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Prospectus
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
Money Market Portfolio
Municipal
Money Market Portfolio
Government Obligations
Money Market Portfolio
New York Municipal
Money Market Portfolio
April 1, 1995
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT
OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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TABLE OF CONTENTS
Page
Investment Objectives and Policies 3
Purchase and Redemption of Shares 12
Net Asset Value 14
Management 14
Distribution of Shares 16
Dividends and Distributions 17
Taxes 17
Description of Shares 19
Other Information 19
Investment Adviser
PNC Institutional Management Corporation
Wilmington, Delaware
Custodian
PNC Bank, National Association
Philadelphia, Pennsylvania
Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware
Counsel
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
Independent Accountants
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
of The RBB Fund, Inc.
The Janney Montgomery Scott Money Funds consists of four classes of
common stock (collectively, the "Janney Classes") of The RBB Fund, Inc. (the
"Fund"), an open-end management investment company incorporated under the
laws of the State of Maryland on February 29, 1988 and currently operating
or proposing to operate nineteen separate investment portfolios. The shares
of such classes (collectively, the "Janney Shares" or "Shares") offered by
this Prospectus represent interests in a taxable money market portfolio, a
municipal money market portfolio, a U.S. Government obligations money market
portfolio and a New York municipal money market portfolio (collectively, the
"Portfolios"). The investment objectives of each investment portfolio
described in this Prospectus are as follows:
Money Market Portfolio--to provide as high a level of current
interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing
in a diversified portfolio of U.S. dollar-denominated money market
instruments.
Municipal Money Market Portfolio--to provide as high a level of
current interest income exempt from Federal income taxes as is
consistent with maintaining liquidity and stability of principal. It
seeks to achieve such objective by investing substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations.
"Municipal Obligations" are 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. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be
invested in Municipal Obligations, the interest on which is exempt from
the regular Federal income tax but which may constitute an item of tax
preference for purposes of the Federal alternative minimum tax.
Government Obligations Money Market Portfolio--to provide as high
a level of current interest income as is consistent with maintaining
liquidity and stability of principal. It seeks to achieve such
objective by investing in short-term U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, and repurchase agreements relating to
such obligations.
New York Municipal Money Market Portfolio--to provide as high a
level of current income that is exempt from Federal, New York State and
New York City personal income taxes as is consistent with preservation
of capital and liquidity. It seeks to achieve its objective by
investing primarily in Municipal Obligations, the interest on which is
exempt from the regular Federal income tax and is not an item of tax
preference for purposes of the Federal alternative minimum tax
("Tax-Exempt Interest") and is exempt from New York State and New York
City personal income taxes.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE
NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THERE CAN BE NO ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
An investor may purchase and redeem Shares of any of the Janney Classes
through Janney Montgomery Scott ("JMS"). See "Purchase and Redemption of
Shares."
PNC Institutional Management Corporation ("PIMC") serves as investment
adviser for the Fund, PNC Bank, National Association ("PNC") serves as
sub-advisor for all Portfolios other than the New York Municipal Money
Market Portfolio, which has no sub-advisor, and serves as custodian for
the Fund, PFPC Inc. ("PFPC") serves as administrator to the Municipal Money
Market and New York Municipal Money Market Portfolios and transfer and
dividend disbursing agent for the Fund. Counsellors Securities Inc. (the
"Distributor") acts as distributor for the Fund.
This Prospectus contains concise information that a prospective
investor needs to know before investing. Please keep it for future
reference. A Statement of Additional Information, dated April 1, 1995, has
been filed with the Securities and Exchange Commission and is incorporated
by reference in this Prospectus. It may be obtained upon request free of
charge from the Fund's distributor by calling (800) 888-9723.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PROSPECTUS April 1, 1995
<PAGE>1
Fee Table
Esimated Annual Fund Operating Expenses (Janney Shares)
After Expense Reimbursements and Waivers
<TABLE>
<CAPTION>
Government New York
Municipal Obligations Municipal
Money Market Money Market Money Market Money Market
Portfolio Portfolio Portfolio Portfolio
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Management fees
(after waivers)* .13% 0% .21% 0%
12b-1 fees
(after waivers)* .60 .60 .60 .60
Other Expenses
(after reimbursements) .27 .40 .19 .40
---- ---- ---- ----
Total Fund Operating
Expenses (Janney Shares)
(after waivers
and reimbursements) 1.00% 1.00% 1.00% 1.00%
==== ==== ==== ====
<FN>
* Management fees and 12b-1 fees are based on average daily net assets and are calculated
daily and paid monthly.
</FN>
</TABLE>
The caption "Other Expenses" does not include extraordinary expenses as
determined by use of generally accepted accounting principles.
Example
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------ ------ -------
<S> <C> <C> <C> <C>
Money Market* $10 $32 N/A N/A
Municipal Money Market* $10 $32 N/A N/A
Government Obligations
Money Market* $10 $32 N/A N/A
New York Municipal
Money Market $10 $32 N/A N/A
<FN>
* Other classes of these Portfolios are sold with different fees and expenses.
</FN>
</TABLE>
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Janney Shares of the Fund
will bear directly or indirectly. (For more complete descriptions of the
various costs and expenses, see "Management--Investment Adviser and
Sub-Advisor" and "Distribution of Shares" below.) The expense figures are
based on estimated costs and estimated fees expected to be charged to the
Janney Classes, taking into account anticipated fee waivers and
reimbursements. The Fee Table reflects a voluntary waiver of Management fees
for each Portfolio. However, there can be no assurance that any future
waivers of Management fees will not vary from the figure reflected in the
Fee Table. To the extent that any service providers assume additional
expenses of the Portfolios, such assumption will have the effect of lowering
a Portfolio's overall expense ratio and increasing its yield to investors.
Absent anticipated fee waivers and reimbursements, estimated expenses for
the current fiscal year, based on each Portfolios average net assets, are as
follows:
<PAGE>2
Esimated Annual Fund Operating Expenses (Janney Shares)
Before Expense Reimbursements and Waivers
<TABLE>
<CAPTION>
Government New York
Municipal Obligations Municipal
Money Market Money Market Money Market Money Market
Portfolio Portfolio Portfolio Portfolio
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Management fees .38% .34% .45% .45%
12b-1 fees .60 .60 .60 .60
Other Expenses .27 .40 .19 .40
---- ---- ---- ----
Total Fund Operating
Expenses (Janney Shares)
(before waivers
and reimbursements) 1.25% 1.34% 1.24% 1.45%
==== ==== ==== ====
</TABLE>
The caption "Other Expenses" does not include extraordinary expenses as
determined by use of generally accepted accounting principles.
The Example in the Fee Table assumes that all dividends and
distributions are reinvested and that the amounts listed under "Annual Fund
Operating Expenses (Janney Shares) After Expense Reimbursements and Waivers"
remain the same in the years shown. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
From time to time a Portfolio advertises its "yield" and "effective
yield." Both yield figures are based on historical earnings and are not
intended to indicate future performance. The "yield" of a Portfolio refers
to the income generated by an investment in a Portfolio over a seven-day
period (which period will be stated in the advertisement). This income is
then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period
and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an
investment in a Portfolio is assumed to be reinvested. The "effective yield"
will be slightly higher than the "yield" because of the compounding effect
of this assumed reinvestment. Each of the Municipal Money Market Portfolio's
and the New York Municipal Money Market Portfolio's "tax-equivalent yield"
may also be quoted from time to time, which shows the level of taxable yield
needed to produce an after-tax equivalent to such Portfolio's tax-free
yield. This is done by increasing the Municipal Money Market Portfolio's
yield (calculated as above) by the amount necessary to reflect the payment
of Federal income tax at a stated tax rate and by increasing the New York
Municipal Money Market Portfolio's yield (calculated as above) by the amount
necessary to reflect the payment of Federal, New York State and New York
City personal income taxes at stated rates.
The yield of any investment is generally a function of portfolio
quality and maturity, type of investment and operating expenses. The yield
on Shares of any of the Janney Classes will fluctuate and is not necessarily
representative of future results. Any fees charged by JMS directly to their
customers in connection with investments in the Janney Classes are not
reflected in the yields of the Janney Shares, and such fees, if charged,
will reduce the actual return received by shareholders on their investments.
The yield on Shares of the Janney Classes may differ from yields on shares
of other classes of the Fund that also represent interests in the same
Portfolio depending on the allocation of expenses to each of the classes of
that Portfolio. See "Expenses."
INVESTMENT OBJECTIVES AND POLICIES
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Money Market Portfolio
The Money Market Portfolio's investment objective is to provide as high
a level of current interest income as is consistent with maintaining
liquidity and stability of principal. Portfolio obligations held by the
Money Market Portfolio have remaining maturities of 397 calendar days or
less (exclusive of securities subject to repurchase agreements). In pursuing
its investment objective, the Money Market Portfolio invests in a
diversified portfolio of U.S. dollar-denominated
<PAGE>3
instruments, such as government, bank and commercial obligations, that may
be available in the money markets ("Money Market Instruments") and that meet
certain ratings criteria and present minimal credit risks to the Money
Market Portfolio. See "Eligible Securities." The following descriptions
illustrate the types of Money Market Instruments in which the Money Market
Portfolio invests.
Bank Obligations. The Portfolio may purchase obligations of issuers in
the banking industry such as short-term obligations of bank holding
companies, certificates of deposit, bankers' acceptances and time deposits,
including U.S. dollar-denominated instruments issued or supported by the
credit of U.S. or foreign banks or savings institutions having total assets
at the time of purchase in excess of $1 billion. The Portfolio may invest
substantially in obligations of foreign banks or foreign branches of U.S.
banks where the investment adviser deems the instrument to present minimal
credit risks. Such investments may nevertheless entail risks that are
different from those of investments in domestic obligations of U.S. banks
due to differences in political, regulatory and economic systems and
conditions. The Portfolio may also make interest-bearing savings deposits in
commercial and savings banks in amounts not in excess of 5% of its total
assets.
Commercial Paper. The Portfolio may purchase commercial paper rated (at
the time of purchase) in the two highest rating categories of a nationally
recognized statistical rating organization ("NRSRO"). These rating symbols
are described in the Appendix to the Statement of Additional Information.
The Portfolio may also purchase unrated commercial paper provided that such
paper is determined to be of comparable quality by the Portfolio's
investment adviser in accordance with guidelines approved by the Fund's
Board of Directors. Commercial paper issues in which the Portfolio may
invest include securities issued by corporations without registration under
the Securities Act of 1933 (the "1933 Act") in reliance on the exemption
from such registration afforded by Section 3(a)(3) thereof, and commercial
paper issued in reliance on the so-called "private placement" exemption from
registration which is afforded by Section 4(2) of the 1933 Act ("Section
4(2) paper"). Section 4(2) paper is restricted as to disposition under the
Federal securities laws in that any resale must similarly be made in an
exempt transaction. Section 4(2) paper is normally resold to other
institutional investors through or with the assistance of investment dealers
who make a market in Section 4(2) paper, thus providing liquidity.
Commercial paper purchased by the Portfolio may include instruments
issued by foreign issuers, such as Canadian Commercial Paper ("CCP"), which
is U.S. dollar-denominated commercial paper issued by a Canadian corporation
or a Canadian counterpart of a U.S. corporation, and in Europaper, which is
U.S. dollar-denominated commercial paper of a foreign issuer, subject to the
criteria stated above for other commercial paper issuers.
Variable Rate Demand Notes. The Portfolio may purchase variable rate
demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary and provide for periodic adjustment in the interest rate.
Although the notes are not normally traded and there may be no active
secondary market in the notes, the Portfolio will be able (at any time or
during the specified periods not exceeding 397 calendar days, depending upon
the note involved) to demand payment of the principal of a note. The notes
are not typically rated by credit rating agencies, but issuers of variable
rate demand notes must satisfy the same criteria as set forth above for
issuers of commercial paper. If an issuer of a variable rate demand note
defaulted on its payment obligation, the Portfolio might be unable to
dispose of the note because of the absence of an active secondary market.
For this or other reasons, the Portfolio might 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.
Repurchase Agreements. The Portfolio may agree to purchase securities
from financial institutions subject to the seller's agreement to repurchase
them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 397 calendar days, provided the repurchase agreement itself
matures in less than 397 calendar days. The financial institutions with whom
the Portfolio may enter into repurchase agreements will be banks which the
Portfolio's investment adviser considers creditworthy pursuant to criteria
approved by the Board of Directors and non-bank dealers of U.S. Government
securities that are listed on the Federal Reserve Bank of New York's list of
reporting dealers. The Portfolio's investment adviser will consider, among
other things, whether a repurchase obligation of a seller involves minimal
credit risk to a Portfolio in determining whether to have the Portfolio
enter into a repurchase agreement. The seller under a repurchase agreement
will be
<PAGE>4
required to maintain the value of the securities subject to the agreement at
not less than the repurchase price plus accrued interest. The Portfolio's
investment adviser will mark to market daily the value of the securities,
and will, if necessary, require the seller to maintain additional
securities, to ensure that the value is not less than the repurchase price.
Default by or bankruptcy of the seller would, however, expose the Portfolio
to possible loss because of adverse market action or delays in connection
with the disposition of the underlying obligations.
U.S. Government Obligations. The Portfolio may purchase obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. Obligations of certain agencies and instrumentalities of
the U.S. Government are backed by the full faith and credit of the United
States. Others are backed by the right of the issuer to borrow from the U.S.
Treasury or are backed only by the credit of the agency or instrumentality
issuing the obligation.
Asset-backed Securities. The Portfolio may invest in asset-backed
securities which are backed by mortgages, installment sales contracts,
credit card receivables or other assets and collateralized mortgage
obligations ("CMOs") issued or guaranteed by U.S. Government agencies and,
instrumentalities or issued by private companies. Asset-backed securities
also include adjustable rate securities. The estimated life of an asset-
backed security varies with the prepayment experience with respect to the
underlying debt instruments. For this and other reasons, an asset-backed
security's stated maturity may be shortened, and the security's total return
may be difficult to predict precisely. Such difficulties are not expected,
however, to have a significant effect on the Portfolio since the remaining
maturity or any asset-backed security acquired will be 397 days or less.
Asset-backed securities are considered an industry for industry
concentration purposes. See "Investment Limitations".
Reverse Repurchase Agreements. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. At the time the
Portfolio enters into a reverse repurchase agreement, it will place in a
segregated custodial account with the Fund's custodian or a qualified sub-
custodian liquid assets such as U.S. Government securities or other liquid
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to
ensure that such value is maintained. Reverse repurchase agreements involve
the risk that the market value of the securities sold by the Portfolio may
decline below the price of the securities the Portfolio is obligated to
repurchase. Reverse repurchase agreements are considered to be borrowings by
the Portfolio under the Investment Company Act of 1940 (the "1940 Act"). The
Portfolio would consider entering into reverse repurchase agreements to
avoid otherwise selling securities during unfavorable market conditions to
meet redemptions.
Guaranteed Investment Contracts. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company
and not a separate account. The Portfolio's Investments in GICs are not
expected to exceed 5% of its total assets at the time of purchase absent
unusual market conditions. GIC investments are subject to the Fund's policy
regarding investment in illiquid securities.
Municipal Obligations. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for Federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
Stand-By Commitments. The Portfolio may acquire "stand-by commitments"
with respect to Municipal Obligations held in its portfolio. Under a stand-
by commitment, a dealer would agree to purchase at the Portfolio's option
specified Municipal Obligations at a specified price. The acquisition of a
stand-by commitment may increase the cost, and thereby reduce the yield, of
the Municipal Obligation to which such commitment relates. The Portfolio
will acquire stand-by commitments solely to facilitate portfolio liquidity
and does not intend to exercise its rights thereunder for trading purposes.
When-Issued Securities. The Portfolio may purchase portfolio securities
on a "when-issued" basis. When issued securities are securities purchased
for delivery beyond the normal settlement date at a stated price and yield.
The Portfolio will generally not pay for such securities or start earning
interest on them until they are received. Securities purchased on a when-
issued basis are recorded as an asset at the time the commitment is entered
into and are subject
<PAGE>5
to changes in value prior to delivery based upon changes in the general
level of interest rates. 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. The Portfolio does not intend to purchase
when-issued securities for speculative purposes but only in furtherance of
its investment objective.
Eligible Securities. The Portfolio will only purchase "eligible
securities" that present minimal credit risks as determined by the
Portfolio's investment adviser pursuant to guidelines adopted by the Board
of Directors. Eligible securities generally include: (1) U.S. Government
securities, (2) securities that are rated at the time of purchase in the two
highest rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") (e.g., commercial paper rated "A-1" or "A-2"
by S&P), (3) securities that 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, and (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 eligible rated securities. For a more complete
description of eligible securities, see "Investment Objectives and Policies"
in the Statement of Additional Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its
net assets in illiquid securities, including repurchase agreements which
have a maturity of longer than seven days, time deposits with maturities in
excess of seven days, variable rate demand notes with demand periods in
excess of seven days unless the Portfolio's investment adviser determines
that such notes are readily marketable and could be sold promptly at the
prices at which they are valued, and other securities that are illiquid by
virtue of the absence of a readily available market or legal or contractual
restrictions on resale. Repurchase agreements subject to demand are deemed
to have a maturity equal to the notice period. Securities that have legal or
contractual restrictions on resale but have a readily available market are
not deemed 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. See "Investment Objectives
and Policies--Illiquid Securities" in the Statement of Additional
Information.
Municipal Money Market Portfolio
The Municipal Money Market Portfolio's investment objective is to provide as
high a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and relative stability of
principal. The Municipal Money Market Portfolio invests substantially all of
its assets in a diversified portfolio of short-term Municipal Obligations,
the interest on which, in the opinion of bond counsel or counsel to the
issuer, as the case may be, is exempt from the regular Federal income tax.
During periods of normal market conditions, at least 80% of the net assets
of the Municipal Money Market Portfolio will be invested in Municipal
Obligations. Municipal Obligations include securities the interest on which
is Tax-Exempt Interest, although to the extent the Portfolio invests in
certain private activity bonds issued after August 7, 1986 ("Alternative
Minimum Tax Securities"), a portion of the interest earned by the Portfolio
may constitute an item of tax preference for purposes of the Federal
alternative minimum tax ("AMT Interest").
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
the Statement of Additional Information.
The Portfolio may hold uninvested cash reserves pending investment
during temporary defensive periods or if, in the opinion of the Portfolio's
investment adviser, suitable obligations bearing Tax-Exempt Interest or AMT
Interest are unavailable. There is no percentage limitation on the amount of
assets which may be held uninvested during temporary defensive periods.
Uninvested cash reserves will not earn income.
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
<PAGE>6
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.
Although the Municipal Money Market Portfolio may invest more than 25%
of its net assets in (i) Municipal Obligations whose issuers are in the same
state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing Tax-
Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated
in Municipal Obligations that are payable from the revenues of similar
projects or are issued by issuers located in the same state, the Portfolio
will be subject to the peculiar risks presented by the laws and economic
conditions relating to such states or projects to a greater extent than it
would be if its assets were not so concentrated.
The Municipal Money Market Portfolio may invest in tax-exempt
derivative securities such as tender option bonds, custodial receipts,
participations, beneficial interests in trusts and partnership interests. A
typical tax-exempt derivative security involves the purchase of an interest
in a pool of Municipal Obligations which interest includes a tender option,
demand or other feature, allowing the Portfolio to tender the underlying
Municipal Obligation to a third party at periodic intervals and to receive
the principal amount thereof. In some cases, Municipal Obligations are
represented by custodial receipts evidencing rights to future principal or
interest payments, or both, on underlying municipal securities held by a
custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether
the interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to
the validity of, and the tax-exempt status of payments received by, the
Portfolio from such derivative securities are rendered by counsel to the
respective sponsors of such derivatives and relied upon by the Portfolio in
purchasing such securities. Neither the Portfolio nor its investment adviser
will review the proceedings relating to the creation of any tax-exempt
derivative securities or the basis for such legal opinions.
The Portfolio may also purchase portfolio securities on a "when-issued"
basis such as described under "Investment Objectives and Policies--Money
Market Portfolio--When-Issued Securities."
The Portfolio may acquire "stand-by commitments" with respect to
Municipal Obligations held in its portfolio such as described under
"Investment Objectives and Policies--Money Market Portfolio--Stand-by
Commitments."
Eligible Securities. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as
determined by the Portfolio's investment adviser pursuant to guidelines
adopted by the Board of Directors. For a more complete description of
eligible securities, see "Investment Objectives and Policies--Money Market
Portfolio--Eligible Securities."
Illiquid Securities. The Portfolio will not invest more than 10% of its
net assets in illiquid securities. For a more complete description of
illiquid securities, see "Investment Objectives and Policies -- Money market
Portfolio -- Illiquid Securities."
Government Obligations Money Market Portfolio
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. It seeks
to achieve such objective by investing in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, and entering into repurchase agreements
relating to such obligations. The types of U.S. Government obligations in
which the Portfolio may invest include a variety of U.S. Treasury
obligations, which differ only in their interest rates, maturities, and
times of issuance, and obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, including mortgage-related
securities. Obligations of certain agencies and instrumentalities of the
U.S. Government, such as the Government National Mortgage Association and
the Export-
<PAGE>7
Import Bank of the United States, are supported by the full faith and credit
of the U.S. Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Student Loan Marketing Association,
are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations; still others, such as those of the
Federal Farm Credit Banks or the Federal Home Loan Mortgage Corporation, are
supported only by the credit of the instrumentality. No assurance can be
given that the U.S. Government would provide financial support to U.S.
Government-sponsored agencies or instrumentalities if it is not obligated to
do so under law. The Portfolio will invest in the obligations of such
agencies or instrumentalities only when the investment adviser believes that
the credit risk with respect thereto is minimal.
Securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest
rates, the market value of such securities may vary during the period a
shareholder owns Shares representing an interest in the Portfolio. Certain
government securities held by the Portfolio may have remaining maturities
exceeding 397 calendar days if such securities provide for adjustments in
their interest rates not less frequently than every 397 calendar days and
the adjustments are sufficient to cause the securities to have market
values, after adjustment, which approximate their par values.
Repurchase Agreements. The Portfolio may agree to purchase government
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements").
For a description of repurchase agreements, see "Investment Objectives and
Policies--Money Market Portfolio--Repurchase Agreements."
Reverse Repurchase Agreements. The Portfolio may borrow funds by
entering into reverse repurchase agreements in accordance with the
investment restrictions described below. For a description of reverse
repurchase agreements, see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements."
Mortgage-Related Securities. Mortgage loans made by banks, savings and
loan institutions, and other lenders are often assembled into pools, the
interests in which are issued and guaranteed by an agency or instrumentality
of the U.S. Government, though not necessarily by the U.S. Government
itself. Interests in such pools are what this Prospectus calls "mortgage-
related securities."
Mortgage-related securities may include asset-backed securities which
are backed by mortgages, installment sales contracts, credit card
receivables or other assets and collateralized mortgage obligations ("CMOs")
issued or guaranteed by U.S. Government agencies and instrumentalities or
issued by private companies. Purchasable mortgage-related securities also
include adjustable rate securities. The estimated life of an asset-backed
security varies with the prepayment experience with respect to the
underlying debt instruments. For this and other reasons, an asset-backed
security's stated maturity may be shortened, and the security's total return
may be difficult to predict precisely. Such difficulties are not expected,
however, to have a significant effect on the Portfolio since the remaining
maturity of any asset-backed security acquired will be 397 days or less.
Lending of Securities. The Portfolio may also lend its portfolio
securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering
the securities loaned or even loss of rights in the collateral should the
borrower of the securities fail financially. However, loans will be made
only to borrowers deemed by the Portfolio's investment adviser to be of good
standing and only when, in the adviser's judgment, the income to be earned
from the loans justifies the attendant risks. Any loans of the Portfolio's
securities will be fully collateralized and marked to market daily.
Short Sales. The Portfolio may engage in short sales. In a short sale,
the Portfolio sells a borrowed security and has a corresponding obligation
to the lender to return the identical security. The Portfolio may engage in
short sales only if at the time of the short sale it owns or has the right
to obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box."
The Portfolio will not engage in short sales against the box to enhance the
Portfolio's yield or to increase the Portfolio's income. The Portfolio may,
however, make a short sale against the box as a hedge. The Portfolio will
engage in short sales against the box when it believes that the price of
security may decline, causing a decline in the value of a security owned by
the Portfolio
<PAGE>8
(or a security convertible or exchangeable for such security), or when the
Portfolio wants to sell the security at an attractive current price, but
also wishes to defer recognition of gain or loss for Federal income tax
purposes and for certain purposes of satisfying certain tests applicable to
regulated investment companies under the Internal Revenue Code. In a short
sale, the seller does not immediately deliver the securities sold and is
said to have a short position in those securities until delivery occurs. If
the Portfolio engages in a short sale, the collateral for the short position
will be maintained by the Fund's custodian or a qualified sub-custodian.
While the short sale is open, the Portfolio will maintain in a segregated
account an amount of securities equal in kind and amount to the securities
sold short or securities convertible into or exchangeable for such
equivalent securities. A more detailed discussion of short sales is
contained in the Statement of Additional Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its
net assets in illiquid securities. For a more complete description of
illiquid securities, see "Investment Objective and Policies--Money Market
Portfolios--Illiquid Securities."
New York Municipal Money Market Portfolio
The New York Municipal Money Market Portfolio's investment objective is
to provide as high a level of current interest income that is exempt from
Federal, New York State and New York City personal income taxes as is
consistent with preservation of capital and liquidity. During periods of
normal market conditions, at least 80% of the assets will be invested in
Municipal Obligations, the interest on which is Tax-Exempt Interest and
which meet certain ratings criteria and present minimal credit risks to the
Portfolio. Portfolio obligations held by the New York Municipal Money Market
Portfolio will have remaining maturities of 397 calendar days or less
("short-term" obligations). Dividends paid by the Portfolio which are
derived from interest attributable to tax-exempt obligations of the State of
New York and its political subdivisions, as well as of certain other
governmental issuers such as Puerto Rico ("New York Municipal Obligations"),
will be excluded from gross income for Federal income tax purposes and
exempt from New York State and New York City personal income taxes, but will
be subject to corporate franchise taxes. Dividends derived from interest on
tax-exempt obligations of other governmental issuers will be excluded from
gross income for Federal income tax purposes, but will be subject to New
York State and New York City personal income taxes. The Fund expects that,
except during temporary defensive periods or when acceptable securities are
unavailable for investment by the Fund, at least 65% of the Fund's assets
will be invested in New York Municipal Obligations. There is no assurance
that the investment objective of the New York Municipal Money Market
Portfolio will be achieved.
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations. For a more complete discussion of Municipal Obligations, see
"Investment Objectives and Policies--Municipal Money Market Portfolio--
Municipal obligations."
Up to 20% of the Portfolio's assets may be invested in Alternative
Minimum Tax Securities. Investors should be aware of the possibility of
Federal, state and local alternative minimum or minimum income tax liability
on interest from Alternative Minimum Tax Securities. Although the New York
Municipal Money Market Portfolio may invest more than 25% of its net assets
in (i) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (ii) private activity bonds bearing Tax-
Exempt Interest, it does not currently intend to do so on a regular basis.
The New York Municipal Money Market Portfolio may invest in tax-exempt
derivative securities such as tender option bonds, custodial receipts,
participations, beneficial interests in trusts and partnership interests.
For a description of such securities, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
The Portfolio may also purchase portfolio securities on a "when-issued"
basis such as described under "Investment Objectives and Policies--Money
Market Portfolio--Municipal Obligations."
The Portfolio may acquire "stand-by commitments" with respect to
Municipal Obligations held in its portfolio such as described under
"Investment Objectives and Policies--Municipal Money Market Portfolio--
Municipal Obligations."
Taxable Investments. The Portfolio may for defensive or other purposes
invest in certain short-term taxable securities when the Portfolio's
investment adviser believes that it would be in the best interests of the
Portfolio's investors to do so. Taxable securities in which the Portfolio
may invest on a short-term basis are obligations of the U.S.
<PAGE>9
Government, its agencies or instrumentalities, including repurchase
agreements with banks or securities dealers involving such securities; time
deposits maturing in not more than seven days; other debt securities rated
within the two highest ratings assigned by Moody's or S&P; commercial paper
rated in the highest grade by Moody's or S&P; and certificates of deposit
issued by United States branches of United States banks with assets of $1
billion or more. At no time will more than 20% of the Portfolio's total
assets be invested in taxable short-term securities unless the Portfolio's
investment adviser has determined to temporarily adopt a defensive
investment policy in the face of an anticipated softening in the market for
Municipal Obligations in general.
Eligible Securities. The New York Municipal Money Market Portfolio will
only purchase "eligible securities." For a more complete description of
eligible securities, see "Investment Objectives and Policies--Money Market
Portfolio--Eligible Securities."
Special Considerations. As a non-diversified investment company, the
Portfolio may invest a greater proportion of its assets in the obligations
of a smaller number of issuers relative to a diversified portfolio. As a
result, the value of a non-diversified investment portfolio will fluctuate
to a greater degree upon changes in the value of each underlying security.
In the opinion of the Portfolio's investment adviser, any risk to the
Portfolio should be limited by its intention to continue to conduct its
operations so as to qualify as a "regulated investment company" for purposes
of the Internal Revenue Code of 1986, as amended, and by its policies
restricting investments to obligations with short-term maturities and
obligations which qualify as eligible securities. In order to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended, the Portfolio will not purchase the securities of any issuer if as
a result more than 5% of the value of the Portfolio's assets would be
invested in the securities of such issuer, except that (a) up to 50% of the
value of the Portfolio's assets may be invested without regard to this 5%
limitation, provided that no more than 25% of the value of the Portfolio's
assets are invested in the securities of any one issuer and (b) this 5%
limitation does not apply to securities issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity
(or entities) whose assets and revenues back the security, or, with respect
to a private activity bond that is backed only by the assets and revenues of
a non-governmental user, by such non-governmental user. In certain
circumstances, the guarantor of a guaranteed security may also be considered
to be an issuer in connection with such guarantee.
The Portfolio's ability to meet its investment objective is dependent
upon the ability of issuers of New York Municipal Obligations to meet their
continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term worsening
economic problems which could seriously affect their ability and that of
other issuers of New York Municipal Obligations to meet their financial
obligations.
Investors should be aware that certain substantial issuers of New York
Municipal Obligations (including issuers whose obligations may be acquired
by the Portfolio) have experienced serious financial difficulties in recent
years. These difficulties have at times jeopardized the credit standing and
impaired the borrowing abilities of all New York issuers and have generally
contributed to higher interest costs for their borrowing and lower market
prices for their outstanding debt obligations. In recent years, several
different issues of municipal securities of New York State and its agencies
and instrumentalities and of New York City have been downgraded by Standard
& Poor's Corporation ("S&P") and Moody's Investor Service, Inc. ("Moody's").
On the other hand, strong demand for New York Municipal Obligations has more
recently had the effect of permitting New York Municipal Obligations to be
issued with yields relatively lower, and after issuance to trade in the
market at prices relatively higher, than comparably rated municipal
obligations issued by other jurisdictions. A recurrence of the financial
difficulties previously experienced by such issuers could result in defaults
or declines in the market values of those issuer's existing obligations and,
possibly, in the obligations of other issuers of New York Municipal
Obligations. Although no issuers of New York Municipal Obligations were as
of the date of this Prospectus in default with respect to the payment of
their debt obligations, the occurrence of any such default could adversely
affect the market values and market ability of all New York Municipal
Obligations and consequently, the net asset value of the Portfolio's shows.
Some of the significant financial considerations relating to the Fund's
investments in New York Municipal Obligations are summarized in the
Statement of Additional Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its
net assets in illiquid securities. For a more complete description of
Illiquid Securities, see "Investment Objectives and Policies--Money Market
Portfolio--Illiquid Securities."
<PAGE>10
Investment Limitations
- -----------------------------------------------------------------------
The Money Market, Municipal Money Market, Government Obligations Money
Market and New York Municipal Money Market Portfolios' respective investment
objectives and the policies described above may be changed by the Fund's
Board of Directors without the affirmative vote of the holders of a majority
of the respective Portfolios' outstanding shares. Such changes may result in
a Portfolio having investment objectives which differ from those an investor
may have considered at the time of investment. There is no assurance that
the investment objectives of the Portfolios will be achieved. The Portfolios
may not, however, change the following investment limitations without such a
vote of their respective shareholders. (A more detailed description of the
following investment limitations, together with other investment limitations
that cannot be changed without a vote of shareholders, is contained in the
Statement of Additional Information under "Investment Objectives and
Policies.")
The Portfolios may not borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in amounts
not in excess of 10% of the value of a Portfolio's assets at the time of
such borrowing, and only if after such borrowing there is asset coverage of
at least 300% for all borrowings of the Portfolio; or mortgage, pledge or
hypothecate any of its assets except in connection with any such borrowing
and in amounts not in excess of 10% of the value of a Portfolio's 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 a Portfolio's securities by enabling the Portfolio
to meet redemption requests where the liquidation of portfolio securities is
deemed to be disadvantageous or inconvenient.)
The Money Market and Municipal Money Market Portfolios may not:
1. Purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities, if immediately after and as a result of such
purchase more than 5% of the value of its 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 a
Portfolio, except that up to 25% of the value of a Portfolio's total
assets may be invested without regard to such 5% limitation.
The Money Market Portfolio may not:
1. 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.
2. 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 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.
The Municipal Money Market may not:
1. Purchase any securities which would cause more than 25% of the
value of the total assets of the Portfolio to be invested in
obligations at the time of purchase to be invested of issuers in the
same industry.
In addition, without the affirmative vote of the holders of a majority
of the Municipal Money Market Portfolio's outstanding shares, the Portfolio
may not change its policy of investing during normal market conditions at
least 80% of its net assets in obligations the interest on which is Tax-
Exempt Interest of AMT Interest.
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements relating to
such obligations.
2. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and
may lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Portfolio's permitted
<PAGE>11
investments, which is equal at all times to at least 100% of the value
of the securities loaned. There is no investment restriction on the
amount of securities that may be loaned, except that payments received
on such loans, including amounts received during the loan on account of
interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross
income (without offset for realized capital gains) unless, in the
opinion of counsel to the Fund, such amounts are qualifying income
under Federal income tax provision applicable to regulated investment
companies.
The New York Municipal Money market may not:
1. Purchase any securities which would cause 25% or more of the
value of the Portfolio's total assets at the time of purchase to be
invested in the securities of issuers conducting their principal
business activities in the same industry; provided that this limitation
shall not apply to Municipal Obligations or governmental guarantees of
Municipal Obligations; and provided, further, that for the purpose of
this limitation only, private activity bonds that are considered to be
issued by non-governmental users (see the second investment limitation
above) shall not be deemed to be Municipal Obligations.
In addition, without the affirmative vote of the holders of a majority
of the New York Municipal Money Market Portfolio's outstanding shares, the
Portfolio may not change its policy of investing during normal market
conditions at least 80% of its net assets in obligations the interest on
which is Tax-Exempt Interest.
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------
Purchase Procedures
General. Janney Shares are sold without a sales load on a continuous
basis. Investors may purchase Janney Shares through an account maintained by
the investor with JMS ("the Account"). The Fund in its sole discretion may
accept or reject any order for purchases of Janney Shares.
All payments for initial and subsequent investments should be in U.S.
dollars. JMS is responsible for the prompt transmission of the order to the
Fund's transfer agent. Purchases will be effected at the net asset value
next determined after PFPC, the Fund's transfer agent, has received a
purchase order in proper form from JMS and the Fund's custodian has Federal
Funds immediately available to it. In those cases where payment is made by
check, Federal Funds will generally become available two Business Days after
the check is received by JMS. Orders which are accompanied by Federal Funds
and received by the Fund by 12:00 noon Eastern Time, and orders as to which
payment has been converted into Federal Funds by 12:00 noon Eastern Time,
will be executed as of 12:00 noon that Business Day. Orders which are
accompanied by Federal Funds and received by the Fund after 12:00 noon
Eastern Time but prior to 4:00 p.m. Eastern Time, and orders as to which
payment has been converted into Federal Funds after 12:00 noon Eastern Time
but prior to 4:00 p.m. Eastern Time on any Business Day of the Fund, will be
executed as of 4:00 p.m. Eastern Time on that Business Day, but will not be
entitled to receive dividends declared on such Business Day. Orders which
are accompanied by Federal Funds and received by the Fund as of 4:00 p.m.
Eastern Time or later, and orders as to which payment has been converted to
Federal Funds as of 4:00 p.m. Eastern Time or later on a Business Day will
be processed as of 12:00 noon Eastern Time on the following Business Day. A
"Business Day" is any day that both the New York Stock Exchange (the "NYSE")
and the Federal Reserve Bank of Philadelphia (the "FRB") are open.
Currently, the NYSE or the FRB are closed on weekends and New Years' Day,
Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day (observed) Labor Day, Thanksgiving Day and Christmas Day
(observed).
Purchases through an Account. Purchases of Shares may be effected
through an investor's Account with JMS through procedures established in
connection with the requirements of Accounts at JMS. In such event,
beneficial ownership of Janney Shares will be recorded by JMS and will be
reflected in the Account statements provided by JMS to such investors. JMS
may impose minimum investor Account requirements. Although JMS does not
impose a sales charge for purchases of Janney Shares, depending on the terms
of an investor's Account with JMS, JMS may charge an investor's Account fees
for automatic investment and other services provided to the Account.
Information concerning
<PAGE>12
Account requirements, services and charges should be obtained from JMS. This
Prospectus should be read in conjunction with any information received from
JMS.
JMS may offer investors the ability to purchase Janney Shares under an
automatic purchase program (a "Purchase Program") established by it. An
investor who participates in a Purchase Program will have his "free-credit"
cash balances in his Account with JMS automatically invested in Shares of
Janney Class designated by the investor as the "Primary Janney Class" for
his Purchase Program. The frequency of investments and the minimum
investment requirement may be established by JMS and the Fund. In addition,
JMS may require a minimum amount of cash and/or securities to be deposited
in an Account for participants in its Purchase Program. The description of
the particular JMS's Purchase Program should be read for details, and any
inquiries concerning an Account under a Purchase Program should be directed
to JMS. A participant in a Purchase Program may change the designation of
the Primary Janney Class at any time by so instructing JMS.
If JMS makes special arrangements under which orders for Janney Shares
are received by PFPC prior to 12:00 noon Eastern Time, and the JMS
guarantees that payment for such Shares will be made in Federal Funds to the
Fund's custodian prior to 4:00 p.m. Eastern Time, on the same day, such
purchase orders will be effective and Shares will be purchased at the
offering price in effect as of 12:00 noon Eastern Time on the date the
purchase order is received by PFPC.
Redemption Procedures
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. Investors may redeem all or some of their Shares in accordance
with one of the procedures described below.
Redemption of Shares in an Account. An investor who beneficially owns
Janney Shares may redeem Janney Shares in his Account in accordance with
instructions and limitations pertaining to his Account by contacting JMS. It
is the responsibility of JMS to transmit purchase and redemption orders to
PFPC and credit its investors' accounts with the redemption proceeds on a
timely basis. If such notice is received by PFPC by 12:00 noon Eastern Time
on any Business Day, the redemption will be effective as of 12:00 noon
Eastern Time on that day. Payment of the redemption proceeds will be made
after 12:00 noon Eastern Time on the day the redemption is effected,
provided that the Fund's custodian is open for business. If the custodian is
not open, payment will be made on the next bank business day. If the
redemption request is received between 12:00 noon and 4:00 p.m. Eastern Time
on a Business Day, the redemption will be effective as of 4:00 p.m. Eastern
Time on such Business Day and payment will be made on the next bank business
day following receipt of the redemption request. If all shares are redeemed,
all accrued but unpaid dividends on those shares will be paid with the
redemption proceeds.
JMS will also redeem each day a sufficient number of Shares of the
Primary Janney Class to cover debit balances created by transactions in the
Account or instructions for cash disbursements. Janney Shares will be
redeemed on the same day that a transaction occurs that results in such a
debit balance or charge.
JMS reserves the right to waive or modify criteria for participation in
an Account or to terminate participation in an Account for any reason.
Redemption by Check. The Fund provides investors with forms of drafts
("checks") payable through PNC Bank. These checks may be made payable to the
order of anyone. An investor wishing to use this check writing redemption
procedure should complete specimen signature cards, and then forward such
signature cards to JMS. JMS will then arrange for the checks to be honored
by PNC Bank. Investors who own Janney Shares through an Account should
contact JMS 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
<PAGE>13
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.
Additional Redemption Information. The Fund ordinarily will make
payment for all Shares redeemed within seven days after receipt by PFPC of a
redemption request in proper form. However, Shares purchased by check will
not be redeemed for a period of up to fifteen days after their purchase,
pending a determination that the check has cleared. This procedure does not
apply to Shares purchased by wire payment. During the period prior to the
time Shares are redeemed, dividends on such Shares will accrue and be
payable.
NET ASSET VALUE
- --------------------------------------------------------------------------
The net asset value per share of each of the Portfolios for the purpose
of pricing purchase and redemption orders is determined twice each day, once
as of 12:00 noon Eastern Time and once as of 4:00 p.m. Eastern Time on each
weekday with the exception of those holidays on which either the NYSE or the
FRB is closed. Currently, the NYSE or the FRB, or both, are closed on the
customary national business holidays of New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day
(observed), Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas Day (observed). Each Portfolio's net asset value per share is
calculated by adding the value of all securities and other assets of the
Portfolio, subtracting its liabilities and dividing the result by the number
of its outstanding shares. The net asset value per share of each Portfolio
is determined independently of any of the Fund's other investment
portfolios.
The Fund seeks to maintain for each of the Portfolios a net asset value
of $1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per
share will not vary.
With the approval of the Board of Directors, a Portfolio may use a
pricing service, bank or broker-dealer experienced in such matters to value
the Portfolio's securities. A more detailed discussion of net asset value
and security valuation is contained in the Statement of Additional
Information.
MANAGEMENT
- --------------------------------------------------------------------------
Board of Directors
The business and affairs of the Fund and each investment portfolio are
managed under the direction of the Fund's Board of Directors. The Fund
currently operates or proposes to operate nineteen separate investment
portfolios. Each of the Janney Classes represents interests in one of the
following such investment portfolios: the Money Market Portfolio, the
Municipal Money Market Portfolio, the Government Obligations Money Market
Portfolio and the New York Municipal Money Market Portfolio.
Investment Adviser and Sub-Advisor
PIMC, a wholly owned subsidiary of PNC Bank, serves as the investment
adviser for each of the Portfolios. PIMC was organized in 1977 by PNC Bank
to perform advisory services for investment companies, and has its principal
offices at Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington,
Delaware 19809. PNC Bank serves as the sub-advisor for each of the
Portfolios other than the New York Municipal Money Market Portfolio, which
has no sub-advisor. PNC Bank and its predecessors have been in the business
of managing the investments of fiduciary and other accounts in the
Philadelphia area since 1847. PNC Bank and its subsidiaries currently manage
over $30 billion of assets, of which approximately $28 billion are mutual
funds. PNC Bank, a national bank whose principal business address is Broad
and
<PAGE>14
Chestnut Streets, Philadelphia, Pennsylvania 19101, is a wholly owned
subsidiary of PNC Bancorp, Inc. PNC Bancorp, Inc. is a bank holding company
and a wholly owned subsidiary of PNC Bank Corp, a multi-bank holding
Company.
As investment adviser to the Portfolios, PIMC manages such Portfolios
and is responsible for all purchases and sales of portfolio securities. PIMC
also assists generally in supervising the operations of the Portfolios, and
maintains the Portfolios' financial accounts and records. PNC Bank, as sub-
advisor to all Portfolios other than the New York Municipal Money Market
Portfolio, which has no sub-advisor, provides research and credit analysis
and provides PIMC with certain other services. In entering into Portfolio
transactions for a Portfolio with a broker, PIMC may take into account the
sale by such broker of shares of the Fund, subject to the requirements of
best execution.
For the services provided to and expenses assumed by it for the benefit
of each of the Money Market and Government Obligations Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily
and payable monthly based on a Portfolio's average daily net assets: .45%
of the first $250 million; .40% of the next $250 million; and .35% of net
assets in excess of $500 million.
For the services provided and expenses assumed by it with respect to
the Municipal Money Market and the New York Municipal Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily
and payable monthly based on the Portfolio's average daily net assets: .35%
of the first $250 million; .30% of the next $250 million; and .25% of net
assets in excess of $500 million.
PIMC may in its discretion from time to time agree to waive voluntarily
all or any portion of its advisory fee for any Portfolio. For its sub-
advisory services, PNC Bank is entitled to receive from PIMC an amount equal
to 75% of the advisory fees paid by the Fund to PIMC with respect to any
Portfolio for which PNC Bank acts as sub-advisor. Such sub-advisory fees
have no effect on the advisory fees payable by such Portfolio to PIMC. In
addition, PIMC may from time to time enter into an agreement with one of its
affiliates pursuant to which it delegates some or all of its accounting and
administrative obligations under its advisory agreements with the Fund
relating to any Portfolio. Any such arrangement would have no effect on the
advisory fees payable by each Portfolio to PIMC.
For the Fund's fiscal year ended August 31, 1994, the Fund paid
investment advisory fees aggregating .18% of the average net assets of the
Money Market Portfolio, 0% of the average net assets of the Municipal Money
Market Portfolio, .25% of the average net assets of the Government
Obligations Money Market Portfolio and 0% of the average net assets of the
New York Municipal Money Market Portfolio. For that same year, PIMC waived
approximately .20%, .34%, .20% and .45% of the average net assets of the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio, respectively.
Administrator
PFPC serves as the administrator for the Municipal Money Market and the
New York Municipal Money Market Portfolios and generally assists such
Portfolios in all aspects of their administration and operations, including
matters relating to the maintenance of financial records and accounting.
PFPC is entitled to an administration fee, computed daily and payable
monthly at a rate of .10% of the average daily net assets of the Municipal
Money Market and New York Municipal Money Market Portfolios.
Transfer Agent, Dividend Disbursing Agent, and Custodian
PNC Bank also serves as the Fund's custodian and PFPC, an indirect
wholly owned subsidiary of PNC Bank Corp, serves as the Fund's transfer
agent and dividend disbursing agent. PFPC may enter into shareholder
servicing agreements with registered broker/dealers who have entered into
dealer agreements with the Distributor for the provision of certain
shareholder support services to customers of such broker/dealers who are
shareholders of the Portfolios. The services provided and the fees payable
by the Fund for these services are described in the Statement of Additional
Information under "Investment Advisory, Distribution and Servicing
Arrangements."
<PAGE>15
Expenses
The expenses of each Portfolio are deducted from the total income of
such Portfolio before dividends are paid. These expenses include, but are
not limited to, organizational costs, fees paid to the investment adviser,
fees and expenses of officers and directors who are not affiliated with the
Portfolio's investment adviser or Distributor, taxes, interest, legal fees,
custodian fees, auditing fees, brokerage fees and commissions, certain of
the fees and expenses of registering and qualifying the Portfolio and its
shares for distribution under Federal and state securities laws, expenses of
preparing prospectuses and statements of additional information and of
printing and distributing prospectuses and statements of additional
information annually to existing shareholders that are not attributable to a
particular class, the expense of reports to shareholders, shareholders'
meetings and proxy solicitations that are not attributable to a particular
class, fidelity bond and directors and officers liability insurance
premiums, the expense of using independent pricing services and other
expenses which are not expressly assumed by the Portfolio's investment
adviser under its advisory agreement with the Portfolio. Any general
expenses of the Fund that are not readily identifiable as belonging to a
particular investment portfolio of the Fund will be allocated among all
investment portfolios of the Fund based upon the relative net assets of the
investment portfolios at the time such expenses were accrued. In addition,
distribution expenses, transfer agency expenses, expenses of preparing,
printing and distributing prospectuses, statements of additional
information, proxy statements and reports to shareholders, and registration
fees identified as belonging to a particular class, are allocated to such
class.
The investment adviser has agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky
expense limitation in effect from time to time, to the extent required by
such limitation.
The investment adviser may assume additional expenses of the Portfolios
from time to time. In certain circumstances, it may assume such expenses on
the condition that it is reimbursed by the Portfolios for such amounts prior
to the end of a fiscal year. In such event, the reimbursement of such
amounts will have the effect of increasing a Portfolio's expense ratio and
of decreasing yield to investors.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------
Counsellors Securities Inc. (the "Distributor"), a wholly owned
subsidiary of Warburg, Pincus Counsellors Inc., with an address at 466
Lexington Avenue, New York, New York, acts as distributor of the Shares of
each of the Janney Classes of the Fund pursuant to separate distribution
contracts (collectively, the "Distribution Contracts") with the Fund on
behalf of each of the Janney Classes.
The Board of Directors of the Fund approved and adopted the
Distribution Contracts and separate Plans of Distribution for each of the
Classes (collectively, the "Plans") pursuant to Rule 12b-1 under the 1940
Act. Under each of the Plans, the Distributor is entitled to receive from
the relevant Janney Class a distribution fee, which is accrued daily and
paid monthly, of up to .65% on an annualized basis of the average daily net
assets of the relevant Janney Class. The actual amount of such compensation
is agreed upon from time to time by the Fund's Board of Directors and the
Distributor. Under the Distribution Contracts, the Distributor has agreed to
accept compensation for its services thereunder and under the Plans in the
amount of .60% of the average daily net assets of the class on an annualized
basis in any year. Pursuant to the conditions of an exemptive order granted
by the Securities and Exchange Commission, the Distributor has agreed to
waive its fee with respect to a Janney Class on any day to the extent
necessary to assure that the fee required to be accrued by such Class does
not exceed the income of such Class on that day. In addition, the
Distributor may, in its discretion, voluntarily waive from time to time all
or any portion of its distribution fee.
Under each of the Distribution Contracts and the relevant Plan, the
Distributor may reallocate an amount up to the full fee that it receives to
financial institutions, including broker/dealers, based upon the aggregate
investment amounts maintained by and services provided to shareholders of
any relevant Class serviced by such financial institutions. The Distributor
may also reimburse broker/dealers for other expenses incurred in the
promotion of the sale of Fund shares. The Distributor and/or broker/dealers
pay for the cost of printing (excluding typesetting) and mailing to
prospective investors prospectuses and other materials relating to the Fund
as well as for related direct mail, advertising and promotional expenses.
<PAGE>16
Each of the Plans obligates the Fund, during the period it is in
effect, to accrue and pay to the Distributor on behalf of each Janney Class
the fee agreed to under the relevant Distribution Contract. None of the
Plans obligates the Fund to reimburse the Distributor for the actual
expenses the Distributor may incur in fulfilling its obligations under a
Plan on behalf of the relevant Janney Class. Thus, under each of the Plans,
even if the Distributor's actual expenses exceed the fee payable to the
Distributor thereunder at any given time, the Fund will not be obligated to
pay more than that fee. If the Distributor's actual expenses are less than
the fee it receives, the Distributor will retain the full amount of the fee.
The Plans in effect with respect to the Janney Classes of the Money
Market, Municipal Money Market, Government Obligations Money Market and New
York Municipal Money Market Portfolios have been approved by the sole
shareholder of each such Class. Under the terms of Rule 12b-1, each will
remain in effect only if approved at least annually by the Fund's Board of
Directors, including those directors who are not "interested persons" of the
Fund as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of the Plan or in any
agreements related thereto ("12b-1 Directors"). Each of the Plans may be
terminated at any time by vote of a majority of the 12b-1 Directors or by
vote of a majority of the Fund's outstanding voting securities of the
relevant Janney Class. The fee set forth above will be paid by the Fund on
behalf of the relevant Janney Class to the Distributor unless and until the
relevant Plan is terminated or not renewed.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income
and net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Janney Class unless a
shareholder elects otherwise.
The net investment income (not including any net short-term capital
gains) earned by each Portfolio will be declared as a dividend on a daily
basis and paid monthly. Dividends are payable to shareholders of record
immediately prior to the determination of net asset value made as of 4:00
p.m. Eastern Time. Net short-term capital gains, if any, will be distributed
at least annually.
TAXES
- --------------------------------------------------------------------------
The following discussion is only a brief summary of some of the
important tax considerations generally affecting the Portfolios and their
shareholders and is not intended as a substitute for careful tax planning.
Accordingly, investors in the Portfolios should consult their tax advisers
with specific reference to their own tax situation.
Each Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. So long
as a Portfolio qualifies for this tax treatment, such Portfolio will be
relieved of Federal income tax on amounts distributed to shareholders, but
shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute
"exempt interest dividends" or that are treated as a return of capital)
regardless of whether such distributions are paid in cash or reinvested in
additional shares. None of the Portfolios intends to make distributions that
will be eligible for the corporate dividends received deduction.
Distributions out of the "net capital gain" (the excess of net long-
term capital gain over net short-term capital loss), if any, of any
Portfolio will be taxed to shareholders as long-term capital gain regardless
of the length of time a shareholder has held his Shares, whether such gain
was reflected in the price paid for the Shares, or whether such gain was
attributable to securities bearing tax-exempt interest. All other
distributions, to the extent they are taxable, are taxed to shareholders as
ordinary income. The maximum marginal rate on ordinary income for
individuals, trusts and estates is generally 31%, while the maximum rate
imposed on net capital gain of such taxpayers is 28%. Corporate taxpayers
are taxed at the same rates on both ordinary income and capital gains.
The Municipal Money Market Portfolio and the New York Municipal Money
Market Portfolio intend to pay substantially all of their dividends as
"exempt interest dividends." Investors in either of these Portfolios should
note, however, that taxpayers are required to report the receipt of tax-
exempt interest and "exempt interest dividends" in their Federal
<PAGE>17
income tax returns and that in two circumstances such amounts, while exempt
from regular Federal income tax, are subject to Federal alternative minimum
tax at a rate of 24% in the case of individuals, trusts and estates and 20%
in the case of corporate taxpayers. First, tax-exempt interest and "exempt
interest dividends" derived from certain private activity bonds issued after
August 7, 1986, will generally constitute an item of tax preference for
corporate and noncorporate taxpayers in determining Federal alternative
minimum tax liability. The New York Municipal Money Market Portfolio may
invest up to 20% of its net assets in such private activity bonds and the
Municipal Money Market Portfolio may invest up to 100% of its net assets in
such private activity bonds, although the Municipal Money Market Portfolio
does not presently intend to do so. Secondly, tax-exempt interest and
"exempt interest dividends" derived from all Municipal Obligations must be
taken into account by corporate taxpayers in determining their adjusted
current earnings adjustment for Federal alternative minimum tax purposes.
Investors should be aware of the possibility of state and local alternative
minimum or minimum income tax liability, in addition to Federal alternative
minimum tax. Shareholders who are recipients of Social Security Act or
Railroad Retirement Act benefits should further note that tax-exempt
interest and "exempt interest dividends" derived from all types of Municipal
Obligations will be taken into account in determining the taxability of
their benefit payments. Exempt interest dividends derived from interest on
New York Municipal Obligations will also be exempt from New York State and
New York City personal income (but not corporate franchise) taxes.
Each of the Municipal Money Market Portfolio and the New York Municipal
Money Market Portfolio will determine annually the percentages of its net
investment income which are exempt from the regular Federal income tax,
which constitute an item of tax preference for purposes of the Federal
alternative minimum tax, and which are fully taxable and will apply such
percentages uniformly to all distributions declared from net investment
income during that year. These percentages may differ significantly from the
actual percentages for any particular day. In addition, the New York
Municipal Money Market Portfolio will determine annually the percentage
amounts exempt from New York State and New York City personal income taxes,
and the amounts, if any, subject to such taxes. The exclusion or exemption
of interest income for Federal income tax purposes, or New York State or New
York City personal income tax purposes, in most cases does not result in an
exemption under the tax laws of any other state or local authority.
Investors who are subject to tax in other states or localities should
consult their own tax advisers about the taxation of dividends and
distributions from each Portfolio by such states and localities.
The Fund will send written notices to shareholders annually regarding
the tax status of distributions made by each Portfolio. Dividends declared
in October, November or December of any year payable to shareholders of
record on a specified date in such a month will be deemed to have been
received by the shareholders on December 31, provided such dividends are
paid during January of the following year. Each Portfolio intends to make
sufficient actual or deemed distributions prior to the end of each calendar
year to avoid liability for Federal excise tax.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. Federal income tax treatment.
An investment in any one Portfolio is not intended to constitute a
balanced investment program. Shares of the Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio would not be suitable for tax-
exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans and individual retirement
accounts since such plans and accounts are generally tax-exempt and,
therefore, not only would not gain any additional benefit from the
Portfolios' dividends being tax-exempt but also such dividends would be
taxable when distributed to the beneficiary.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more
Portfolios of the Fund. Shareholders are also urged to consult their tax
advisers concerning the application of state and local income taxes to
investments in the Fund which may differ from the Federal and state income
tax consequences described above.
<PAGE>18
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------
The Fund has authorized capital of thirty billion shares of Common
Stock, $.001 par value per share, of which 12.2 billion shares are currently
classified into 62 different classes of Common Stock (as described in the
Statement of Additional Information.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE JANNEY CLASSES AND DESCRIBE ONLY
THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER
MATTERS RELATING TO THE JANNEY CLASSES.
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each
other share that represents an interest in such Portfolio, even where a
share has a different class designation than another share representing an
interest in that Portfolio. Shares of the Fund do not have preemptive or
conversion rights. When issued for payment as described in this Prospectus,
Shares of the Fund will be fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
law under certain circumstances provides shareholders with the right to call
for a meeting of shareholders to consider the removal of one or more
directors. To the extent required by law, the Fund will assist in
shareholder communication in such matters.
Holders of shares of each of the Portfolios will vote in the aggregate
and not by class on all matters, except where otherwise required by law.
Further, shareholders of all investment portfolios 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 investment
portfolio. (See the Statement of Additional Information under "Additional
Information Concerning Fund Shares" for examples when the 1940 Act requires
voting by investment portfolio or by class.) Shareholders of the Fund are
entitled to one vote for each full share held (irrespective of class or
portfolio) and fractional votes for fractional shares held. Voting rights
are not cumulative and, accordingly, the holders of more than 50% of the
aggregate shares of Common Stock of the Fund may elect all of the directors.
As of March 1, 1995, to the Fund's knowledge, no person beneficially
held 25% or more of the outstanding shares of all classes of RBB.
OTHER INFORMATION
- --------------------------------------------------------------------------
Reports and Inquiries
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to Janney
Montgomery Scott, 1801 Market Street, Philadelphia, PA 19103-1675; toll free
1-800-JANNEYS.
<PAGE>19
JANNEY MONTGOMERY SCOTT MONEY FUNDS
Money Market Portfolio,
Municipal Money Market Portfolio,
Government Obligations Money Market Portfolio and
New York Municipal Money Market Portfolio
(Investment Portfolios of The RBB Fund, Inc.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of four classes
(the "Janney Shares") representing interests in four investment
portfolios (the "Portfolios") of The RBB Fund, Inc. (the "Fund"):
the Money Market Portfolio, the Municipal Money Market Portfolio,
the Government Obligations Money Market Portfolio and the New
York Municipal Money Market Portfolio. This Statement of
Additional Information is not a prospectus, and should be read
only in conjunction with the Janney Montgomery Scott Money Funds
Prospectus of the Fund dated April 1, 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 April 1, 1995.
CONTENTS
SAI Prospectus
Page Page
General .................................. 2 1
Investment Objectives and Policies ....... 2 3
Directors and Officers ................... 28 N/A
Investment Advisory, Distribution and
Servicing Arrangements ................. 30 14
Portfolio Transactions ................... 35 N/A
Purchase and Redemption Information ...... 36 12
Valuation of Shares ...................... 36 14
Taxes .................................... 38 17
Description of Shares .................... 42 19
Additional Information Concerning Fund
Shares.................................. 45 19
Miscellaneous ............................ 45 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>1
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 four classes of shares (the
"Janney Classes") representing interests in four investment
portfolios (the "Portfolios") of the Fund: the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal
Money Market Portfolio. The Janney Classes are offered by the
Prospectus dated April 1, 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 Portfolios. 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 a Portfolio
pursuant to a 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, a 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 or the Municipal
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, Municipal Money
Market or New York Municipal 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.
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 Money Market Portfolio, Municipal Money Market
Portfolio or New York Municipal Money Market Portfolio has firm
commitments outstanding, such Portfolio will maintain in a
segregated account with the Fund's custodian or a qualified sub-
custodian,
<PAGE>2
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 relevant Portfolio will set aside portfolio securities to
satisfy a purchase commitment and, in such a case, such 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 such Portfolio's commitment. It
may be expected that such 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 such 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, such 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 any of the Money Market
Portfolio, Municipal Money Market Portfolio or the New York
Municipal Money Market 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 such Portfolio's
incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
Stand-by Commitments. Each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal 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, Municipal Money Market
Portfolio or New York Municipal 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.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal 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, either such 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, Municipal Money Market Portfolio and New
York Municipal Money Market Portfolio will not exceed 1/2 of 1%
of the value of the relevant Portfolio's total assets calculated
immediately after each stand-by commitment is acquired.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal 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. Any such Portfolio's reliance upon
the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying Municipal Obligations that
are subject to the commitment.
The Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal 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
<PAGE>3
amortized cost method. The actual stand-by commitment will be valued
at zero in determining net asset value. Accordingly, where either such
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 such Portfolio and will be reflected in realized gain
or loss when the commitment is exercised or expires.
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.
Short Sales "Against the Box." In a short sale, the
Government Obligations Money Market Portfolio sells a borrowed
security and has a corresponding obligation to the lender to
return the identical security. The Portfolio may engage in short
sales if at the time of the short sale it owns or has the right
to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short
sale "against the box." In a short sale, a seller does not
immediately deliver the securities sold and is said to have a
short position in those securities until delivery occurs. If the
Portfolio engages in a short sale, the collateral for the short
position will be maintained by the Portfolio's custodian or a
qualified sub-custodian. While the short sale is open, the
Portfolio will maintain in a segregated account an amount of
securities equal in kind and amount to the securities sold short
or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the
Portfolio's long position. The Portfolio will not engage in
short sales against the box for investment purposes. A Portfolio
may, however, make a short sale as a hedge, when it believes that
the price of a security may decline, causing a decline in the
value of a security owned by the Portfolio (or a security
convertible or exchangeable for such security), or when the
Portfolio wants to sell the security at an attractive current
price, but also wishes to defer recognition of gain or loss for
federal income tax purposes and for purposes of satisfying
certain tests applicable to regulated investment companies under
the Internal Revenue Code. In such case, any future losses in
the Portfolio's long position should be reduced by a gain in the
short position. Conversely, any gain in the long position should
be reduced by a loss in the short position. The extent to which
such gains or losses are reduced will depend upon the amount of
the security sold short relative to the amount the Portfolio
owns. There will be certain additional transaction costs
associated with short sales against the box, but the Portfolio
will endeavor to offset these costs with the income from the
investment of the cash proceeds of short sales. The dollar
amount of short sales at any time will not exceed 25% of the net
assets of the Government Obligations Money Market Portfolio, and
the value of securities of any one
<PAGE>4
issuer in which the Portfolio is short will not exceed the lesser of
2% of net assets or 2% of the securities of any class of an issuer.
Municipal Obligations. 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 be backed by an 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.
The Tax Reform Act of 1986 substantially revised provisions
of prior law affecting the issuance and use of proceeds of
certain Municipal Obligations. A new definition of private
activity bonds applies to many types of bonds, including those
which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986
is tax-exempt only if the bonds fall within certain defined
categories of qualified private activity bonds and meet the
requirements specified in those respective categories. In
addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is
taxable. The Act has generally not changed the tax treatment of
bonds issued to finance governmental operations. As used in this
Prospectus, the term "private activity bonds" also includes
industrial development revenue bonds issued prior to the
effective date of the provisions of the Tax Reform Act of 1986.
Investors should also be aware of the possibility of state and
local alternative minimum or minimum income tax liability on
interest from Alternative Minimum Tax Securities.
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 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
<PAGE>5
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 a 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 a 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.
One such type of mortgage-related security in which the
Portfolio may invest is a Government National Mortgage
Association ("GNMA") Certificate. GNMA Certificates are backed
as to the timely payment of principal and interest by the full
faith and credit of the U.S. Government. Another type is a
Federal National Mortgage Association ("FNMA") Certificate.
Principal and interest payments on FNMA Certificates are
guaranteed only by FNMA itself, not by the full faith and credit
of the U.S. Government. A third type of mortgage-related
security in which the Portfolio may invest is a Federal Home Loan
Mortgage Association ("FHLMC") Participation Certificate. This
type of security is guaranteed by FHLMC as to timely payment of
principal and interest but, like a FNMA security, it is not
guaranteed by the full faith and credit of the U.S. Government.
For a further discussion of GNMA, FNMA and FHLMC, see "Mortgage-
Related Debt Securities" in the Statement of Additional
Information.
Each of the mortgage-related securities described above is
characterized by monthly payments to the security holder,
reflecting the monthly payments made by the mortgagors of the
underlying mortgage loans. The payments to the security holders
(such as the Portfolio), like the payments on the underlying
loans, represent both principal and interest. Although the
underlying mortgage loans are for specified periods of time, such
as twenty or thirty years, the borrowers can, and typically do,
repay them sooner. Thus, the security holders frequently receive
prepayments of principal, in addition to the principal which is
part of the regular monthly payments. A borrower is more likely
to prepay a mortgage which bears a relatively high rate of
interest. This means that, in times of declining interest rates,
some of the Portfolio's higher yielding securities might be
repaid and thereby converted to cash and the Portfolio will be
forced to accept lower interest rates when that cash is used to
purchase additional securities. The Portfolio normally will not
distribute principal payments (whether regular or prepaid) to its
shareholders. Interest received by the Portfolio will, however,
be distributed to shareholders in the form of dividends.
<PAGE>6
To compare the prepayment risk for various mortgage-related
securities, various independent mortgage-related securities
dealers publish average remaining life data using proprietary
models. In making determinations concerning average remaining
life of mortgage-related securities for the Portfolio, the
investment adviser will rely on such data to evaluate the
prepayment risk in a particular security except to the extent
such data are deemed unreasonable by the investment adviser. The
investment adviser might deem such data unreasonable if such data
appeared to present a significantly different average remaining
expected life for a security when compared to data relating to
the average remaining life of comparable securities as provided
by other independent mortgage-related securities dealers.
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 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 above,
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.
Lending of Securities. With respect to loans by the
Government Obligations Money Market Portfolio of its portfolio
securities as described in
<PAGE>7
the Prospectus, such Portfolio would continue to accrue interest on
loaned securities and would also earn income on loans. Any cash
collateral received by such Portfolio in connection with such loans
would be invested in short-term U.S. Government obligations. Any
loan by the Government Obligations Money Market Portfolio of its
portfolio's securities will be fully collateralized and marked to
market daily.
Eligible Securities. The Portfolios 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
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 and Government Obligations
Money Market Portfolios of securities that are rated by only one
NRSRO or that are Unrated Securities.
Illiquid Securities. None of the Portfolios may invest more
than 10% of its net assets in illiquid securities (including with
respect to all Portfolios other than the Municipal Money Market
Portfolio, 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. Each 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, the Government Obligations Money Market Portfolio, and
the New York Municipal 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, except as to the Municipal Money
Market Portfolio, 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
<PAGE>8
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 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.
Each Portfolio's investment adviser will monitor the
liquidity of restricted securities in each 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).
Special Considerations Relating to New York Municipal
Obligations.
Some of the significant financial considerations relating to
the New York Municipal Money Market Portfolio's investments in
New York Municipal Obligations are summarized below. This
summary information is derived principally from official
statements released prior to the date of this Statement of
Additional Information relating to issues of New York Municipal
Obligations and does not purport to be a complete description of
any of the considerations mentioned herein. The accuracy and
completeness of the information contained in such official
statements has not been independently verified.
State Economy. New York is the second most populous state
in the nation and has a relatively high level of personal wealth.
The State's economy is diverse with a comparatively large share
of the nation's finance, insurance, transportation,
communications and services employment, and a comparatively small
share of the nation's farming and mining activity. The State has
a declining proportion of its workforce engaged in manufacturing,
and an increasing proportion engaged in service industries. New
York City (the "City"), which is the most populous city in the
State and nation and is
<PAGE>9
the center of the nation's largest metropolitan area, accounts for
approximately 41% of both the State's population and personal income.
The State has historically been one of the wealthiest states
in the nation. For decades, however, the State has grown more
slowly than the nation as a whole, gradually eroding its relative
economic affluence. The recession has been more severe in the
State, owing to a significant retrenchment in the financial
services industry, cutbacks in defense spending, and an overbuilt
real estate market. There can be no assurance that the State
economy will not experience worse-than-predicted results in the
1993-94 fiscal year, with corresponding material and adverse
effects on the State's projections of receipts and disbursements.
The unemployment rate in the State dipped below the national
rate in the second half of 1981 and remained lower until 1991.
The total employment growth rate in the State has been below the
national average since 1984, and in 1992 the unemployment rate
rose to 8.5%. State per capita personal income for 1992 was
$23,534, which is 18.6% above the 1992 national average of
$19,841. Between 1970 and 1980, the percentage by which the
State's per capita income exceeded that of the national average
fell from 19.8% to 8.1%, and the State dropped from fifth to
eleventh in the nation in terms of per capita income. However,
since 1980, the State's rate of per capita income growth was
greater than that of the nation generally and the State's rank
improved to fourth in 1990 and remained fourth in 1991 and 1992.
Some analysts believe that the decline in jobs in both the city
and New York State is the result of State and local taxation,
which is among the highest in the nation, and which may cause
corporations to locate outside New York State. The current high
level of taxes limits the ability of New York State and the city
to impose higher taxes in the event of future difficulties.
State Budget. The State Constitution requires the Governor
to submit to the Legislature a balanced Executive Budget which
contains a complete plan of expenditures for the ensuing fiscal
year and all moneys and revenues estimated to be available
therefor, accompanied by bills containing all proposed
appropriations or reappropriations and any new or modified
revenue measures to be enacted in connection with the Executive
Budget. The entire plan constitutes the proposed State Financial
Plan for that fiscal year. The Governor submits to the
Legislature, on at least a quarterly basis, reports of actual
receipts, revenues, disbursements, expenditures, tax refunds and
reimbursements, and repayment of advances in form suitable for
comparison with the State Financial Plan, together with
explanations of deviations from the State Financial Plan.
At such time, the Governor is required to submit any
amendments to the State financial plan necessitated by such
deviations. The third quarterly update to the 1992-93 State
Financial Plan was submitted by the Governor on January 19,
1993. Such revision projected that the State will complete its
1992-93 fiscal year with a cash-basis General Fund positive
margin of $184 million. This positive balance will be made
available for income tax refunds in the 1993-94 fiscal year.
The Governor released the recommenced Executive Budget for
the 1993-94 fiscal year on January 19, 1993 and amended it on
February 18, 1993. The recommended 1993-94 State Financial Plan
projected a balanced General Fund. General Fund receipts and
transfers from other funds were projected at $31.556 billion,
including $184 million expected to be carried over from the 1993-
94 fiscal year. Disbursements and transfers to other funds were
projected at $31.489 billion, not including a $67 million
repayment to the State's Tax Stabilization Reserve Fund.
<PAGE>10
The 1993-94 State Financial Plan formulated on April 16,
1993 (the "1993-94 State Financial Plan"), following enactment of
the State's 1993-94 budget, projected General Fund receipts and
transfers from other funds at $32.367 billion and disbursements
and transfers to other funds at $32.300 billion. Excess receipts
of $67 million will be used for a required payment to the State's
Tax Stabilization Reserve Fund. In comparison to the recommended
1993-94 Executive Budget, the 1993-94 State budget, as enacted,
reflected increases in both receipts and disbursements in General
Funds of $811 million.
There can be no assurance that the State will not face
substantial potential budget gaps in future years resulting from
a significant disparity between tax revenues projected from a
lower recurring receipts base and the spending required to
maintain State programs at current levels. To address any
potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements
in future fiscal years.
The 1993-94 State Financial Plan is based on a number of
assumptions and projections. Because it is not possible to
predict accurately the occurrence of all factors that may affect
the 1993-94 State Financial Plan, actual results may differ and
have differed materially in recent years, from projections made
at the outset of a fiscal year. The 1993-94 State Financial Plan
has been prepared on a cash basis and on the basis of generally
accepted accounting principles ("GAAP") using the four GAAP
defined governmental fund types: the General Fund, Special
Revenue Funds, Capital Projects Funds and Debt Service Funds.
Recent Financial Results. During its 1989-90, 1990-91 and
1991-92 fiscal years, the State incurred cash-basis operating
deficits, prior to the issuance of short-term tax and revenue
anticipation notes, owing to lower-than-projected receipts, which
it believes to have been principally the result of a significant
slowdown in the New York and regional economy, and with respect
to the 1989-90 fiscal year, changes in taxpayer behavior caused
by the Federal Tax Reform Act of 1986.
The General Fund is the principal operating fund of the
State. It receives all State income that is not required by law
to be deposited in another fund which for the State's 1993-94
fiscal year, comprises approximately 52% of total projected
governmental fund receipts.
General Fund receipts, excluding transfers from other funds,
totalled $28.818 billion in the State's 1991-92 fiscal year
(before repayment of $1.081 billion of deficit notes issued in
its 1990-91 fiscal year and before issuance of $531 million in
deficit notes to close the 1991-92 fiscal year General Fund cash
basis operating deficit), and $29.950 billion in the State's 1991-
92 fiscal year (before repayment of $531 million in deficit notes
issued to close the State's 1991-92 fiscal year General Fund cash
basis deficit). General Fund receipts in the State's 1993-94
fiscal year are estimated in the 1993-94 State Financial Plan at
$30.765 billion. Taxes account for 96% of estimated 1993-94
General Fund receipts, with the balance comprised of
miscellaneous receipts.
General Fund disbursements, exclusive of transfers to other
funds, totalled $28.058 billion in the State's 1991-92 fiscal
year and $29.068 billion in the State's 1992-93 fiscal year and
are estimated to total $30.346 billion in the State's 1993-94
fiscal year.
The State's financial position as shown in its Combined
Balance Sheet as of March 31, 1992 included an accumulated
deficit in its combined governmental funds of $3.315 billion
represented by liabilities of $14.166 billion and assets of
$10.851 billion available to liquidate such liabilities.
<PAGE>11
Debt Limits and Outstanding Debt. There are a number of
methods by which the State of New York may incur debt. Under the
State Constitution, the State may not, with limited exceptions
for emergencies, undertake long-term borrowing (i.e., borrowing
for more than one year) unless the borrowing is authorized in a
specific amount for a single work or purpose by the Legislature
and approved by the voters. There is no limitation on the amount
of long-term debt that may be so authorized and subsequently
incurred by the State. The total amount of long-term State
general obligation debt authorized but not issued as of March 3,
1993 was approximately $2.427 billion.
The State may undertake short-term borrowings without voter
approval (i) in anticipation of the receipt of taxes and
revenues, by issuing tax and revenue anticipation notes, and (ii)
in anticipation of the receipt of proceeds form the sale of duly
authorized but unissued bonds, by issuing bond anticipation
notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the
State of New York's authorities and public benefit corporations
("Authorities"). Payments of debt service on New York State
general obligation and New York State-guaranteed bonds and notes
are legally enforceable obligations of the State of New York.
The State of New York also employs two other types of
long-term financing mechanisms which are State-supported but are
not general obligations of the State: moral obligation and lease-
purchase or contractual-obligation financing.
In 1990, as part of a State fiscal reform program,
legislation was enacted creating the New York Local Government
Assistance Corporation ("LGAC"), a public benefit corporation
empowered to issue long-term obligations to fund certain payments
to local governments traditionally funded through New York
State's annual seasonal borrowing. The Legislation empowered
LGAC to issue its bonds and notes in an amount not in excess of
$4.7 billion (exclusive of certain refunding bonds) plus certain
other amounts. Over a period of years, the issuance of those
long-term obligations, which will be amortized over no more than
30 years, is expected to result in eliminating the need for
continuing short-term seasonal borrowing for those purposes. The
legislation also imposed a cap on the annual seasonal borrowing
of the State at $4.7 billion, less net proceeds of bonds issued
by LGAC and bonds issued to provide for capitalized interest,
except in cases where the Governor and the legislative leaders
have certified both the need for additional borrowing and
provided a schedule for reducing it to the cap. If borrowing
above the cap is thus permitted in any fiscal year, it is
required by law to be reduced to the cap by the fourth fiscal
year after the limit was first exceeded. To date, LGAC has
issued its bonds to provide net proceeds of $3.281 billion. LGAC
has been authorized to issue its bonds to provide net proceeds of
up to an additional $703 million during the State's 1993-94
fiscal year.
In April 1993, legislation was also enacted providing for
significant changes in the long-term financing practices of the
State and the Authorities.
The Legislature passed a proposed constitutional amendment
that would permit the State, without a voter referendum but
within a formula-based cap, to issue revenue bonds, which would
be debt of the State secured solely by a pledge of certain State
tax receipts (including those allocated to State funds dedicated
for transportation purposes), and not by the full faith and
credit of the State. In addition, the proposed amendment would
require that State debt be incurred only for capital projects
included in a multi-year capital financing plan and would
prohibit lease-purchase and contractual-obligation financing
mechanisms for State facilities. The Governor and the
Legislative leaders have indicated that public hearings will be
held on the proposed constitutional amendment. Before becoming
effective, the
<PAGE>12
proposed constitutional amendment must first be passed again by the
next separately elected Legislature and then approved by the voters
at a general election, so that it could not become effective until
after the general election in November 1995.
On March 26, 1990, Standard & Poor's Corporation ("S&P")
downgraded New York State's (1) general obligation bonds from
"AA-" to "A" and (2) commercial paper from "A-1+" to "A-1". Also
downgraded was certain of New York State's variously rated moral
obligation, lease-purchase, guaranteed and contractual-obligation
debt, including debt issued by certain New York State agencies.
On August 27, 1990, S&P affirmed these ratings without change.
On June 6, 1990, Moody's changed its ratings on all the State's
outstanding general obligation bonds from "A-1" to "A". On March
26, 1990, S&P changed its ratings of all the State's outstanding
general obligations bonds from "AA-" to "A". On January 6,
1992, Moody's lowered from "A" to "Baa-1" the ratings on certain
appropriation-backed debt of the State of New York and its
agencies. Approximately two-thirds of the State's tax-supported
debt is affected by Moody's rating action. Moody's stated that
the more secure general obligation, state-guaranteed and LGAC
bonds continue to be rated "A", but are placed under review for
possible downgrade over the coming months. On January 13, 1992,
S&P lowered its rating on $4.8 billion of New York State general
obligation bonds to "A-" from "A". Various agency debt, state
moral obligations, contractual obligations, lease-purchase
obligations and state guarantees are also affected by S&P's
action. Additionally, under S&P's minimum-rating approach, New
York local school district debt will now carry a minimum rating
of "A-" rather than "A" and school districts currently rated "A"
are placed on CreditWatch with negative implications. In taking
these rating actions, Moody's and S&P variously cited continued
economic deterioration, chronic operating deficits, mounting GAAP
fund balance deficits and the legislative stalemate in seeking
permanent and structurally sound fiscal operations. On January
15, 1992, S&P took further action by lowering the rating on the
claims-paying ability of the State of New York Mortgage Agency
Mortgage Insurance Fund to "BBB+" from "A-" following the January
13, 1992 downgrade of New York State's general obligation bond
rating to "A-".
The State anticipates that its borrowings for capital
purposes in its 1993-94 fiscal year will consist of approximately
$460 million in general obligation bonds and $140 million in new
commercial paper issuances. In addition, it is anticipated that
the State will issue $140 million in general obligation bonds for
the purpose of redeeming outstanding bond anticipation notes.
The Legislature has also authorized the issuance of up to $85
million in certificates of participation for equipment purchases
and real property purposes during the State's 1993-94 fiscal
year. The projection of the State regarding its borrowings for
the 1993-94 fiscal year may change if actual receipts fall short
of State projections or if other circumstances require.
Payments for principal and interest due on general
obligation bonds, interest due on bond anticipation notes and on
tax and revenue anticipation notes, and contractual-obligation
and lease-purchase commitments were $1.783 billion and $2.045
billion in the aggregate, for New York State's 1991-92 and 1992-
93 fiscal years, respectively, and are estimated to be $2.326
billion for the State's 1993-94 fiscal year. These figures do
not include interest payable on either New York State General
Obligation Refunding Bonds issued on July 30, 1992, to the
extent that such interest is to be paid from an escrow fund
established with the proceeds of such bonds or New York State's
installment payments relating to the issuance of certificates of
participation.
<PAGE>13
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase
or contractual-obligation financing arrangements and has never
been called upon to make any direct payments pursuant to its
guarantees. Three has never been a default on any moral
obligation debt of any Authority.
Litigation. Certain litigation pending against New York
State or its officers or employees could have a substantial or
long-term adverse effect on New York State finances. Among the
more significant of these cases are those that involve (1) the
validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in
central New York; (2) certain aspects of New York State's
Medicaid policies and its rates and regulations, including
reimbursements to providers of mandatory and optional Medicare
services; (3) contamination in the Love Canal area of Niagara
Falls; (4) an action against New York State and New York city
officials alleging inadequate shelter allowances to maintain
proper housing; (5) challenges to the practice of reimbursing
certain Office of Mental Health patient care expenses from the
client's Social Security benefits; (6) alleged responsibility of
New York State officials to assist in remedying racial
segregation in the City of Yonkers; (7) a challenge to the
methods by which New York State reimburses localities for the
administrative costs of food stamp programs; (8) a challenge to
New York State's possession of certain property taken pursuant to
New York State's Abandoned Property Law; (9) an action, in which
New York State is a third party defendant, for injunctive or
other appropriate relief, concerning liability for the
maintenance of stone groins constructed along certain areas of
Long Island's shoreline; (10) the constitutionality of
legislation enacted during the 1990 legislative session which
changed actuarial funding methods for determining state and local
contributions to the state employee retirement system; (11)
action by school districts and their employees challenging the
constitutionality of Chapter 175 of the Laws of 1990 which
deferred school district contributions to the public retirement
system and reduced by like amount state aid to the school
districts; (12) challenges to portions of Public Health law,
which imposed a 13% surcharge on inpatient hospital bills paid by
commercial insurers and employee welfare benefit plans and
portions of Chapter 55 of the Laws of 1992 requiring hospitals
to impose and remit to the State an 11% surcharge on hospital
bills paid by commercial insurers, and which required health
maintenance organizations to remit to the State a surcharge of up
to 9%; and (13) a challenge to provisions of the Public Health
Law and implementing regulations that imposed a bad debt and
charity care allowance on all hospital bills and a 13% surcharge
on inpatient bills paid by employee welfare benefit plans.
A number of cases have also been instituted against the
State challenging the constitutionality of various public
authority financing programs. In Schulz, et al. v. State of New
York, a proceeding was commenced on April 29, 1991 in the
Supreme Court, Albany County challenging the constitutionality of
certain state bonding and financing programs authorized by
Chapter 190 of the Laws of 1990. By opinion dated May 11,
1993, the Court of Appeals held that petitioners have standing as
voters pursuant to Section 11 of Article VII of the State but
affirmed the order dismissing the proceeding on the ground of
laches.
In a proceeding commenced on August 6, 1991 (Schulz, et al.
v. State of New York, et al., Supreme Court, Albany County),
petitioners challenge the constitutionality of two bonding
programs of the New York State Thruway Authority authorizing by
Chapters 166 and 410 of the Laws of 1991. The defendants' motion
to dismiss the action on procedural grounds was denied by order
of the Supreme Court dated January 2, 1992. By order dated
November 5, 1992, the Appellate Division, Third Department,
reversed the order
<PAGE>14
of the Supreme Court and granted defendants' motion to dismiss on
grounds of standing and mootness. The proceeding is pending.
In an action commenced on February 6, 1992 (Schulz, et al.
v. State of New York, et al., Supreme Court, Albany County)
plaintiffs seek a judgment declaring unconstitutional sections 1,
2, 3 and 10 of Chapter 220 of the Laws of 1990 which relate to
the creation and operation of LGAC. On Mach 3, 1992 the Supreme
Court, Albany County, granted defendants' motion for summary
judgment in all respects and dismissed the complaint. On July
23, 1992 the Appellate Division, Third Department, modified and
affirmed the judgment of the Supreme Court, holding that the
plaintiffs lacked standing. By opinion dated May 11, 1993, the
Court of Appeals denied plaintiffs' motion for leave to appeal
and dismissed the litigation. The Court noted that plaintiffs
had failed to plead standing as voters pursuant to Section 11 of
Article VII of the State Constitution, and, thus, the motion for
leave to appeal did not directly involve a substantial
constitutional question.
In Schulz, et al. v. State of New York, et al., commenced
May 24, 1993, Supreme Court, Albany County, petitioners
challenge, among other things, the constitutionality of, and seek
to enjoin certain highway, bridge and mass transportation bonding
programs of the New York State Thruway Authority and the
Metropolitan Transportation Authority authorized by Chapter 56
of the Laws of 1933. Petitioners contend that the application of
State tax receipts held in dedicated transportation funds to pay
debt service on bonds of the Thruway Authority and of the
Metropolitan Transportation Authority violates Section 8 and 11
of Article VII and Section 5 of Article X of the State
Constitution and due process provisions of the State and Federal
Constitutions. By order dated May 24, 1993, the Supreme Court
temporarily enjoined the State from implementing the bonding
programs of the Thruway Authority and Metropolitan Transportation
Authority described above.
Several actions challenging the withholdings of pay from
civil employees by the State have also been decided against the
State. A settlement has been announced in the actions brought by
certain health insurers and health maintenance organizations
challenging the constitutionality of the State's statutory scheme
relating to excess medical malpractice insurance premiums. The
U.S. District Court for the Wester District of New York has
approved a settlement and award to plaintiffs in various
employment discrimination suits brought against the State and its
agencies. A stipulation to dismiss an action involving the
treatment provided at a state facility for the developmentally
disabled has been filed by the involved parties and approved by
order of the District Court.
The legal proceedings noted above involve State finances,
State programs and miscellaneous tort, real property and contract
claims in which the State is a defendant and the monetary damages
sought are substantial. These proceedings could affect adversely
the financial condition of the State in the 1993-94 fiscal year
or thereafter. Adverse developments in these proceedings or the
initiation of new proceedings could affect the ability of the
State to maintain a balanced 1993-94 State Financial Plan. An
adverse decision in any of these proceedings could exceed the
amount of the 1993-94 State Financial Plan reserve for the
payment of judgments and, therefore, could affect the ability of
the State to maintain a balanced 1993-94 State Financial Plan.
In its audited financial statements for the 1991-92 fiscal year,
the State reported its estimated liability for awarded and
anticipated unfavorable judgments to be $489 million. The State
has stated its belief that the 1993-94 State Financial Plan
includes sufficient reserves for the payment of judgments that
may be required during the 1993-94 fiscal year.
Although other litigation is pending against New York State,
except as described above, no current litigation involves New
York State's
<PAGE>15
authority, as a matter of law, to contract indebtedness, issue its
obligations, or pay such indebtedness when it matures, or affects
New York State's power or ability, as a matter of law, to impose or
collect significant amounts of taxes and revenues.
The Authorities. The fiscal stability of the State is
related to the fiscal stability of its Authorities, which
generally have responsibility for financing, constructing and
operating revenue-producing public benefit facilities.
Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may
issue bonds and notes within the amounts of, and as otherwise
restricted by, their legislative authorization. As of September
30, 1992, the latest data available, there were 18 Authorities
that had outstanding debt of $100 million or more. The aggregate
outstanding debt, including refunding bonds, of these 18
Authorities was $62.2 billion as of September 30, 1992, of which
approximately $8.2 billion was moral obligation debt and
approximately $17.1 billion was financed under lease-purchase or
contractual-obligation financing arrangements.
Authorities are generally supported by revenues generated by
the projects financed or operated, such as fares, user fees on
bridges, highway tolls and rentals for dormitory rooms and
housing. In recent years, however, the State has provided
financial assistance through appropriations, in some cases of a
recurring nature, to certain of the 18 Authorities for operating
and other expenses and, in fulfillment of its commitments on
moral obligation indebtedness or otherwise, for debt service.
This assistance is expected to continue to be required in future
years. New York State provided $947.4 million and $955.5 million
in financial assistance to the 18 Authorities during New York
State's 1991-92 and 1992-93 fiscal years, respectively, and
expects to provide approximately $1,096.6 million in financial
assistance to these Authorities in its 1993-94 fiscal year. The
amounts set forth above exclude, however, amounts provided for
capital construction and pursuant to lease-purchase or
contractual-obligation (including service contract debt)
financing arrangements.
New York State provided $947.4 million and $955.5 million
in financial assistance to the 18 Authorities during New York
State's 1991-92 and 1992-93 fiscal years, respectively, and
expects to provide approximately $1,096.6 million in financial
assistance to these Authorities in its 1993-94 fiscal year. The
amounts set forth above exclude, however, amounts provided for
capital construction and pursuant to lease-purchase or
contractual-obligation (including service contract debt)
financing arrangements.
Experience has shown that if an Authority suffers serious
financial difficulties, both the ability of the State and the
Authorities to obtain financing in the public credit markets and
the market price of the State's outstanding bonds and notes may
be adversely affected. The New York State Housing Finance Agency
and the New York State Urban Development Corporation have in the
past required substantial amounts of assistance from the State to
meet debt service costs or to pay operating expenses. Further
assistance, possibly in increasing amounts, may be required for
these, or other, Authorities in the future. In addition, certain
statutory arrangements provide for State local assistance
payments otherwise payable to localities to be made under certain
circumstances to certain Authorities. The State has no
obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under
these arrangements. However, in the event that such local
assistance payments are so diverted, the affected localities
could seek additional State funds.
New York city and Other Localities. The fiscal health of
the State of New York is closely related to the fiscal health of
its localities,
<PAGE>16
particularly the City of New York, which has required and
continues to require significant financial assistance from
New York State. The City's independently audited operating
results for each of its 1981 through 1992 fiscal years,
which end on June 30, show a General Fund surplus reported in
accordance with GAAP. The City has eliminated the cumulative
deficit in its net General Fund position. In addition, the
city's financial statements for the 1992 fiscal year received an
unqualified opinion from the City's independent auditors, the
tenth consecutive year the City has received such an opinion.
In 1975, New York City suffered a fiscal crisis that
impaired the borrowing ability of both the City and New York
State. In that year the City lost access to public credit
markets. The City was not able to sell short-term notes to the
public again until 1979. Since 1981, the City has fully
satisfied its seasonal financing needs with sales of short-term
notes in the public credit markets ranging from $850 million in
fiscal year 1985 to $1.2 billion in fiscal year 1989.
On February 11, 1991, Moody's lowered their rating on the
city's general obligation bonds to "Baa-1" from "A". Moody's
expressed doubts about whether the City's January 16, 1991
financial plan presents a "reasonable program to achieve budget
balance in fiscal 1991 and 1992 and assure long-term structural
integrity." Moody's stated "the enormity of the current problem,
the severity of required expenditure cuts, the substantial
revenue enhancements that will be require to achieve balance, the
vulnerability to exogenous factors, and the extremely short time
frame within which all this must be accomplished introduce
substantial new risk to the city's short- and long-term credit
outlook." On April 29, 1991, S&P downgraded New York city's
outstanding $1.3 billion of general obligation revenue and
anticipation notes from "SP-1" to "SP-2". S&P also announced a
rating of "SP-2" for the City's offering of $1.25 billion of
general obligation revenue anticipation notes. The lower ratings
of S&P "reflect the City's aggravated short-term cash position
for fiscal 1991, the unusually high level of total revenue
anticipation note exposure resulting from the State's delay in
passing its budget and distributing fiscal aid, and continued
pressure on revenues and expenditures due to prevailing economic
conditions." On April 30, 1991, Moody's assigned a rating of
"MIG-2" to the same offering of $1.25 billion of general
obligation revenue anticipation notes. Moody's stated that
"although an increasingly strained financial outlook for both the
City and the State complicates the State budget adoption process,
this rating on revenue anticipation notes relies explicitly on
the expectation that the State is fully cognizant of the
consequences of further untimely delays in state budget adoption
and will act responsibly. Failure of the State to find a timely
resolution to the budget process will have sever implications for
the normal financial performance of New York City and other local
governments in New York State." On October 7, 1991, Moody's
again assigned a "MIG-2" rating to New York City's $1.25 billion
of revenue anticipation notes, fiscal 1992, Series A.
Moody's stated in its January 6, 1992 downgrade of certain
New York State obligations that while such action did not
directly affect the bond ratings of local governments in New York
State, the impact of the State's fiscal stringency on local
government bond ratings will be assessed on a case-by-case basis.
On June 22, 1992, Moody's gave its MIG-1 rating tot he city's
$1.4 billion revenue anticipation notes and tax anticipation
notes citing New York City's "markedly improved" short-term
credit position.
On July 6, 1993, S&P reaffirmed the city's "A-" rating on
$20.4 billion of general obligation bonds stating that "the City
has identified additional gap-closing measures that have
recurring value and will reduce next year's budget gap... by
approximately $400 million." Officials at Moody's
<PAGE>17
also indicated that there were no plans to alter its "Baa1" rating
on the city's general obligation bonds.
New York City is heavily dependent on New York State and
Federal assistance to cover insufficiencies in its revenues.
There can be no assurance that in the future Federal and State
assistance will enable the city to make up its budget deficits.
To help alleviate the city's financial difficulties, the
Legislature credited the Municipal Assistance Corporation ("MAC")
in 1975. MAC is authorized to issue bonds and notes payable from
certain stock transfer tax revenues, from the City's portion of
the State sales tax derived in the City and from State per capita
aid otherwise payable by the State to the City. Failure by the
State to continue the imposition of such taxes, the reduction of
the rate of such taxes to rates less than those in effect on July
2, 1975, failure by the State to pay such aid revenues and the
reduction of such aid revenues below a specified level are
included among the events of default in the resolutions
authorizing MAC's long-term debt. The occurrence of an event of
default may result in the acceleration of the maturity of all or
a portion of MAC's debt. As of September 30, 1991, MAC had
outstanding an aggregate of approximately $6.471 billion of its
bonds. MAC bonds and notes constitute general obligations of MAC
and do not constitute an enforceable obligation or debt of either
the State or the City. Under its enabling legislation, MAC's
authority to issue bonds and notes (other than refunding bonds
and notes) expired on December 31, 1984. Legislation has been
passed by the Legislature which would, under certain conditions,
permit MAC to issue up to $1.465 billion of additional bonds.
Since 1975, the City's financial condition has been subject
to oversight and review by the New York State Financial Control
Board (the "Control Board") and since 1978 the City's financial
statements have been audited by independent accounting firms. To
be eligible for guarantees and assistance, the City is required
during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control
Board review, a financial plan for the next four fiscal years
covering the City and certain agencies showing balanced budgets
determined in accordance with GAAP. New York State also
established the Office of the State Deputy Comptroller for New
York City ("OSDC") to assist the Control Board in exercising its
powers and responsibilities. On June 30, 1986, the City
satisfied the statutory requirements for termination of the
control period. This means that the Control Board's powers of
approval are suspended, but the Board continues to have oversight
responsibilities.
1993-1996 Financial Plan
On June 11, 1992, the City submitted to the Control Board a
new four-year financial plan covering fiscal years 1993 through
1996 ("the 1993-1996 Financial Plan"). The 1993-1996 Financial
Plan is based on the City's adopted expense budget for fiscal
year 1993, which includes actions to close a previously projected
gap of approximately $1.2 billion. The 1993-1996 Financial Plan
projected a balanced budget for fiscal year 1993 based upon
revenues of $29.508 billion, but budget gaps of $1.6 billion,
$1.7 billion and $2.3 billion in fiscal years 1994, 1995, and
1996, respectively. The 1993-1996 Financial Plan proposes to
eliminate these gaps through a program of City, State and Federal
actions.
On February 9, 1993, the City issued a modification to the
1993-1996 Financial Plan (the "February Modification"). After
taking into account potential higher labor costs based upon a
labor agreement reached in January and various other re-estimates
of revenues and expenditures, the February Modification projected
a balanced budget for fiscal year 1993, based upon revenues of
$30.367 billion. The February Modification projected budget gaps
in the subsequent years that are substantially larger than those
projected in
<PAGE>18
the 1993-1996 Financial Plan. Among the reasons for the larger
gaps are lower estimates of real property tax revenues, higher
estimates of labor costs deriving from the labor settlement
reached in January and increased projections of spending for
the Board of Education. Taking these and other developments
into account, the February Modifications projected budget gaps
for fiscal years 1994, 1995 and 1996 of $2.1 billion, $3.1 billion
and $3.8 billion, respectively. The February Modification included
resources from additional City, State and federal actions to offset
these larger gaps.
On March 25, 1993, the staff of the Control Board issued a
report on the February Modification. The staff concluded that,
while the City will balance its budget in fiscal 1993, the
February Modification does not make progress towards establishing
structural balance with a revenue base sufficient to sustain a
stable level of services. After taking into account what the
staff considered to be the achievable elements of the City's gap-
closing program, the report identified risks of approximately
$1.0 billion, $1.9 billion, $2.3 billion and $2.6 billion in
fiscal years 1994 through 1997, respectively. The report
identified these major risks as actions that require State or
federal approval; unspecified City gap-closing actions; risks
associated with the City's revenue and expenditure estimates,
including lower-than-planned revenues from the City lottery and
higher-than-planned overtime costs; proposed Board of Education
expenditure reductions; and the proposed sale of certain property
tax receivables. In addition, the report explored issues related
to the growth of the City's substantial debt-service burden and
personal-services budget, and noted that the City's property tax
forecast may need further reduction.
On May 3, 1993, the Mayor released his Executive Budget for
fiscal year 1994 and revised projections for fiscal years 1993
through 1997 (the "Revised Financial Plan"). The Revised
Financial Plan projects a balanced budget for fiscal year 1993
based upon revenues of $30.659 billion, after the prepayment in
fiscal year 1993 of $345 million in expenditures previously
planned for fiscal year 1994. After taking the prepayment into
account, the Revised Financial Plan also projects a balanced
budget for fiscal year 1994 based upon revenues of $31.399
billion. Budget balance in that year is dependent upon the
success of the Revised Plan's fiscal year 1994 revenue
enhancement and cost reduction program, the major elements of
which include agency initiatives valued at $791 million, the
receipt of $530 million of anticipated but as yet unidentified
State and federal aid, and the completion for a sale of real
estate tax receivables which is expected to generate $215
million. For City fiscal years 1995, 1996 and 1997, the Revised
Financial Plan projects gaps of $1.7 billion, $2.2 billion and
$2.6 billion, respectively, after taking into account the
recurring impact of the fiscal year 1994 revenue enhancement and
cost reduction program. The Revised Financial Plan proposes to
close these gaps through a combination of city, State and federal
actions.
On June 4, 1993, OSDC issued a report on the Revised
Financial Plan. The report concluded that budget balance for
fiscal year 1994 will be difficult to achieve. The report found
that expenditures could be $280 million higher, due to higher
estimates for payments to the Health and Hospitals Corporation
(HHC) and for overtime in the uniformed services. In addition,
the report noted that revenues could be $111 million lower, in
part, because it is unlikely that resources from a sale or
restructuring of the Off-Track Betting Corporation will be
realized as planned. The report also found that much of the
anticipated budget relief of $530 million from the federal and
State governments was unlikely to materialize and that it was
uncertain whether the City would be able to realize a one-time
gain of $215 million from the proposed sale of certain real
estate tax receivables.
<PAGE>19
For fiscal years 1995 through 1997, the OSDC report found
that the budget gaps faced by the City could be greater than in
the Revised Financial Plan by $345 million in fiscal year 1995,
$350 million in fiscal year 1996 and $322 million in fiscal year
1997. These estimates reflect higher payments to HHC and the
expectation that receipts from a City-run lottery will not
materialize. The report noted that the Revised Financial Plan
makes no provision for collective bargaining costs after the
expiration for current contracts in mid-fiscal year 1995 and
estimated that each annual wage increase of one percent would
cause the projected budget gaps to widen by $56 million, $209
million and $363 million in fiscal years 1995 through 1997,
respectively. Finally, the report concluded that with City
spending growing faster than revenues, the challenge of balancing
future budgets is formidable.
On June 13, 1993, the City Council adopted a budget for
fiscal year 1994 which projects balanced operations based upon
revenues of $31,269 billion (the "Adopted Budget"). The Adopted
Budget eliminates $300 million of anticipated aid from the State
and federal governments that was included in the Revised
Financial Plan as it related to fiscal year 1994. The impact of
the elimination is offset in the Adopted Budget by a larger
program of agency spending reductions and revenue enhancements,
as well as various re-estimates of revenues and expenditures.
On June 23, 1993, the City submitted to the Control Board a
fourth quarter modification to the Revised Financial Plan as it
relates to fiscal year 1993. The modification projects a
balanced budget based on revenues of $30,653 billion after taking
into account a discretionary transfer of surplus fiscal year 1993
funds to fiscal year 1994. The modification also includes an
unallocated reserve of $40 million, which the City believes
should be adequate to provide for any adjustments required by the
year-end audit of its fiscal year 1993 operating results. Such
audited results are expected to be known on or about October 31,
1993.
The City is expected to submit to the Control Board a four-
year Financial Plan covering fiscal years 1994 through 1997 based
on the Adopted Budget. OSDC and the staff of the Control Board
are expected to issue reports commenting on their reviews of that
Financial Plan.
Estimates of the City's revenues and expenditures are based
on numerous assumptions and subject to various uncertainties. If
expected Federal or New York State aid is not forthcoming, if
unforeseen developments in the economy significantly reduce
revenues derived from economically sensitive taxes or necessitate
increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the
amounts provided for in the City's financial plan or if other
uncertainties materialize that reduce expected revenues or
increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional
actions, including increases in taxes and reductions in essential
City services. The City might also seek additional assistance
from New York State.
Borrowings
The City requires certain amounts of financing for seasonal
and capital spending purposes. The City has issued $1.4 billion
of notes for seasonal financing purposes during its 1993 fiscal
year and expects this amount will be sufficient for the year.
The City's capital financing program projects long-term financing
requirements of approximately $16.8 billion for the City's fiscal
years 1994 through 1997 for the construction and rehabilitation
of the City's infrastructure and other fixed assets. The major
capital requirements include expenditures for the City's water
supply system, sewage and waste disposal systems, roads, bridges,
mass transit, schools and
<PAGE>20
housing. In addition to financing for new purposes, the City and
the New York City Municipal Water Finance Authority have issued
refunding bonds totalling $3.6 billion.
Other Localities
Certain localities in addition to New York City could have
financial problems leading to requests for additional State
assistance during the State's 1993-1994 fiscal year and
thereafter. The potential impact on the State of such actions by
localities is not included in the projections of the State
receipts and disbursements in the State's 1993-1994 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the creation of the Financial Control
Board for the City of Yonkers (the "Yonkers Board") by the State
in 1984. The Yonkers Board is charged with oversight of the
fiscal affairs of Yonkers. Future actions taken by the Governor
of the State Legislature to assist Yonkers could result in
allocation of State resources in amounts that cannot yet be
determined.
Certain Municipal Indebtedness
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1991, the
total indebtedness of all localities in the State was
approximately $32.2 billion, of which $16.8 billion was debt of
New York City (excluding $6.7 billion in MAC debt); a small
portion (approximately 39.0 million) this indebtedness
represented borrowing to finance budgetary deficits and was
issued pursuant to enabling State legislation. State law
requires the Comptroller to review and make recommendations
concerning the budgets of those local government units other than
New York City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is
outstanding. Fifteen localities had outstanding indebtedness for
deficit financing at the close of their fiscal year ending in
1991.
In 1992, an unusually large number of local government units
requested authorization for deficit financing. According to the
Comptroller, ten local government units have been authorized to
issue deficit financing in the aggregate amount of $131.1
million. The current session of Legislature may receive as many
or more requests for deficit-financing authorizations as a result
of deficits previously incurred by local governments. Although
the Comptroller has indicated that the level of deficit financing
requests is unprecedented, such developments are not expected to
have a material adverse effect on the financial condition of the
State.
Certain proposed Federal expenditure reductions would
reduce, or in some cases eliminate, Federal funding of some local
programs and accordingly might impose substantial increased
expenditure requirements on affected localities to increase local
revenues to sustain those expenditures. If the State, New York
City or any of the Authorities were to suffer serious financial
difficulties jeopardizing their respective access to the public
credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected.
Localities also face anticipated and potential problems resulting
from certain pending litigation, judicial decisions, and long-
range economic trends. The longer-range potential problems of
declining urban population, increasing expenditures, and other
economic trends could adversely affect certain localities and
require increasing State assistance in the future.
<PAGE>21
Investment Limitations.
Money Market Portfolio and Municipal Money Market Portfolio.
Neither the Money Market Portfolio nor the Municipal Money Market
Portfolio may:
(1) borrow money, except from banks for temporary
purposes (and with respect to the Money Market Portfolio
only, except 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, with respect to the Money
Market Portfolio, in amounts not in excess of 10% of the
value of a Portfolio's total assets at the time of such
borrowing and, with respect to the Municipal Money Market
Portfolio, in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the value of a 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 a
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 a 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;
(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 a 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 a
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;
<PAGE>22
(9) make loans except that a Portfolio may
purchase or hold debt obligations in accordance with its
investment objective, policies and limitations and (except
for the Municipal Money Market Portfolio) 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 Municipal Money Market Portfolio may not (i)
under normal market conditions invest less than 80% of its net
assets in securities the interest on which is exempt from the
regular Federal income tax, although the interest on such
securities may constitute an item of tax preference for purposes
of the Federal alternative minimum tax, (ii) invest in private
activity bonds where the payment of principal and interest are
the responsibility of a company (including its predecessors) with
less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of the issuers in the
same industry.
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 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 the Portfolio are
represented at the meeting in person or by proxy.
With respect to limitation (b) above concerning industry
concentration (applicable to the Money Market 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 Money Market Portfolio's outstanding shares, but any
such change may require the approval of the Securities and
Exchange
<PAGE>23
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 Municipal Money Market Portfolio will
meet the following limitation on its investments in addition to
the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the
Municipal Money Market Portfolio has more than 5% of its
total assets invested in instruments issued by or subject to
Puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of
the Municipal Money Market Portfolio's total assets. A
"Put" means a right to sell a specified underlying
instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or
assigned only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations
and to the exemption of interest thereon from Federal income tax
are rendered by bond counsel to the respective issuers at the
time of issuance. Neither the Fund nor its investment adviser
will review the proceedings relating to the issuance of Municipal
Obligations or the basis for such opinions.
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 Money Market 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
Money Market Portfolio.
1. The Money Market 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 Money Market 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.
2. The Money Market 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 Money Market Portfolio will limit its
purchases of Second Tier Securities of one issuer to the
greater of 1% of its total assets or $1 million.
Government Obligations Money Market Portfolio. The
Government Obligations Money Market Portfolio may not:
<PAGE>24
1. Purchase securities other than U.S. Treasury
bills, notes and other obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, and
repurchase agreements relating to such obligations. There
is no limit on the amount of the Portfolio's assets which
may be invested in the securities of any one issuer of
obligations that the Portfolio is permitted to purchase.
2. Borrow money, except from banks for temporary
purposes, and except for reverse repurchase agreements, and
then in an amount not exceeding 10% of the value of the
Portfolio's total assets, 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 its assets except in connection with any such
borrowing and in amounts not in excess of 10% of the value
of the Portfolio's 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 by enabling
the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may
purchase or hold debt obligations in accordance with its
investment objective, policies and limitations, may enter
into repurchase agreements for securities, and may lend
portfolio securities against collateral consisting of cash
or securities which are consistent with the Portfolio's
permitted investments, which is equal at all times to at
least 100% of the value of the securities loaned. There is
no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans,
including amounts received during the loan on account of
interest on the securities loaned, may not (together with
all non-qualifying income) exceed 10% of the Portfolio's
annual gross income (without offset for realized capital
gains) unless, in the opinion of counsel to the Fund, such
amounts are qualifying income under Federal income tax
provisions applicable to regulated investment companies.
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.
The Portfolio may purchase securities on margin only to
obtain short-term credit necessary for clearance of portfolio
transactions.
New York Municipal Money Market Portfolio. The New York
Municipal Money Market Portfolio may not:
(1) borrow money, except from banks for temporary
purposes and except 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 a 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
<PAGE>25
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 on margin, except for short-
term credit necessary for clearance of portfolio
transactions;
(3) underwrite securities of other issuers, except to
the extent that, in connection with the disposition of
portfolio securities, the 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;
(4) make short sales of securities or maintain a short
position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(5) 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;
(6) purchase or sell commodities or commodity
contracts;
(7) invest in oil, gas or mineral exploration or
development programs;
(8) 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;
(9) 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
(10) make investments for the purpose of exercising
control or management.
In addition to the foregoing enumerated investment
limitations, the New York Municipal Money Market Portfolio may
not (i) under normal market conditions, invest less than 80% of
its net assets in securities the interest on which is exempt from
the regular Federal income tax and does not constitute an item of
tax preference for purposes of the Federal alternative minimum
tax ("Tax-Exempt Interest"), (ii) invest in private activity
bonds where the payment of principal and interest are the
responsibility of a company (including its predecessors) with
less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of the issuers in the
same industry; provided that this limitation shall not apply to
Municipal Obligations or governmental guarantees of Municipal
Obligations; and provided, further, that for the purpose of this
limitation only, private activity bonds that are considered to be
issued by non-governmental users (see the second investment
limitation above) shall not be deemed to be Municipal
Obligations.
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
<PAGE>26
a shareholders' meeting if more than 50% of the outstanding shares
of the Portfolio affected are represented at the meeting in person
or by proxy.
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 New York Municipal Money Market Portfolio
will meet the following limitation on its investments in addition
to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the
New York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio
will not purchase any Put if after the acquisition of the
Put the New York Municipal Money Market Portfolio has more
than 5% of its total assets invested in instruments issued
by or subject to Puts from the same institution, except that
the foregoing condition shall only be applicable with
respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a
specified underlying instrument within a specified period of
time and at a specified exercise price that may be sold,
transferred or assigned only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations
and to the exemption of interest thereon from Federal income tax
(and, with respect to New York Municipal Obligations, to the
exemption of interest thereon form New York State and New York
City personal income tax) are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to
the issuance of Municipal Obligations or the basis for such
opinions.
In order to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended, the
Portfolio will not purchase the securities of any issuer if as a
result more than 5% of the value of the Portfolio's assets would
be invested in the securities of such issuer, except that (a) up
to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than
25% of the value of the Portfolio's assets are invested in the
securities of any one issuer and (b) this 5% limitation does not
apply to securities issued or guaranteed by the U.S. Government,
or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the
governmental entity (or entities) whose assets and revenues back
the security, or, with respect to a private activity bond that is
backed only by the assets and revenues of a non-governmental
user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to
be an issuer in connection with such guarantee. This investment
policy is not fundamental and may be changed by the Board of
Directors without shareholder approval.
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.
<PAGE>27
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
New York, NY 10005 Gruntal & Co., Inc.,
Director, Gruntal & Co., Inc.
and Gruntal Financial Corp.
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.), Mart PMM, Inc.
(formerly Pennsauken
Merchandise Mart,
Inc.) (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
1234 Market Street Chairman, Comcast
16th Floor Corporation; Director
Philadelphia, PA 19107-3723 Comcast Cablevision
of Philadelphia
(cable television and
Communications)
and Nextel (Wireless
Communication)
<PAGE>28
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 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
Wilmington, DE 19809 Emeritus; 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
of 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.
- -------------------------
<FN>
* 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.
</FN>
</TABLE>
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.
<PAGE>29
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 sub-
advisor to all Portfolios other than the New York Municipal Money
Market Portfolio, which has no sub-advisor, and the Fund's
custodian, PFPC Inc. ("PFPC"), the administrator to the Municipal
Money Market and New York Municipal Money Market Portfolios 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 the aggregate amount of
$7,600; Donald van Roden in the aggregate amount of $8,600.
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 each of the
Portfolios and also renders administrative services to the Money
Market and Government Obligations Money Market Portfolios
pursuant to separate investment advisory agreements, and PNC Bank
renders sub-advisory services to each of the Portfolios other
than the New York Municipal Money Market Portfolio, which has no
sub-advisor, pursuant to separate sub-advisory agreements. Each
of the Sub-Advisory Agreements is dated August 16, 1988. The
advisory agreements relating to the Money Market and Government
Obligations Money Market Portfolios are each dated August 16,
1988, the advisory agreement relating to the New York Municipal
Money Market Portfolio is dated November 5, 1991 and the advisory
agreement relating to the Municipal Money Market Portfolio is
dated April 21, 1992. 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 $7,733 in advisory fees with respect to the
Municipal Money Market Portfolio, $580,435 in advisory fees with
respect to Government Obligations Money market Portfolio and
waived all of the investment advisory fees payable to it of
$193,386 with respect to the New York Municipal Money Market
Portfolio under its Advisory Contract with the Fund. During the
same year, PIMC waived $2,255,986 of advisory fees with respect
to the Money Market Portfolio, $1,091,646 of advisory fees with
respect to the Municipal Money Market Portfolio, $461,938 of
advisory fees with respect to Government Obligations Money Market
Portfolio. For the year ended August 31, 1993, PIMC received
<PAGE>30
(after waivers) $1,461,628 in advisory fees with respect to the
Money Market Portfolio and waived all of the investment advisory
fees payable to it of $978,352 with respect to the Municipal
Money Market Portfolio under its Advisory Contract with the Fund,
$636,070 in advisory fees with respect to the Government
Obligations Money Market Portfolio and waived all of the
investment advisory fees payable to it of $175,804 with respect
to the Municipal Money Market Portfolio under its Advisory
Contract with the Fund. During that same year, PIMC waived
$2,343,596 of advisory fees with respect to the Money Market
Portfolio, $544,058 of advisory fees with respect to the
Government Obligations 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,
$173,169 in advisory fees with respect to the Municipal Money
Market Portfolio, $970,969 in advisory fees with respect to the
Government Obligations Money Market Portfolio and $12,600 in
advisory fees with respect to the New York Municipal Money Market
Portfolio. During that same year, PIMC waived $2,452,731 of
advisory fees with respect to the Money Market Portfolio,
$947,866 of advisory fees with respect to the Municipal Money
Market Portfolio, $498,224 of advisory fees with respect to the
Government Obligations Money Market Portfolio and $134,408 of
advisory fees with respect to the New York Municipal Money Market
Portfolio. For the year ended August 31, 1991, PIMC received
(after waivers) $1,320,964 in advisory fees with respect to the
Money Market Portfolio, $153,648 in advisory fees with respect to
the Municipal Money Market Portfolio, $701,526 in advisory fees
with respect to the Government Obligations Money Market Portfolio
and $42,341 in advisory fees with respect to the New York
Municipal Money Market Portfolio. During that same year, PIMC
waived $2,216,458 of advisory fees with respect to the Money
Market Portfolio, $951,712 of advisory fees with respect to the
Municipal Money Market Portfolio, $447,039 of advisory fees with
respect to the Government Obligations Money Market Portfolio and
$116,895 of advisory fees with respect to the New York Municipal
Money Market Portfolio. For the year or period ended August 31,
1990, PIMC received (after waivers) $708,243 in advisory fees
with respect to the Money Market Portfolio, $81,166 in advisory
fees with respect to the Municipal Money Market Portfolio,
$261,347 in advisory fees with respect to the Government
Obligations Money Market Portfolio and $13,307 in advisory fees
with respect to the New York Municipal Money Market Portfolio.
During that same period, PIMC waived $960,499 of advisory fees
with respect to the Money Market Portfolio, $550,735 in advisory
fees with respect to the Municipal Money Market Portfolio,
$235,451 of advisory fees with respect to the Government
Obligations Money Market Portfolio and $10,110 in advisory fees
with respect to the New York Municipal Money Market Portfolio
under the applicable Advisory Contract.
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 each Portfolio on
an individual basis depends upon the particular regulations of
such states.
Each 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
<PAGE>31
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 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
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 with respect to the Money Market and Government
Obligations Money Market Portfolios by the shareholders of each
Portfolio at a special meeting held on December 22, 1989, as
adjourned. The investment advisory agreement was approved with
respect to the Municipal Money Market Portfolio by shareholders
at a special meeting held June 10, 1992, as adjourned and the sub-
advisory agreement was approved with respect to the Municipal
Money Market Portfolio by shareholders at a special meeting held
on December 22, 1989. The Advisory Contract was approved with
respect to the New York Municipal Money Market Portfolio by the
Portfolio's shareholders at a special meeting of shareholders
held November 21, 1991, 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
relevant Portfolio, at any time without penalty, on 60 days'
written notice to PIMC or PNC Bank. Each of the Advisory
Contracts may also be terminated by PIMC or PNC Bank,
respectively, on 60 days' written notice to the Fund. Each of
the Advisory Contracts terminates automatically in the event of
assignment thereof.
<PAGE>32
Administration Agreements. PFPC serves as the administrator
to the New York Municipal Money Market Portfolio pursuant to an
Administration Agreement dated November 5, 1991 and as the
administrator to the Municipal Money Market Portfolio pursuant to
an Administration and Accounting Services Agreement dated April
21, 1992 (together, the "Administration Agreements"). PFPC has
agreed to furnish to the Fund on behalf of the Municipal Money
Market and New York Municipal Money Market Portfolio statistical
and research data, clerical, accounting, and bookkeeping
services, and certain other services required by the Fund. PFPC
has also agreed to prepare and file various reports with the
appropriate regulatory agencies, and prepare materials required
by the SEC or any state securities commission having jurisdiction
over the Fund.
The Administration Agreements provide that PFPC shall not be
liable for any error of judgment or mistake of law or any loss
suffered by the Fund or a Portfolio in connection with the
performance of the agreement, except a loss resulting from
willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreements,
PFPC receives a fee of .10% of the average daily net assets of
the Municipal Money Market and New York Municipal Money Market
Portfolios.
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 each Portfolio (b) holds and
transfers portfolio securities on account of each Portfolio, (c)
accepts receipts and makes disbursements of money on behalf of
each Portfolio, (d) collects and receives all income and other
payments and distributions on account of each 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 each 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 per Portfolio, 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 Janney Classes pursuant
to a Transfer Agency Agreement dated November 5, 1991 and
supplements dated November 5, 1991 (the "Transfer Agency
Agreement"), under which PFPC (a) issues and redeems shares of
each of the Janney Classes, (b) addresses and mails all
communications by each Portfolio to record owners of shares of
each such 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 each
Janney 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 each Portfolio for orders which are
placed via third parties and relayed electronically to PFPC, and
at an annual rate of $17.00 per account in each Portfolio for all
other
<PAGE>33
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 Portfolios.
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 Portfolios for purposes of
responding to customer inquiries 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 each of the Janney Classes, (collectively, the
"Distribution Contracts") and separate Plans of Distribution for
each of the Janney Classes (collectively, the "Plans"), all of
which were 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 each of the Janney Classes. As
compensation for its distribution services, the Distributor will
receive, pursuant to the terms of the Distribution Contracts, 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 each of the
Portfolios based on a percentage of the amounts invested by their
customers.
Each of the Plans relating to the Janney Classes of the
Money Market, Municipal Money Market, Government Obligations
Money Market and New York Municipal Money Market Portfolios was
most recently approved for continuation 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 Plans or any
agreements related to the Plans ("12b-1 Directors"). Each of the
Plans relating to the Janney Class of the Money Market, Municipal
Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios was approved by the sole
shareholder of each Janney Class on November 5, 1991.
Among other things, each of the Plans 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 Janney 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 Janney 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.
<PAGE>34
The Fund believes that such Plans 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
Plans 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 Plans by
virtue of his position as Executive Vice President of Gruntal &
Co., Inc., a broker-dealer which sells the Fund's shares.
PORTFOLIO TRANSACTIONS
Each of the Portfolios 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 each of the Money Market Portfolio, Municipal Money
Market Portfolio and New York Municipal 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 all Portfolios intend to purchase only securities
with remaining maturities of 397 calendar days 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 each such Portfolio, the turnover
rate should not adversely affect such Portfolio's net asset value
or net income. The Portfolios do not intend to seek profits
through short term trading.
Purchases of portfolio securities by each of the Portfolios
are made from dealers, underwriters and issuers; sales are made
to dealers and issuers. None of the Portfolios currently expects
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 such Portfolios to give primary
consideration to obtaining the most favorable price and efficient
execution of transactions. In seeking to implement the policies
of such Portfolios, 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 a 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 a Portfolio's anticipated need for 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 each Portfolio and for other
investment accounts managed by PIMC or PNC Bank are made
independently of each other in
<PAGE>35
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 a Portfolio is concerned, in other
cases it is believed to be beneficial to a Portfolio. A 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 a 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 a 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 a
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 a 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 a Portfolio.
Under the 1940 Act, a 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. (A Portfolio may also
suspend or postpone the recordation of the transfer of its shares
upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of each of the Portfolios at $1.00 per share. Net
asset value per share, the value of an individual share in a
Portfolio, is computed by dividing a Portfolio's net assets by
the number of outstanding shares of a Portfolio. A Portfolio's
"net assets" equal the value of a 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,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day (observed), Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day and Christmas Day (observed).
<PAGE>36
The Fund calculates the value of the portfolio securities of
each of the Portfolios 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, a 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 a 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 each 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 a 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.
Each of the Portfolios will maintain a dollar-weighted
average portfolio maturity of 90 days or less, will not purchase
any instrument with a deemed 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. Each of the Portfolio's current
and effective yields are computed using standardized methods
required by the SEC. The annualized yields for a 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
<PAGE>37
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.
Yield may fluctuate daily and does not provide a basis for
determining future yields. Because the yields of each 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
the 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.
The yields on certain obligations, including the money
market instruments in which each 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 a 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 a 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 a Portfolio may be compared to the Donoghue's Money
Fund Average, which is an average compiled by IBC/Donoghue's
MONEY FUND REPORT(Registered Trademark) of Holliston, MA 01746, a
widely recognized independent publication that monitors the performance
of moneymarket 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 Portfolios and their
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 Portfolios 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.
Each 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, each 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
<PAGE>38
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 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
each 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 a 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
each 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 a
Portfolio has not invested more than 5% of the value of its total
assets in securities of such issuer and as to which a Portfolio
does not hold more than 10% of the outstanding voting securities
of such issuer), and no more than 25% of the value of each
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 such Portfolio controls and which are engaged in
the same or similar trades or businesses (the "Asset
Diversification Requirement").
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, Government
Obligations Money Market Portfolio and New York Municipal Money
Market Portfolio will not enter into repurchase agreements
<PAGE>39
with any one bank or dealer if entering into such agreements would,
under the informal position expressed by the Internal Revenue
Service, cause any of them to fail to satisfy the Asset
Diversification Requirement.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio are designed to provide
investors with current tax-exempt interest income. Exempt
interest dividends distributed to shareholders of the Portfolios
are not included in the shareholder's gross income for regular
Federal income tax purposes. In order for the Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio to
pay exempt interest dividends during any taxable year, at the
close of each fiscal quarter at least 50% of the value of each
such Portfolio must consist of exempt interest obligations.
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.
Neither the Municipal Money Market Portfolio nor the New
York Municipal Money Market Portfolio may be an appropriate
investment for entities which are "substantial users" of
facilities financed by private activity bonds or "related
persons" thereof. "Substantial user" is defined under U.S.
Treasury Regulations to include a non exempt person who regularly
uses a part of such facilities in his trade or business and (a)
whose gross revenues derived with respect to the facilities
financed by the issuance of bonds are more than 5% of the total
revenue derived by all users of such facilities, (b) who occupies
more than 5% of the entire usable area of such facilities, or (c)
for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons"
include certain related natural persons, affiliated corporations,
a partnership and its partners and an S Corporation and its
shareholders.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal 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.
<PAGE>40
Interest on indebtedness incurred by a shareholder to
purchase or carry shares of the Municipal Money Market Portfolio
or the New York Municipal Money Market Portfolio is not
deductible for income tax purposes if (as expected) the Municipal
Money Market Portfolio or the New York Municipal Money Market
Portfolio distributes exempt interest dividends during the
shareholder's taxable year.
Distributions of net investment income received by a
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 a Portfolio will be taxable to
shareholders as ordinary income and will not be eligible for the
dividends received deduction for corporations. Although each of
the Municipal Money Market Portfolio and New York Municipal Money
Market Portfolio generally does not expect to receive net
investment income other than Tax-Exempt Interest and AMT
Interest, up to 20% of the net assets of each such Portfolio may
be invested in Municipal Obligations that do not bear Tax-Exempt
Interest or AMT Interest, and any taxable income recognized by
such Portfolio will be distributed and taxed to its shareholders.
While none of the Portfolios expects 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, will be distributed
annually. None of the Portfolios will 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 each Portfolio as capital
gain dividends may not exceed the net capital gain of such
Portfolio for any taxable year, determined by excluding any net
capital loss or 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 each
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 distinctions in 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 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 at 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 any 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 in the case of the Municipal
Money Market Portfolio and the New York Municipal Money Market
Portfolio) to the extent of such Portfolio's current and
accumulated earning and profits. Such distributions will be
eligible for the dividends received deduction in the case of
corporate shareholders.
<PAGE>41
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 each Portfolio intends to
distribute all of its taxable income currently, no Portfolio
anticipates 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 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 each 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, each Portfolio may be subject to the tax laws of such
states or localities.
DESCRIPTION OF SHARES
The Fund has authorized capital of thirty billion shares of
Common Stock, $.001 par value per share, of which 12.2 billion
shares are currently classified as follows: 100 million shares
are classified as Class A Common Stock (Growth & Income), 100
million shares are classified as Class B Common Stock, 100
million shares are classified as Class C Common Stock (Balanced),
100 million shares are classified as Class D Common Stock (Tax-
Free), 500 million shares are classified as Class E Common Stock
(Money), 500 million shares are classified as Class F Common
Stock (Municipal Money), 500 million shares are classified as
Class G Common Stock (Money), 500 million shares are classified
as Class H Common Stock (Municipal Money), 1 billion shares are
classified as Class I Common Stock (Money), 500 million shares
are classified as Class J Common Stock (Municipal Money), 500
million shares are classified as Class K Common Stock (U.S.
Government Money), 1,500 million shares are classified as Class L
Common Stock (Money), 500 million shares are classified as Class
M Common Stock (Municipal Money), 500 million shares are
classified as Class N Common Stock (U.S. Government Money), 500
million shares are classified as Class O Common Stock (N.Y.
Money), 100 million shares are classified as Class P Common Stock
(Government), 100 million shares are classified as Class Q Common
Stock, 500 million shares are classified as Class R Common Stock
(Municipal Money), 500 million shares are classified as Class S
Common Stock (U.S. Government Money), 500 million shares are
classified as Class T Common Stock (International), 500 million
shares are classified as
<PAGE>42
Class U Common Stock (Strategic), 500 million shares are classified
as Class V Common Stock (Emerging), 100 million shares are classified as
Class W Common Stock (Laffer/Canto Equity), 50 million shares are classified
as Class X Common Stock (U.S. Core Equity), 50 million shares are
classified as Class Y Common Stock (U.S. Core Fixed Income), 50
million shares are classified as Class Z Common Stock (Global
Fixed Income), 50 million shares are classified as Class AA
Common Stock (Municipal Bond), 50 million shares are classified
as Class BB Common Stock (BEA Balanced), 50 million shares are
classified as Class CC Common Stock (Short Duration), 100 million
shares are classified as Class DD Common Stock (Growth & Income
Series 2), 100 million shares are classified as Class EE Common
Stock (Balanced Series 2), 700 million shares are classified as
Class Alpha 1 Common Stock (Money), 200 million shares are
classified as Class Alpha 2 Common Stock (Municipal Money), 500
million shares are classified as Class Alpha 3 Common Stock (U.S.
Government Money), 100 million shares are classified as Class
Alpha 4 Common Stock (N.Y. Money), 1 million shares are
classified as Class Beta 1 Common Stock (Money), 1 million shares
are classified as Class Beta 2 Common Stock (Municipal Money), 1
million shares are classified as Class Beta 3 Common Stock (U.S.
Government Money), 1 million shares are classified as Class Beta
4 Common Stock (N.Y. Money), 1 million shares are classified as
Gamma 1 Common Stock (Money), 1 million shares are classified as
Gamma 2 Common Stock (Municipal Money), 1 million shares are
classified as Gamma 3 Common Stock (U.S. Government Money), 1
million shares are classified as Gamma 4 Common Stock (N.Y.
Money), 1 million shares are classified as Delta 1 Common Stock
(Money), 1 million shares are classified as Delta 2 Common Stock
(Municipal Money), 1 million shares are classified as Delta 3
Common Stock (U.S. Government Money), 1 million shares are
classified as Delta 4 Common Stock (N.Y. Money), 1 million shares
are classified as Epsilon 1 Common Stock (Money), 1 million
shares are classified as Epsilon 2 Common Stock (Municipal
Money), 1 million shares are classified as Epsilon 3 Common Stock
(U.S. Government Money), 1 million shares are classified as
Epsilon 4 Common Stock (N.Y. Money), 1 million shares are
classified as Zeta 1 Common Stock (Money), 1 million shares are
classified as Zeta 2 Common Stock (Municipal Money), 1 million
shares are classified as Zeta 3 Common Stock (U.S. Government
Money), 1 million shares are classified as Zeta 4 Common Stock
(N.Y. Money), 1 million shares are classified as Eta 1 Common
Stock (Money), 1 million shares are classified as Eta 2 Common
Stock (Municipal Money), 1 million shares are classified as Eta 3
Common Stock (U.S. Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares
are classified as Theta 1 Common Stock (Money), 1 million shares
are classified as Theta 2 Common Stock (Municipal Money), 1
million shares are classified as Theta 3 Common Stock (U.S.
Government Money), and 1 million shares are classified as Theta 4
Common Stock (N.Y. Money). Shares of Class Alpha 1 Common Stock,
Class Alpha 2 Common Stock, Class Alpha 3 Common Stock and Class
Alpha 4 Common Stock constitute the Janney Classes. Under the
Fund's charter the Board of Directors has the power to classify
or reclassify any unissued shares of Common Stock from time to
time.
The classes of Common Stock have been grouped into sixteen
separate "families": the RBB Family, the Warburg Pincus Family,
the Cash Preservation Family, the Sansom Street Family, the
Bedford Family, the Bradford Family, the BEA Family, Laffer/Canto
Family, the Janney Montgomery Scott Money Funds, the Beta Family,
the Gamma Family, the Delta Family, the Epsilon Family, the Zeta
Family, the Eta Family and the Theta Family. The RBB Family
represents interests in two non-money market portfolios as well
as the Money Market and Municipal Money Market Portfolios; the
Warburg Pincus Family represents interest in the Growth & Income
Fund and Balanced Fund; the Cash Preservation Family represents
interests in the Money Market and Municipal Money Market
Portfolios; the Sansom Street Family represents interests in the
Money Market, Municipal Money Market and Government Obligations
Money Market Portfolios; Bedford Family represents interests in
the Money Market, Municipal Money Market, Government Obligations
Money Market and New York Municipal Money
<PAGE>43
Market Portfolios; the Bradford Family represents interests in the
Municipal Money Market and Government Obligations Money Market
Portfolios; the BEA Family represents interests in nine non-money
market portfolios; the Laffer/Canto Family represents interests in
Laffer/Canto Equity Portfolio and Beta, Gamma, Delta, Epsilon,
Zeta, Eta and Theta Families (collectively, the "Additional
Families") represent interests in the Money Market, Municipal
Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios.
The Fund offers multiple classes of shares in each of its
Money Market Portfolio, Municipal Money Market Portfolio,
Government Obligations Money Market Portfolio and New York
Municipal Money Market Portfolio to expand its marketing
alternatives and to broaden its range of services to different
investors. The expenses of the various classes within these
Portfolios vary based upon the services provided. For example,
shareholders in the Sansom Street Family bear non-12b-1
shareholder servicing fees in the amount of .10% of the daily net
asset value of their shares. Each class of Common Stock of the
Fund has a separate Rule 12b-1 distribution plan. Under the
Distribution Contracts entered into with the Distributor and
pursuant to each of the distribution plans, the Distributor is
entitled to receive from the relevant class as compensation for
distribution services provided to the various families a
distribution fee based on average daily net assets in the
following amounts: the RBB Family: .40%, Cash Preservation
Family: .40%, Sansom Street Family: Municipal Money Market and
Government Obligations Money market Portfolios .05% and Money
Market Portfolio up to .20%, Bedford Family: .60%, Bradford
Family: .60% and each of the Additional Families: .60% A
salesperson or any other person entitled to receive compensation
for servicing Fund shares may receive different compensation with
respect to different classes in a Portfolio of the Fund. For the
year ended August 31, 1994, the expense ratio of each of the RBB,
Cash Preservation, Sansom Street and Bedford Classes in the Money
Market Portfolio, taking into account fee waivers and
reimbursement of expenses, was as follows: RBB: 1.00% (reflecting
waivers of 13.62%), Cash Preservation: .95% (reflecting waivers
of 1.57%), Sansom Street: .39% (reflecting waivers of .21%) and
Bedford: .95% (reflecting waivers of .21%); for each of the RBB,
Cash Preservation, Sansom Street, Bedford and Bradford Classes in
the Municipal Money Market Portfolio, taking into account fee
waivers and reimbursement of expenses, was as follows: RBB: 1.00%
(reflecting waivers of 153.22%), Cash Preservation: .98%
(reflecting waivers of 10.54%), Bedford: .77% (reflecting waivers
of .35%) and Bradford: .77% (reflecting waivers of .34%); for
each of the Bedford and Bradford Classes of the Government
Obligations Money Market Portfolio, taking into account fee
waivers and reimbursement of expenses, was as follows: Bedford:
.975% (reflecting waivers of .195%) and Bradford: .975%
(reflecting waivers of .205%); and for the Bedford Class of the
New York Municipal Money Market Portfolio, taking into account
fee waivers and reimbursement of expenses, was .50% (reflecting
waivers of .70%). No expense ratio is given for the Sansom
Street Class of the Government Obligations Money Market Portfolio
as such class ceased operations on December 4, 1991. No expense
ratio is given for the Sansom Street Class of the Municipal Money
Market Portfolio as no shares of such class had been sold to the
public during the year ended August 31, 1994. No expense ratio
is given for the Janney, Beta, Gamma, Delta, Epsilon, Zeta, Eta
and Theta Classes of the Money Market, Municipal Money Market,
Government Obligations Money Market and New York Municipal Money
Market Portfolios as no shares of such classes had been sold to
the public during the year ended August 31, 1994. The ratio of
net investment income to average net assets for each of the RBB,
Cash Preservation, Sansom Street and Bedford Classes in the Money
Market Portfolio, was as follows: RBB: 2.73%, Cash Preservation:
2.78%, Sansom Street: 3.34% and Bedford: 2.78%; for each of the
RBB, Cash Preservation, Sansom Street, Bedford and Bradford
Classes in the Municipal Money Market Portfolio, was as follows:
RBB: 1.72%, Cash Preservation: 1.74%, Sansom Street: 0%, Bedford
1.95% and Bradford 1.95; for
<PAGE>44
the Bedford, Bradford and Sansom Street Classes of the Government
Obligations Money Market Portfolio, was as follows: Bedford: 2.70%,
Bradford: 2.70% and no net investment income to average net assets
ratio is given for the Sansom Street Class of the Government Obligations
Money Market Portfolio as such class ceased operations on December 4,
1991; and for the Bedford Class of the New York Municipal Money
Market Portfolio, was 1.98%.
Shares of a class of Common Stock in the Cash Preservation
Family may be exchanged for another class of Common Stock in such
Family as well as for shares of the non-money market classes of
Common Stock of the RBB Family. Otherwise, no exchanges between
families are permitted.
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 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,
<PAGE>45
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.
Control Persons. As of March 1, 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>46
Percent of
Names and Addresses Outstanding
Class of Common Stock of Record Owners Shares of Class Owned
- --------------------- ------------------- ----------------------
Class A Boston Financial Data 99%
(Growth & Income) Services
Omnibus Account
Attn.: Warburg Pincus, 3rd Fl.
2 Heritage Drive
Quincy, MA 02171
Class C E.M. Warburg Pincus & Co., Inc. 33%
(Balanced) 466 Lexington Avenue
New York, NY 10017
Class C Planco Inc. 23%
(Balanced) Profit Sharing Plan Trust
16 Industrial Blvd.
Paoli, PA 19301
Class C Jane T. Bell 7%
(Balanced) 15 Schooner Drive
Mystic, CT 06335
Class D Gruntal Co. 9%
(Tax-Free) FBO 955-16852-14
14 Wall Street
New York, NY 10005
Class D Gruntal Co. 9%
(Tax-Free) FBO 955-10773-13
14 Wall Street
New York, NY 10005
Class D Gruntal Co. 9%
(Tax-Free) FBO 955-10702-19
14 Wall Street
New York, NY 10005
Class E PNC Bank, N.A. Custodian FBO 14%
(Money) Harold Y. Erfer
414 Charles Lane
Wynnewood, PA 19096
Class E PNC Bank, N.A. Custodian FBO 18%
(Money) Karen N. McElhinney
and Contribution Account
4943 King Arthur Drive
Erie, PA 16506
Class E E.L. Haines, Jr. 8%
(Money) and Betty H. Haines
2341 Pinebluff Drive
Dallas, TX 75228
Class E John Robert Estrada 16%
(Money) and Shirley Ann Estrada
1700 Raton Drive
Arlington, TX 76018
<PAGE>47
Class E Eric Levine 31%
(Money) and Linda & Howard Levine
JT TEN. WROS
67 Lanes Pond Road
Howell, NJ 07731
Class F SEYMOUR FEIN 87%
(Municipal) P.O. 486 Tremont Post Office
Bronx, NY 10457-0848
Class F William B. Pettus & 13%
(Municipal) Augustine W.
Pettus Trust
827 Winding Path Lane
St. Louis, MO 63021-6635
Class G Saver's Marketing Inc. 21%
(Money) c/o Planco
16 Industrial Blvd.
Paoli, PA 19301
Class G Lynda R. Campbell Succ. 7%
(Money) Trustee
For IN TR Under the
Lynda R. Campbell
Caring Trust dtd. 10/19/92
935 Rutger Street
St. Louis, MO 63104
Class G Jewish Family and 42%
(Money) Childrens Agency of
Philadelphia Capital Campaign
1610 Spruce Street
Philadelphia, PA 19103
Attn: S. Ramm
Class H Deborah C. Brown, Trustee 28%
(Municipal) Barbara J, C, Curtis, Trustee
The Crowe Trust dtd 11/23/88
9921 West 128th Terr
Overlond Dale, KS 662133
Class H Kelly H. Vandelight 7%
(Municipal) Crystal C. Vandelight
P.O. Box 296
Belle, MO 65013
Class H Kenneth Farwell 6%
(Municipal) and Valerie Farwell, JT TEN
3654 Sullivan
St. Louis, MO 63107
Class H Gary L. Lange 9%
(Municipal) Susan D. Lange
13 Muirfield Court North
St. Charles, MO 63304
Class H Marcella L. Haugh 6%
(Municipal) Caring Trust dtd 8/12/91
40 Plaza Square, Apt. 202
St. Louis, MO 63103
<PAGE>48
Class H Larnie Johnson 8%
(Municipal) Mary Alice Johnson
4927 Lee Avenue
St. Louis, MO 63115-1726
Class I Wasner & Co. 81%
(Money) For Account of Paine Webber
Managed Assets-Sundry Holdings
Attn: Income Collection Dept.
200 Stevens Drive
Lester, PA 19113
Class I Wasner & Co. 16%
(Municipal) For Account of Paine Webber
Managed Assets - Sundry Holdings
76A260ABC
Attn: Joe Domildo
200 Stevens Drive
Lester, PA 19113
Class P Home Insurance Company 73%
(Government) Att. Eric Weitzel
59 Maiden Lane
21st Floor
New York, NY 10038
Class P Home Indemnity Company 6%
(Government) Att. Erik Weitzel
59 Maiden Lane
21st Floor
New York, NY 10038
Class U State of Oregon 43%
(Strategic) Treasury Department
159 State Capital Building
Salem, Oregon 9731043
Class U The Chase Manhattan 14%
(Strategic) Bankers Trust
For Kendale Company Master
Pension Plan
Attn: Mark Tesoriero
3 Metrotech Ctr. 6th Fl.
Brooklyn, NY 11245
Class V Amherst H. Wilder 5%
(Emerging) Foundation
919 Lafond Avenue
Saint Paul, MN 55104
Class V Northern Trust Company TTEE 20%
(Emerging) Texas Instruments Employee Plan
P.O. Box 92956
AC 22-69966/2-059328
Chicago, IL 60675-2956
Class V Northern Trust 10%
(Emerging) Trst Pillsbury
P.O. Box 92956
Chicago, IL 60675
<PAGE>49
Class V Bryn Mawr College 11%
(Emerging) 101 North Merion Avenue
Bryn Mawr, PA 19010-2899
Class V Wachovia Bank North Carolina 9%
(Emerging) Carolina Power & Light Co.
Supplemental Retirement Trust
301 Main St.
Winston Salem, NC 27150
Class W PNC Bank, N.A.Cust. FBO 10%
(Equity) Victor A. Canto
P. O. Box 1471
Ranclo Santa Fe, CA
Class W John Hancock Clearing 25%
(Equity) Corporation
Special Custody Acct. and
the Exclusive Benefit of
Customers
One WFC 200 Liberty St.
New York, NY 10281
Class W Lois G. Smith FBO 7%
Equity Lois G. Smith Trust
12035 Hooiser CRT Apt. 103
Bayonne Point, FL 34667-3143
Class W Rauscher Pierce Refnes FBO 7%
(Laffer) Charles Wright
Special Account
Route 1, Box 138
Coleman, TX 76834
Class X Bank of New York 86%
(Core Equity) Trust APU Buckeye Pipeline
One Wall Street
New York, NY 10286
Class X Werner & Pfleiderer 10%
(Core Equity) Pension Plan Employees
663 E. Cresent Avenue
Ramsey, NJ 07446
Class Y New England UFCW & Employers 40%
(Core Fixed Pension Fund Board of Trustees
Income) 161 Forbes Rd., Suite 201
Braintree, MA 02184
Class Y Bankers Trust 35%
(Core Fixed Pechiney Corporation Pension
Income) Master Trust
34 Exchange Place, 4th Fl.
Jersey City, NJ 07302
Class Y Kollmergen Corporation 8%
(Core Fixed Pension Trust
Income) 1601 Thapelo Road
Waltham, MA 02154
<PAGE>50
Class Z Bank of New York 36%
(Global Fixed Eastern Enterprixes
Income) Retirement Plain Trust
One Wall Street, 8th Fl.
New York, NY 10286
Class Z Sunkist Master Trust 64%
(Global Fixed 14130 Riverside Drive
Income) Sherman Oaks, CA 91423
Class AA Howard Isermann 13%
(Municipal Bond) 9 Tulane Dr.
Livingston, NJ 07039
Class AA John C. Cahill 6%
(Municipal Bond) c/o David Holmgren
30 White Birch Lane
Coss Cot, 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>51
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.
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.
<PAGE>A-1
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>A-2
