedford Class $2,789,452,640 $3,260,332,995 $1,292,822,671 $1,268,126,995 $490,275,372 $808,097,046
Bradford Class -- -- 448,473,166 490,456,810 160,520,309 195,275,749
Cash Preservation Class 908,824 1,036,351 271,085 182,748 -- --
RBB Class 43,426 629,425 1,400 1,131 -- --
Sansom Street Class 1,517,145,765 772,020,393 15,321 5,325,603 -- --
Shares issued in
reinvestment
of dividends:
Bedford Class 20,973,730 18,611,248 4,271,511 3,764,226 4,963,642 5,073,564
Bradford Class -- -- 1,855,281 1,568,176 1.078,122 1,025,990
Cash Preservation Class 26,123 26,103 2,566 3,169 -- --
RBB Class 1,551 1,520 90 76 -- --
Sansom Street Class 7,714,640 4,579,385 20 36,460 -- --
Shares repurchased:
Bedford Class (2,881,789,878) (3,233,675,544) (1,330,256,087) (1,233,263,905) (542,581,763) (824,504,163)
Bradford Class -- -- (427,210,857) (484,635,870) (172,393,557) (188,249,584)
Cash Preservation Class (1,932,859) (1,066,600) (229,848) (243,019) -- --
RBB Class (57,526) (647,258) (1,902) (100) -- --
Sansom Street Class (1,341,896,149) (813,894,344) (16,473) (8,386,916) -- --
-------------- ------------ ------- ---------- ------------ ------------
Net increase (decrease) $110,590,287 $7,953,674 $(10,002,056) $42,935,584 $(58,137,875) $(3,281,398)
============ ========== ============ =========== ============ ===========
Bedford Shares authorized 1,500,000,000 1,500,000,000 500,000,000 500,000,000 500,000,000 500,000,000
============= ============= =========== =========== =========== ===========
</TABLE>
<PAGE>F-21
THE BEDFORD FAMILY
THE RBB FUND, INC.
Notes to Financial Statements (Continued)
August 31, 1994
Note 4. Net Assets
At August 31, 1994, net assets consisted of the following:
<TABLE>
<CAPTION>
Government
Municipal Obligations
Money Market Money Market Money Market
Portfolio Portfolio Portfolio
------------ ------------ -----------
<S> <C> <C> <C>
Capital paid-in
Bedford Class $710,738,832 $182,480,840 $166,424,677
Bradford Class -- 100,090,465 39,733,996
Cash Preservation Class 231,180 200,846 --
RBB Class 45,314 4,861 --
Sansom Street Class 373,745,889 -- --
Other Classes 800 800 800
Accumulated net realized
gain (loss) on investments
Bedford Class (1,351) (72,771) (6,884)
Bradford Class -- (1,293) (1,582)
Cash Preservation Class -- 3 --
RBB Class -- -- --
Sansom Street Class (711) -- --
------------- ------------ ------------
$1,084,759,953 $282,703,751 $206,151,007
============== ============ ============
</TABLE>
<PAGE>F-22
THE BEDFORD FAMILY
THE RBB FUND, INC.
Notes to Financial Statements (Continued)
August 31, 1994
Note 5. Capital Loss Carryovers
At August 31, 1994, capital loss carryovers were available to offset future
realized gains as follows: $2,062 in the Money Market Portfolio which expires in
2002; $56,544 in the Municipal Money Market Portfolio of which $55,042 expires
in 1998, $444 expires in 1999, $1,058 expires in 2001, and $8,466 in the
Government Obligations Money Market Portfolio which expires in 2001.
Note 6. Other Financial Highlights
The Fund currently offers three other classes of shares representing
interests in the Money Market Portfolio: Cash Preservation, RBB and Sansom
Street. The Fund currently offers four other classes of shares representing
interests in the Municipal Money Market Portfolio: Bradford, Cash Preservation,
RBB and Sansom Street. The Fund currently offers one other class of shares
representing an interest in the Government Obligations Money Market Portfolio:
Bradford. Each class is marketed to different types of investors. Financial
Highlights of the RBB and Cash Preservation Classes are not presented in this
report due to their immateriality. Such information is available in the annual
reports of each respective family. The financial highlights of certain of the
other classes are as follows:
Bradford Government Obligations Money Market Shares
<TABLE>
<CAPTION>
For the Period
For the For the January 10, 1992
Year Year (Commencement of
Ended Ended Operations) to
August 31, 1994 August 31, 1993 August 31,1992
--------------- --------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00
----- ----- -----
Income from investment operations:
Net investment income .0270 .0231 .0208
Net gains on securities (both realized
and unrealized) -- -- .0009
------ ------ ------
Total from investment operations .0270 .0231 .0217
------ ------ ------
Less distributions
Dividends (from net investment income) (.0270) (.0231) (.0208)
Distributions (from capital gains) -- -- (.0009)
------ ------ ------
Total distributions (.0270) (.0231) (.0217)
------ ------ ------
Net asset value, end of period $1.00 $1.00 $1.00
===== ===== =====
Total Return 2.73% 2.33% 3.42%(b)
Ratios /Supplemental Data
Net assets, end of period $39,732,414 $50,522,979 $42,476,965
Ratios of expenses to average net assets 975%(a) .975%(a) .975%(a)(b)
Ratios of net investment income to
average net assets 2.70% 2.31% 3.23%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
would have been 1.18% and 1.18% for the years ended August 31, 1994 and
1993, respectively, and 1.15% annualized for the period ended August 31,
1992.
(b) Annualized.
</FN>
</TABLE>
<PAGE>F-23
THE BEDFORD FAMILY
THE RBB FUND, INC.
Notes to Financial Statements (Continued)
August 31, 1994
Note 6. Other (continued)
Bradford Municipal Money Market Shares
<TABLE>
<CAPTION>
For the Period
For the For the January 10, 1992
Year Year (Commencement of
Ended Ended Operations) to
August 31, 1994 August 31, 1993 August 31,1992
--------------- --------------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00
----- ----- -----
Income from investment operations:
Net investment income .0195 .0195 .0154
----- ----- -----
Total from investment operations .0195 .0195 .0154
----- ----- -----
Less distributions
Dividends (from net investment income) (.0195) (.0195) (.0154)
------ ------ ------
Total distributions (.0195) (.0195) (.0154)
------ ------ ------
Net asset value, end of period $1.00 $1.00 $1.00
===== ===== =====
Total Return 1.97% 1.96% 2.42%(b)
Ratios /Supplemental Data
Net assets, end of period $100,089,172 $76,975,393 $69,586,281
Ratios of expenses to average net assets .77%(a) .77%(a) .77%(a)(b)
Ratios of net investment income to
average net assets 1.95% 1.95% 2.40%(b)
<FN>
(a) Without the waiver of advisory, transfer agency and administration fees and
without the reimbursement of certain operating expenses, the ratios of
expenses to average net assets would have been 1.11% and 1.16% for the
years ended August 31, 1994 and 1993, respectively, and 1.16% annualized
for the period ended August 31, 1992.
(b) Annualized.
</FN>
</TABLE>
<PAGE>F-24
THE BEDFORD FAMILY
THE RBB FUND, INC.
Notes to Financial Statements (Concluded)
August 31, 1994
Note 6. Other (continued)
The Sansom Street Family
<TABLE>
<CAPTION>
Money Market Portfolio
---------------------------------------------------------------------------------------
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
August 31, 1994 August 31, 1993 August 31, 1992 August 31, 1991 August 31, 1990
--------------- --------------- --------------- --------------- ---------------
<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 .0334 .0304 .0435 .0684 .0810
Net gains on securities
(both realized and unrealized) -- -- .0007 -- --
----- ----- ----- ----- -----
Total from investment operations .0334 .0304 .0442 .0684 .0810
----- ----- ----- ----- -----
Less distributions
Dividends (from net investment income) (.0334) (.0304) (.0435) (.0684) (.0810)
Distributions (from capital gains) -- -- (.0007) -- --
----- ----- ----- ----- -----
Total distributions (.0334) (.0304) (.0442) (.0684) (.0810)
----- ----- ----- ----- -----
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total Return 3.39% 3.08% 4.51% 7.06% 8.40%
Ratios /Supplemental Data
Net assets, end of year $373,745,178 $190,794,098 $228,078,764 $138,417,995 $106,743,389
Ratios of expenses to average net assets .39%(a) .34%(a) .35%(a) .37%(a) .47%(a)
Ratios of net investment income to
average net assets 3.34% 3.04% 4.35% 6.84% 8.10%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been .60%, .60%, .61%, .61% and
.73% for the years ended August 31, 1994, 1993, 1992, 1991 and 1990,
respectively.
</FN>
</TABLE>
