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FBR
MONEY MARKET PORTFOLIO
PROSPECTUS
DECEMBER 3, 1996
[LOGO]
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FBR
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MONEY MARKET
PORTFOLIO
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P
Philadelphia, Pennsylvania
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE 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
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PAGE
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INTRODUCTION............................................................................................... 2
Fee Table.................................................................................................. 2
FINANCIAL HIGHLIGHTS....................................................................................... 4
INVESTMENT OBJECTIVES AND POLICIES......................................................................... 6
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES................................................................ 10
NET ASSET VALUE............................................................................................ 17
MANAGEMENT................................................................................................. 17
DISTRIBUTION OF SHARES..................................................................................... 19
DIVIDENDS AND DISTRIBUTIONS................................................................................ 20
TAXES...................................................................................................... 20
DESCRIPTION OF SHARES...................................................................................... 21
OTHER INFORMATION.......................................................................................... 22
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PROSPECTUS
FBR MONEY MARKET PORTFOLIO
OF
THE RBB FUND, INC.
The Bedford Shares of the FBR Money Market Portfolio are a class of shares
(the "Bedford Class" or the "Class") of common stock of The RBB Fund, Inc. (the
"Fund"), an open-end management investment company. Shares of the Class
("Bedford Shares" or "Shares") are offered by this Prospectus and represent
interests in the Fund's Money Market Portfolio, (the "Money Market Portfolio" or
the "Portfolio").
- The investment objective of the Money Market Portfolio 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 a diversified portfolio of U.S. dollar-denominated money
market instruments.
- 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 MONEY MARKET PORTFOLIO WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Counsellors Securities Inc. acts as distributor for the Fund. PNC Institutional
Management Corporation serves as investment adviser for the Fund, PNC Bank,
National Association serves as sub-adviser for the Money Market Portfolio and
custodian for the Fund and PFPC Inc. serves as the transfer and dividend
disbursing agent 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 December 3, 1996, 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.
December 3, 1996
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INTRODUCTION
The RBB Fund, Inc. (the "Fund") is an open-end management investment company
incorporated under the laws of the State of Maryland on February 29, 1988 and is
currently operating or proposing to operate nineteen separate investment
portfolios. The Shares offered by this Prospectus represent interests in the
Fund's Money Market Portfolio (the "Money Market Portfolio" or the "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. It seeks to achieve such objective by investing in a
diversified portfolio of U.S. dollar-denominated money market instruments which
meet certain ratings criteria and present minimal credit risks. In pursuing its
investment objective, the Money Market Portfolio invests in a broad range of
government, bank and commercial obligations that may be available in the money
markets.
The Portfolio seeks to maintain a net asset value of $1.00 per share;
however, there can be no assurance that the Portfolio will be able to maintain a
stable net asset value of $1.00 per share.
The Fund's investment adviser is PNC Institutional Management Corporation
("PIMC"). PNC Bank, National Association ("PNC Bank") serves as sub-adviser to
the Portfolio and custodian to the Fund and PFPC Inc. ("PFPC" or the "Transfer
Agent") serves as the transfer and dividend disbursing agent to the Fund.
Counsellors Securities Inc. (the "Distributor") acts as distributor of the
Fund's Shares.
An investor may purchase and redeem Shares of the Class through his broker
or by direct purchases or redemptions. See "Purchase and Redemption of Shares."
An investment in the Shares is subject to certain risks, as set forth in
detail under "Investment Objectives and Policies." The Portfolio, to the extent
set forth under "Investment Objectives and Policies," may engage in the
following investment practices: the use of repurchase agreements and reverse
repurchase agreements, the purchase of mortgage-related securities, the purchase
of securities on a "when-issued" or "forward commitment" basis, the purchase of
stand-by commitments and the lending of securities. All of these transactions
involve certain special risks, as set forth under "Investment Objectives and
Policies."
For more detailed information of how to purchase or redeem Shares, please
refer to the section of this Prospectus entitled "Purchase and Redemption of
Shares."
FEE TABLE
ANNUAL FUND OPERATING EXPENSES (SHARES)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS (2)
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MONEY MARKET
PORTFOLIO
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Management fees (after waivers) (1)............................................ 20%
12b-1 fees (after waivers) (1)................................................. .55
Other Expenses (after reimbursements).......................................... .22
--
Total Operating Expenses
(Bedford Class) (after waivers and reimbursements)............................ .97%
--
--
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(1) Management fees and 12b-1 fees are based on average daily net assets and are
calculated daily and paid monthly.
(2) Before Expense Reimbursements and Waivers for the Money Market Portfolio,
Management fees would be .37%, 12b-1 fees would be .55%; Other Expenses
would be .22% and Total Operating Expenses would be 1.14%.
2
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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:
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MONEY MARKET
PORTFOLIO
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1 Year......................................................................... $ 10
3 Years........................................................................ $ 31
5 Years........................................................................ $ 54
10 Years....................................................................... $ 119
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* Other classes of this Portfolio are sold with different fees and expenses.
The Example in the Fee Table assumes that all dividends and distributions
are reinvested and that the amounts listed under "Annual Fund Operating Expenses
of the 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.
The Fee Table is designed to assist an investor in understanding the various
costs and expenses that an investor in the 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-Adviser," and
"Distribution of Shares" below.) The expense figures are based on actual cost
and fees charged to the class. The Fee Table reflects a voluntary waiver of
Management fees for the 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 Portfolio, such assumption will have the effect of lowering such
Portfolio's overall expense ratio and increasing its yield to investors.
From time to time the 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 the Portfolio refers to the
income generated by an investment in the 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.
The yield of any investment is generally a function of portfolio quality and
maturity, type of investment and operating expenses. The yield on Shares will
fluctuate and is not necessarily representative of future results. Any fees
charged by broker/dealers directly to their customers in connection with
investments in Shares are not reflected in the yields of the Shares, and such
fees, if charged, will reduce the actual return received by shareholders on
their investments. The yield on Shares of the Class 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 class of the
Portfolio. See "Expenses."
3
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FINANCIAL HIGHLIGHTS
The table below sets forth certain information concerning the investment
results of the Class of the Fund representing interests in the Money Market
Portfolio for the years indicated. The financial data included in this table for
each of the periods ended August 31, 1992 through 1996 are a part of the Fund's
financial statement for the Portfolio which have been audited by Coopers &
Lybrand L.L.P., the Fund's independent accountants, whose current report thereon
appears in the Statement of Additional Information along with the financial
statements. The financial data for the periods ended August 31, 1989, 1990 and
1991 are a part of a previous financial statement audited by Coopers & Lybrand
L.L.P. The financial data included in this table should be read in conjunction
with the financial statement and related notes included in the Statement of
Additional Information.
4
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FINANCIAL HIGHLIGHTS (C)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
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MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ----------
FOR THE PERIOD
SEPTEMBER 30,
1988
(COMMENCEMENT
OF OPERATIONS)
TO AUGUST 31,
1989
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Net asset value
beginning of
period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
Income from
investment
operations:
Net investment
income.......... 0.0469 0.0486 0.0278 0.0243 0.0375 0.0629 0.0765 0.0779
Net gains on
securities (both
realized and
unrealized)..... -- -- -- -- 0.0007 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
Total from
investment
operations...... 0.0469 0.0486 0.0278 0.0243 0.0382 0.0629 0.0765 0.0779
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
Less distributions
Dividends (from
net investment
income)......... (0.0469) (0.0486) (0.0278) (0.0243) (0.0375) (0.0629) (0.0765) (0.0779)
Distributions
(from capital
gains).......... -- -- -- -- (0.0007) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
Total
distributions... (0.0469) (0.0486) (0.0278) (0.0243) (0.0382) (0.0629) (0.0765) (0.0779)
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
Net asset value, end
of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
---------- ---------- ---------- ---------- ---------- ---------- ---------- --------------
Total return........ 4.79 4.97% 2.81% 2.46% 3.89% 6.48% 7.92% 8.81%(b)
Ratios/Supplemental
Data
Net assets, end of
period (000).... $1,109,334 $935,821 $710,737 $782,153 $736,842 $747,530 $709,757 $152,311
Ratios of expenses
to average net
assets.......... .97%(a) .96%(a) .95%(a) .95%(a) .95%(a) .92%(a) .92%(a) .93%(a)(b)
Ratios of net
investment
income to
average net
assets.......... 4.69% 4.86% 2.78% 2.43% 3.75% 6.29% 7.65% 8.61%(b)
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(a) Without the waiver of advisory fees and without the reimbursement of certain
operating expenses, the ratios of expenses to average net assets for the
Money Market Portfolio would have been 1.14%, 1.17%, 1.16%, 1.19%, 1.20%,
1.17% and 1.16% for the years ended August 31, 1996, 1995, 1994, 1993, 1992,
1991 and 1990, respectively, and 1.27% annualized for the period ended
August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Class of Shares of the Fund within
the Portfolio.
5
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INVESTMENT OBJECTIVES AND POLICIES
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 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 categories 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.
The Portfolio may invest in commercial paper and short-term notes and
corporate bonds that meet the Portfolio's quality and maturity restrictions.
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
6
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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 the Portfolio in determining whether to
have the Portfolio enter into a repurchase agreement. The seller under a
repurchase agreement will be required to maintain the value of the securities
subject to the agreement at not less than the repurchase price 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 of
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."
7
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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 1940 Act.
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 ("Municipal
Obligations") issued by state and local governmental issuers, 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 description of
Municipal Obligations, see Statement of Additional Information under "Investment
Objectives and Policies."
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 investments in illiquid securities.
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 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 adviser pursuant to guidelines
adopted by the Board of Directors. Eligible securities
8
<PAGE>
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.
The Money Market Portfolio's investment objective and policies described
above may be changed by the Fund's Board of Directors without the affirmative
vote of the holders of a majority of all outstanding Shares representing
interests in the Portfolio. Such changes may result in the 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 objective of
the Money Market Portfolio will be achieved. The Portfolio may not, however,
change the investment limitations summarized below without such a vote of
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 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. 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 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 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's securities by enabling the Portfolio to meet redemption requests
where the liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient.)
3. 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
9
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than 25% of the value of its total assets to be invested in the obligations
of issuers in any other industry.
4. 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 the Portfolio, except that up to 25% of the value of the
Portfolio's total assets may be invested without regard to such 5%
limitation.
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.
PURCHASE, REDEMPTION AND EXCHANGE OF SHARES
PURCHASE PROCEDURES
GENERAL.
Bedford Shares are sold without a sales load on a continuous basis by the
Fund's Distributor. The Distributor is located at 466 Lexington Avenue, New
York, New York. Investors may purchase Bedford Shares either directly, through
an exchange from accounts invested in shares of any open-end investment company
(the "FBR Funds") either sponsored by or advised by FBR Fund Advisors, Inc.
("FBR Fund Advisors"), or its affiliates, or through an account (the "Account")
maintained by the investor with certain brokerage firms and may also purchase
Shares directly by mail or bank wire. The minimum initial investment is $2,000,
and the minimum subsequent investment is $100. The Fund in its sole discretion
may accept or reject any order for purchases of Bedford Shares.
All payments for initial and subsequent investments should be in U.S.
dollars. 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
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. 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
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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.
PURCHASES THROUGH AN ACCOUNT.
Purchases of Shares may be effected through brokers (other than FBR Fund
Advisors or brokers who have clearing arrangements with FBR Fund Advisors) and
may be made by check (except that a check drawn on a foreign bank will not be
accepted), Federal Reserve draft or by wiring Federal Funds with funds held in
the brokerage accounts. Checks or Federal Reserve drafts should be made payable
as follows: (1) to an investor's broker or (ii) to "The RBB Fund--FBR Money
Market Portfolio (Bedford Class)" if purchased directly from the Portfolio, and
should be directed to the Transfer Agent: PFPC Inc., Attention: The RBB
Fund--FBR Money Market Portfolio (Bedford Class), P.O. Box 8994, Wilmington,
Delaware 19899-8994. The investor's broker is responsible for forwarding payment
promptly to the Fund's Custodian, PNC Bank. An investor's bank or broker may
impose a charge for this service. The payment proceeds of a redemption of shares
recently purchased by check may be delayed as described under "Redemption
Procedures."
In the event of a purchase effected through an investor's Account with his
broker through procedures established in connection with the requirements of
Accounts at such broker, beneficial ownership of Shares will be recorded by the
broker and will be reflected in the Account statements provided by the broker to
such investors. A broker may impose minimum investor Account requirements.
Although a broker does not impose a sales charge for purchases of Bedford
Shares, depending on the terms of an investor's Account with his broker, the
broker may charge an investor's Account fees for automatic investment and other
services provided to the Account. Information concerning Account requirements,
services and charges should be obtained from an investor's broker. This
Prospectus should be read in conjunction with any information received from a
broker. Shareholders whose shares are held in the street name account of a
broker/dealer and who desire to transfer such shares to the street name account
of another broker/dealer should contact their current broker/dealer.
If a broker makes special arrangements under which orders for Bedford Shares
are received by PFPC prior to 12:00 noon Eastern Time, and the broker 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.
A Shareholder of The FBR Funds may purchase Bedford Shares of the Portfolio
in exchange for his shares of The FBR Funds. This exchange privilege is
available for an investor with an existing account. See "Exchange of Shares"
below.
For distribution services with respect to Bedford Shares of the Portfolio
held by clients of FBR, the Fund's Distributor will pay FBR up to .50% of the
annual average value of such accounts.
DIRECT PURCHASES.
Investors may purchase the Portfolio's shares by mail by fully completing
and signing an Account Information Form (the "Application"), a copy of which is
attached to this Prospectus, and mailing it,
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together with a check payable to "The RBB Fund--FBR Money Market Portfolio
(Bedford Class)," at the address below:
FBR Money Market Portfolio
c/o PFPC
P.O. Box 8994
Wilmington, DE 19899-8994
For overnight deliveries
FBR Money Market Portfolio
400 Bellevue Parkway Suite 108
Wilmington, DE 19809
The check must specify the name of The RBB Fund--FBR Money Market Portfolio
(Bedford Class). Subsequent purchases may be made by forwarding payment to the
Fund's transfer agent at the foregoing address.
Provided that the investment is at least $2,500, an investor may also
purchase Shares by having his bank or his broker wire Federal Funds to the
Fund's Custodian, PNC Bank. An investor's bank or broker may impose a charge for
this service. In order to ensure prompt receipt of an investor's Federal Funds
wire, for an initial investment, it is important that an investor follows these
steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (800) 821-3460,
and provide it with your name, address, telephone number, Social Security or
Tax Identification Number, the Bedford Class selected, the amount being
wired, and by which bank. PFPC will then provide an investor with a Fund
account number. (Investors with existing accounts should also notify the
Fund's transfer agent prior to wiring funds.)
B. Instruct your bank or broker to wire the specified amount, together
with your assigned account number, to the Custodian:
PNC Bank, N.A.
ABA-0310-0005-3.
CREDIT ACCOUNT NUMBER: 86-1030-3398
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number with the Portfolio)
FOR PURCHASE OF: (name of the Portfolio)
AMOUNT: (amount to be invested)
C. Fully complete and sign the Application and mail it to the address
shown thereon. PFPC will not process redemptions until it receives a fully
completed and signed Application.
For subsequent investments, an investor should follow steps A and B above.
AUTOMATIC INVESTMENT PLAN
Additional investments in Shares of the Funds may be made automatically by
authorizing PFPC to withdraw funds from your bank account through an Automatic
Investment Plan. Investors desiring to participate in an Automatic Investment
Plan should call RBB's transfer agent, PFPC, at (800) 821-3460 to obtain the
appropriate forms, or complete the appropriate section of the Application
included with this Prospectus. The minimum initial investment for an Automatic
Investment Plan is $2,000 with minimum monthly payments of $100.
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<PAGE>
RETIREMENT PLANS.
Shares may be purchased in conjunction with individual retirement accounts
("IRAs") and rollover IRAs where PNC Bank acts as custodian. For further
information as to applications and annual fees, contact the Distributor or your
broker. To determine whether the benefits of an IRA are available and/or
appropriate, a shareholder should consult with a tax adviser.
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 Shares may redeem Shares in his Account in
accordance with instructions and limitations pertaining to his Account by
contacting his broker. If such notice is received by PFPC from the broker 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.
Each brokerage firm reserves the right to waive or modify criteria for
participation in an Account or to terminate participation in an Account for any
reason.
REDEMPTION OF SHARES OWNED DIRECTLY.
An investor may redeem any number of Shares by sending a written request to
The RBB Fund--FBR Money Market Portfolio (Bedford Class), c/o PFPC, P.O. Box
8994, Wilmington, Delaware 19899-8994. Redemption requests must be signed by
each shareholder in the same manner as the Shares are registered. Redemption
requests for joint accounts require the signature of each joint owner. On
redemption requests of $5,000 or more, a signature guarantee is required. A
signature guarantee verifies the authenticity of your signature and the
guarantor must be an eligible guarantor. In order to be eligible, the guarantor
must be a participant in a STAMP program (a Securities Transfer Agents Medallion
Program). (For a more complete description of a signature guarantee, see
"Additional Information about Redemptions" below.)
Investors may redeem shares without charge by telephone if they have checked
the appropriate box and supplied the necessary information on the Application,
or have filed a Telephone Authorization with the Fund's transfer agent. An
investor may obtain a Telephone Authorization from PFPC or by calling Account
Services at (800) 821-3460. The Fund will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine, and if the Fund
does not employ such procedures, it may be liable for any losses due to
unauthorized or fraudulent telephone instructions. The proceeds will be mailed
by check to an investor's registered address unless he has designated in his
Application or Telephone Authorization that such proceeds are to be sent by wire
transfer to a specified checking or savings account. If proceeds are to be sent
by wire transfer, a telephone redemption request received prior to 4:00 p.m.
will result in redemption proceeds being wired to the investor's bank account on
the next day that a wire transfer can be effected. The minimum redemption for
proceeds sent by wire transfer is $2,500. There is no maximum for proceeds sent
by wire transfer. The Fund may modify this redemption service at any time or
charge a service fee upon prior notice to shareholders. No fee is currently
contemplated.
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Neither PFPC nor the Fund will be liable for any loss, liability, cost or
expense for following the procedures below or for following instructions
communicated by telephone that it reasonably believes to be genuine.
The Fund's telephone transaction procedures include the following measures:
(1) requiring the appropriate telephone transaction privilege forms; (2)
requiring the caller to provide the names of the account owners, the account
social security number and name of the fund, all of which must match the Fund's
records; (3) requiring the Fund's service representative to complete a telephone
transaction form, listing all of the above caller identification information;
(4) requiring that redemption proceeds be sent only by check to the account
owners of record at the address of record, or by wire only to the owners of
record at the bank account of record; (5) sending a written confirmation for
each telephone transaction to the owners of record at the address of record
within five (5) business days of the call; and (6) maintaining tapes of
telephone transactions for six months, if the fund elects to record shareholder
telephone transactions.
For accounts held of record by a broker-dealer, trustee, custodian or other
agent, additional documentation or information regarding the scope of a caller's
authority is required. Finally, for telephone transactions in accounts held
jointly, additional information regarding other account holders is required.
Telephone transactions will not be permitted in connection with IRA or other
retirement plan accounts or by attorney-in-fact under power of attorney.
REDEMPTION BY CHECK.
Upon request, the Fund will provide any direct investor and any investor who
does not have check writing privileges for his Account with forms of drafts
("checks") payable through PNC Bank. These checks may be made payable to the
order of anyone. The minimum amount of a check is $250; however, a broker/dealer
may establish a higher minimum. An investor wishing to use this check writing
redemption procedure should complete specimen signature cards, and then forward
such signature cards to PFPC. PFPC will then arrange for the checks to be
honored by PNC Bank. Investors who own shares through an Account should contact
their brokers for signature cards. Investors of joint accounts may elect to have
checks honored with a single signature. Check redemptions will be subject to PNC
Bank's rules governing checks. An investor will be able to stop payment on a
check redemption. The Fund or PNC Bank may terminate this redemption service at
any time, and neither shall incur any liability for honoring checks, for
effecting redemptions to pay checks, or for returning checks which have not been
accepted.
When a check is presented to PNC Bank for clearance, PNC Bank, as the
investor's agent, will cause the Fund to redeem a sufficient number of full and
fractional shares owned by the investor to cover the amount of the check. This
procedure enables the investor to continue to receive dividends on those Shares
equalling the amount being redeemed by check until such time as the check is
presented to PNC Bank. Checks may not be presented for cash payment at the
offices of PNC Bank because, under 1940 Act rules, redemptions may be effected
only at the redemption price next determined after the redemption request is
presented to PFPC. This limitation does not affect checks used for the payment
of bills or cash at other banks.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
A shareholder may have redemption proceeds of $1 million or more wired to
the shareholder's brokerage account or a commercial bank account designated by
the shareholder. A transaction fee of $15.00 will be charged for payments by
wire. Questions about this option, or redemption requirements generally, should
be referred to the shareholder's FBR account executive, to the investor's
broker, or to the Transfer Agent if the shares are not held in a brokerage
account.
Written redemption instructions, indicating the Portfolio from which shares
are to be redeemed, and duly endorsed stock certificates, if previously issued,
must be received by the Transfer Agent in proper form and signed exactly as the
shares are registered. All signatures must be guaranteed. The Transfer
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<PAGE>
Agent has adopted standards and procedures pursuant to which
signature-guarantees in proper form generally will be accepted from domestic
banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations,
as well as from participants in the New York Stock Exchange Medallion Signature
Program, the Stock Exchanges Medallion Program and the Securities Transfer
Agents Medallion Program ("STAMP"). Such guarantees must be signed by an
authorized signatory thereof with "Signature Guaranteed" appearing with the
shareholder's signature. If the signature is guaranteed by a broker or dealer,
such broker or dealer must be a member of a clearing corporation and maintain
net capital of at least $100,000. Signature-guarantees may not be provided by
notaries public. Redemption requests by corporate and fiduciary shareholders
must be accompanied by appropriate documentation establishing the authority of
the person seeking to act on behalf of the account. Investors may obtain from
the Fund or the Transfer Agent forms of resolutions and other documentation
which have been prepared in advance to assist compliance with the Portfolio's
procedures.
During times of drastic economic or market conditions, investors may
experience difficulty in contacting FBR, the Distributor or the investor's
broker by telephone to request a redemption of Portfolio shares. In such cases,
investors should consider using the other redemption procedures described
herein. Use of these other redemption procedures may result in the redemption
request being processed at a later time than it would have been if telephone
redemption had been used.
AUTOMATIC WITHDRAWAL
Automatic withdrawal permits investors to request withdrawal of a specified
dollar amount (minimum of $100) on either a monthly or quarterly basis if the
investor has a $10,000 minimum account. An application for automatic withdrawal
can be obtained from FBR Fund Advisors, the Distributor, the investor's broker,
or the Transfer Agent. Automatic Withdrawal may be ended at any time by the
investor, the Fund or the Transfer Agent. Shares for which certificates have
been issued may not be redeemed through Automatic Withdrawal. Purchases of
additional shares concurrently with Withdrawals generally are undesirable.
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.
The Fund imposes no charge when Shares are redeemed. The Fund reserves the
right to redeem any account in the Class involuntarily, on thirty days' notice,
if such account falls below $500 and during such 30-day period the amount
invested in such account is not increased to at least $500. Payment for Shares
redeemed may be postponed or the right of redemption suspended as provided by
the rules of the Securities and Exchange Commission.
EXCHANGE OF SHARES
EXCHANGE PRIVILEGE
The exchange privilege enables an investor to purchase shares of the
Portfolio in exchange for shares of the other mutual funds sponsored or advised
by FBR, to the extent such shares are offered for sale in the investor's state
of residence. These funds have different investment objectives which may be of
interest to investors. To use this Privilege, investors should consult their
account executive at FBR Fund Advisors, their investment dealers who have sales
agreements with FBR Fund Advisors, the Distributor, the
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<PAGE>
investor's broker or the Transfer Agent to determine if it is available and
whether any conditions are imposed on its use. Currently, exchanges may be made
among the following other portfolios:
- FBR Small Cap Financial Fund
- FBR Financial Services Fund
- FBR Small Cap Growth/Value Fund
To use this Privilege, exchange instructions must be given to the Transfer
Agent in writing or by telephone. A shareholder wishing to make an exchange may
do so by sending a written request to the Transfer Agent at: PFPC Inc.,
Attention: The RBB Fund--FBR Money Market Portfolio (Bedford Class), P.O. Box
8994, Wilmington, Delaware 19899-8994. Shareholders are automatically provided
with telephone exchange privileges when opening an account, unless they indicate
on the account application that they do not wish to use this privilege.
Shareholders holding share certificates are not eligible to exchange shares of
the Portfolio by phone because share certificates must accompany all exchange
requests. To add this feature to an existing account that previously did not
provide for this option, a Telephone Exchange Authorization Form must be filed
with the Transfer Agent. This form is available from the Transfer Agent. Once
this election has been made, the shareholder may contact the Transfer Agent by
telephone at (800) 821-3460 to request the exchange. During periods of
substantial economic or market change, telephone exchanges may be difficult to
complete and shareholders may have to submit exchange requests to the Transfer
Agent in writing.
If the exchanging shareholder does not currently own shares of the Portfolio
or fund whose shares are being acquired, a new account will be established with
the same registration, dividend and capital gain options and the same dealer of
record as the account from which shares are exchanged, unless otherwise
specified in writing by the shareholder with all signatures guaranteed by an
eligible guarantor institution as defined above. To participate in the
Systematic Investment Plan or establish automatic withdrawal for the new
account, however, an exchanging shareholder must file a specific written
request. The exchange privilege may be modified or terminated at any time, or
from time to time, by the Fund on 60 days' notice to affected portfolio or fund
shareholders. The Fund, PFPC, the Fund's Transfer Agent, the Distributor, and
FBR Fund Advisors will not be liable for any loss, liability, cost or expense
for acting upon telephone instructions that are reasonably believed to be
genuine. In attempting to confirm that telephone instructions are genuine, the
Fund will use such procedures as are considered reasonable, including recording
those instructions and requesting information as to account registration (such
as the name in which an account is registered, the account number, recent
transactions in the account, and the account holder's Social Security number,
address and/or bank).
Before any exchange, the investor must obtain and should review a copy of
the current prospectus of the portfolio or fund into which the exchange is being
made. Prospectuses may be obtained from FBR Fund Advisors. Except in the case of
Personal Retirement Plans, the shares being exchanged must have a current value
of at least $250; furthermore, when establishing a new account by exchange, the
shares being exchanged must have a value of at least the minimum initial
investment required for the portfolio or fund into which the exchange is being
made; if making an exchange to an existing account, the dollar value must equal
or exceed the applicable minimum for subsequent investments. If any amount
remains in the investment portfolio from which the exchange is being made, such
amount must not be below the minimum account value required by the portfolio or
fund.
Shares will be exchanged at the next determined public offering price;
however, to qualify, at the time of the exchange the investor must notify FBR
Fund Advisors, the Distributor, his investment dealer or the Transfer Agent. Any
such qualification is subject to confirmation of the investor's holdings through
a check of appropriate records. No fees currently are charged shareholders
directly in connection with exchanges, although the Fund reserves the right,
upon not less than 60 days' written notice, to charge shareholders a $5.00 fee
in accordance with rules promulgated by the Securities and Exchange Commission.
The Fund reserves the right to reject any exchange request in whole or in part.
The Exchange Privilege may be modified or terminated at any time upon notice to
shareholders.
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The exchange of shares of one portfolio or fund for shares of another is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder and, therefore, an exchanging shareholder may
realize a taxable gain or loss.
REDIRECTED DISTRIBUTION OPTION.
The Redirected Distribution Option enables a shareholder to invest
automatically dividends or dividends and capital gain distributions, if any,
paid by the Portfolio in shares of another portfolio of the Fund or a fund
advised or sponsored by FBR Fund Advisors of which the shareholder is an
investor. Shares of the other portfolio or fund will be purchased at the then
current public offering price; however, a sales load may be charged with respect
to investments in shares of a portfolio or fund sold with a sales load. If the
shareholder is investing in a fund that charges a sales load, such shareholder
may qualify for share prices which do not include the sales load or which
reflect a reduced sales load.
This Privilege is available only for existing accounts and may not be used
to open new accounts. Minimum subsequent investments do not apply. The Fund may
modify or terminate this Privilege at any time or charge a service fee. No such
fee currently is contemplated.
NET ASSET VALUE
The net asset value per share of the Portfolio 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 is closed on weekends and the customary national business
holidays of New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day (observed), Labor Day, Thanksgiving Day and Christmas Day
(observed). The FRB is currently closed on weekends and the same holidays as the
NYSE is closed (except Christmas Day (observed), as well as Martin Luther King,
Jr. Day, Veterans Day and Columbus Day. 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 the Portfolio 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, the 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. The
Class represents interests in the Fund's Money Market Portfolio.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the investment
adviser for the Portfolio. 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-adviser for the Portfolio. PNC Bank and its
predecessors have been in
17
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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 $31.4 billion of assets, of which approximately $28.3 billion are mutual
funds. PNC Bank, a national bank whose principal business address is 1600 Market
Street, Philadelphia, Pennsylvania 19103, 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 Portfolio, PIMC manages such Portfolio and is
responsible for all purchases and sales of portfolio securities. PIMC also
assists generally in supervising the operations of the Portfolio, and maintains
the Portfolios' financial accounts and records. PNC Bank, as sub-adviser,
provides research and credit analysis and provides PIMC with certain other
services. In entering into Portfolio transactions for the 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
the Money Market Portfolio, 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.
PIMC may in its discretion from time to time agree to waive voluntarily all
or any portion of its advisory fee for the 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 the Portfolio
(subject to certain adjustments). Such sub-advisory fees have no effect on the
advisory fees payable by the 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 the Portfolio. Any such
arrangement would have no effect on the advisory fees payable by the Portfolio
to PIMC.
For the Fund's fiscal year ended August 31, 1996, the Fund paid investment
advisory fees aggregating .20% of the average daily net assets of the Money
Market Portfolio. For that same year, PIMC waived approximately .17% of average
daily net assets of the Money Market Portfolio.
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 Portfolio. 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."
EXPENSES
The expenses of the Portfolio are deducted from the total income of the
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
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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 the class.
The investment adviser has agreed to reimburse the 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 Portfolio from
time to time. In certain circumstances, it may assume such expenses on the
condition that it is reimbursed by the Portfolio 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.
For the Fund's fiscal year ended August 31, 1996, the Fund's total expenses
were 1.14% of the average daily net assets with respect to the Class of the
Money Market Portfolio (not taking into account waivers and reimbursements of
.17%).
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 the Class of the Fund
pursuant to a distribution agreement and various supplements thereto (the
"Distribution Contract") with the Fund on behalf of the Class.
The Board of Directors of the Fund approved and adopted the Distribution
Contract and separate Plan of Distribution for the Class (the "Plan") pursuant
to Rule 12b-1 under the 1940 Act. Under the Plan, the Distributor is entitled to
receive from the 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 Class. Under the Distribution Contract, the Distributor has agreed to accept
compensation for its services thereunder and under the Plan in the amount of
.60% of the average daily net assets of the Class on an annualized basis in any
year. The actual amount of such compensation is agreed upon from time to time by
the Fund's Board of Directors and the Distributor. 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 the Class on any day to
the extent necessary to assure that the fee required to be accrued by the Class
does not exceed the income of the 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 the Distribution Contract and the 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 the 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.
The Plan obligates the Fund, during the period it is in effect, to accrue
and pay to the Distributor on behalf of the Class the fee agreed to under the
Distribution Contract. The Plan does not obligate the Fund to reimburse the
Distributor for the actual expenses the Distributor may incur in fulfilling its
obligations
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under the Plan on behalf of the Class. Thus, under the Plan, 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 Plan has been approved by the shareholders of the 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"). The Plan 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 Class. The fee set forth
above will be paid by the Fund on behalf of the Class to the Distributor unless
and until the 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 the Portfolio to the Portfolio's
shareholders. All distributions are reinvested in the form of additional full
and fractional Shares of the Class unless a shareholder elects otherwise.
The net investment income (not including any net short-term capital gains)
earned by the 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 Portfolio should consult their tax advisers with specific reference to
their own tax situation.
The Portfolio will elect to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). So
long as the 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. The
Portfolio does not intend 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 the 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 Fund will send written notices to shareholders annually regarding the
tax status of distributions made by the 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. The
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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 the Portfolio is not intended to constitute a balanced
investment program.
DESCRIPTION OF SHARES
The Fund has authorized capital of thirty billion shares of Common Stock,
$.001 par value per share, of which 13.47 billion shares are currently
classified into 77 different classes of Common Stock ( see "Description of
Shares" in the Statement of Additional Information).
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, which may affect performance. 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. 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. An investor may contact the Fund's distributor by calling 1-800-888-9723
to request more information concerning other classes available.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE CLASSES AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
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 the Portfolio 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 of 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.
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As of November 6, 1996, to the Fund's knowledge, no person held of record or
beneficially 25% or more of the outstanding shares of all classes of the Fund.
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 PFPC, the
Fund's transfer agent, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (800) 821-3460.
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FBR MONEY MARKET PORTFOLIO,
(INVESTMENT PORTFOLIO OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary
information pertaining to shares of a class (the "Bedford Shares" or the
"Shares") representing interests in the Money Market Portfolio (the Money Market
Portfolio or "Portfolio") of The RBB Fund, Inc. (the "Fund"). This Statement of
Additional Information is not a prospectus, and should be read only in
conjunction with The RBB Fund Money Market Portfolio (Bedford Shares) Prospectus
of the Fund, dated December 3, 1996 (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 December 3,
1996.
CONTENTS
Prospectus
Page Page
---------- ----------
General. . . . . . . . . . . . . . . . . . . . . . . . . . 2 3
Investment Objectives and Policies . . . . . . . . . . . . 2 7
Directors and Officers . . . . . . . . . . . . . . . . . . 12 N/A
Investment Advisory, Distribution and Servicing
Arrangements. . . . . . . . . . . . . . . . . . . . . . 16 16
Portfolio Transactions . . . . . . . . . . . . . . . . . . 20 N/A
Purchase and Redemption Information. . . . . . . . . . . . 21 11
Valuation of Shares. . . . . . . . . . . . . . . . . . . . 22 16
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 24 19
Additional Information Concerning Fund Shares. . . . . . . 29 19
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . 31 N/A
Financial Statements (Audited) . . . . . . . . . . . . . . F-1 N/A
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . A-1 N/A
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS STATEMENT OF ADDITIONAL INFORMATION IN
CONNECTION WITH THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND OR ITS DISTRIBUTOR. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
<PAGE>
GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management investment
company currently operating or proposing to operate nineteen separate investment
portfolios. This Statement of Additional Information pertains to shares of the
class of common stock of the Fund (the "Class") representing interests in the
Money Market Portfolio of the Fund. The Class is offered by the Prospectus
dated December 3, 1996. The Fund was organized as a Maryland corporation on
February 29, 1988.
Capitalized terms used herein and not otherwise defined have the same
meanings as are given to them in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objectives and policies of the Portfolio. A
description of ratings of municipal obligations and commercial paper is set
forth in the Appendix hereto.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve
the sale of securities held by the Portfolio pursuant to the Portfolio's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940 (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding,
the Portfolio will maintain in a segregated account with the Fund's custodian or
a qualified sub-custodian, cash, U.S. Government securities or other liquid,
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand instruments
held by the Money Market Portfolio may have maturities of more than 397 calendar
days, provided: (i) the Portfolio is entitled to the payment of principal at any
time, or during specified intervals not exceeding 397 calendar days, upon giving
the prescribed notice (which may not exceed 30 days), and (ii) the rate of
interest on such instruments is adjusted at periodic intervals which may extend
up to 397 calendar days. In determining the average weighted maturity of the
Money Market Portfolio and whether a variable rate demand instrument has a
remaining maturity of 397 calendar days or less, each instrument will be deemed
by the Portfolio to have a maturity equal to the longer of the period remaining
until its next interest rate adjustment or the period remaining until the
principal amount can be recovered through demand. In determining whether an
unrated variable rate demand instrument is an eligible security, the Portfolio's
investment adviser will follow guidelines adopted by the Fund's Board of
Directors.
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<PAGE>
FIRM COMMITMENTS. Firm commitments for securities include "when
issued" and delayed delivery securities purchased for delivery beyond the normal
settlement date at a stated price and yield. While the Portfolio has firm
commitments outstanding, the Portfolio will maintain in a segregated account
with the Fund's custodian or a qualified sub-custodian, cash, U.S. government
securities or other liquid, high grade debt securities of an amount at least
equal to the purchase price of the securities to be purchased. Normally, the
custodian for the Portfolio will set aside portfolio securities to satisfy a
purchase commitment and, in such a case, the Portfolio may be required
subsequently to place additional assets in the separate account in order to
ensure that the value of the account remains equal to the amount of the
Portfolio's commitment. It may be expected that the Portfolio's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. Because the Portfolio's
liquidity and ability to manage its portfolio might be affected when it sets
aside cash or portfolio securities to cover such purchase commitments, the
Portfolio expects that commitments to purchase "when issued" securities will not
exceed 25% of the value of its total assets absent unusual market conditions.
When the Portfolio engages in when-issued transactions, it relies on the seller
to consummate the trade. Failure of the seller to do so may result in the
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
STAND-BY COMMITMENTS. The Money Market Portfolio may enter into
stand-by commitments with respect to obligations issued by or on behalf of
states, territories, and possessions of the United States, the District of
Columbia, and their political subdivisions, agencies, instrumentalities and
authorities (collectively, "Municipal Obligations") held in its portfolio.
Under a stand-by commitment, a dealer would agree to purchase at the Portfolio's
option a specified Municipal Obligation at its amortized cost value to the
Portfolio plus accrued interest, if any. Stand-by commitments may be
exercisable by the Money Market Portfolio at any time before the maturity of the
underlying Municipal Obligations and may be sold, transferred or assigned only
with the instruments involved.
The Money Market Portfolio expects that stand-by commitments will
generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Portfolio may pay for a
stand-by commitment either separately in cash or by paying a higher price for
portfolio securities which are acquired subject to the commitment (thus reducing
the yield to maturity otherwise available for the same securities). The total
amount paid in either manner for outstanding stand-by commitments held by the
Money Market Portfolio will not exceed 1/2 of 1% of the value of the Portfolio's
total assets calculated immediately after each stand-by commitment is acquired.
The Money Market Portfolio intends to enter into stand-by commitments
only with dealers, banks and broker-dealers which, in the investment adviser's
opinion, present minimal credit risks. Either such Portfolio's reliance upon
the credit of these dealers, banks and
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<PAGE>
broker-dealers will be secured by the value of the underlying Municipal
Obligations that are subject to the commitment.
The Money Market Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying Municipal
Obligation which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where the Portfolio pays directly or
indirectly for a stand-by commitment, its cost will be reflected as an
unrealized loss for the period during which the commitment is held by the
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to this Statement of
Additional Information.
The two principal classifications of Municipal Obligations are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific excise tax or other specific revenue source such as the user of the
facility being financed. Revenue securities include private activity bonds
which are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Municipal Obligations may include variable rate demand notes. Such
notes are frequently not rated by credit rating agencies, but unrated notes
purchased by the Portfolio will have been determined by the Portfolio's
investment adviser to be of comparable quality at the time of the purchase to
rated instruments purchasable by the Portfolio. Where necessary to ensure that
a note is of eligible quality, the Portfolio will require that the issuer's
obligation to pay the principal of the note is backed by an
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<PAGE>
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by a Portfolio, the Portfolio may, upon the
notice specified in the note, demand payment of the principal of the note at any
time or during specified periods not exceeding 397 calendar days, depending upon
the instrument involved. The absence of such an active secondary market,
however, could make it difficult for the Portfolio to dispose of a variable rate
demand note if the issuer defaulted on its payment obligation or during the
periods that the Portfolio is not entitled to exercise its demand rights. The
Portfolio could, for this or other reasons, suffer a loss to the extent of the
default. The Portfolio invests in variable rate demand notes only when the
Portfolio's investment adviser deems the investment to involve minimal credit
risk. The Portfolio's investment adviser also monitors the continuing
creditworthiness of issuers of such notes to determine whether the Portfolio
should continue to hold such notes.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF
U.S. BANKS. For purposes of the Money Market Portfolio's investment policies
with respect to bank obligations, the assets of a bank or savings institution
will be deemed to include the assets of its domestic and foreign branches.
Investments in bank obligations will include obligations of domestic branches of
foreign banks and foreign branches of domestic banks. Such investments may
involve risks that are different from investments in securities of domestic
branches of U.S. banks. These risks may include future unfavorable political
and economic developments, possible withholding taxes on interest income,
seizure or nationalization of foreign deposits, currency controls, interest
limitations, or other governmental restrictions which might affect the payment
of principal or interest on the securities held in the Money Market Portfolio.
Additionally, these institutions may be subject to less stringent reserve
requirements and to different accounting, auditing, reporting and recordkeeping
requirements than those applicable to domestic branches of U.S. banks. The
Money Market Portfolio will invest in obligations of domestic branches of
foreign banks and foreign branches of domestic banks only when its investment
adviser believes that the risks associated with such investment are minimal.
U.S. GOVERNMENT OBLIGATIONS. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Maritime Administration, International Bank for Reconstruction and
Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
SECTION 4(2) PAPER. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from
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<PAGE>
registration which is afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) paper is restricted as to disposition under the Federal securities
laws and is generally sold to institutional investors such as the Fund which
agree that they are purchasing the paper for investment and not with a view to
public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper normally is resold to other institutional
investors through or with the assistance of investment dealers who make a market
in the Section 4(2) paper, thereby providing liquidity. See "Illiquid
Securities" below.
REPURCHASE AGREEMENTS. The repurchase price under the repurchase
agreements described in the Prospectus generally equals the price paid by the
Portfolio plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Fund's custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans by the Portfolio under the 1940 Act.
MORTGAGE-RELATED DEBT SECURITIES. Mortgage-related debt securities
represent ownership interests in individual pools of residential mortgage loans.
These securities are designed to provide monthly payments of interest and
principal to the investor. Each mortgagor's monthly payment to his lending
institution on his residential mortgage is "passed-through" to investors.
Mortgage pools consist of whole mortgage loans or participations in loans. The
terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. Lending institutions which originate
mortgages for the pools are subject to certain standards, including credit and
underwriting criteria for individual mortgages included in the pools.
Since the inception of the mortgage-related pass-through security in
1970, the market for these securities has expanded considerably. The size of
the primary issuance market, and active participation in the secondary market by
securities dealers and many types of investors, historically have made interests
in government and government-related pass-through pools highly liquid, although
no guarantee regarding future market conditions can be made. The average life
of pass-through pools varies with the maturities of the underlying mortgage
instruments. In addition, a pool's term may be shortened by unscheduled or
early payments of principal and interest on the underlying mortgages. The
occurrence of mortgage prepayments is affected by factors including the level of
interest rates, general economic conditions, the location and age of the
mortgages and various social and demographic conditions. Because prepayment
rates of individual pools vary widely, it is not possible to predict accurately
the average life of a particular pool. For pools of fixed rate 30 year
mortgages, common industry practice is to assume that prepayments will result in
a 12 year average life. Pools of mortgages with other maturities or different
characteristics will have varying assumptions concerning average life. The
assumed average life of pools of mortgages having terms of less than 30 years is
less than 12 years, but
6
<PAGE>
typically not less than 5 years. Yields on pass-through securities are
typically quoted by investment dealers and vendors based on the maturity of the
underlying instruments and the associated average life assumption. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of a pool of underlying mortgage-related
securities. Conversely, in periods of rising rates the rate of prepayment tends
to decrease, thereby lengthening the actual average life of the pool.
Historically, actual average life has been consistent with the 12-year
assumption referred to above. Actual prepayment experience may cause the yield
of mortgage-related securities to differ from the assumed average life yield.
In addition, as noted in the Prospectus, reinvestment of prepayments may occur
at higher or lower interest rates than the original investment, thus affecting
the yield of the Portfolio involved.
The coupon rate of interest on mortgage-related securities is lower
than the interest rates paid on the mortgages included in the underlying pool,
but only by the amount of the fees paid to the mortgage pooler, issuer, and/or
guarantor of payment of the securities for the guarantee of the services of
passing through monthly payments to investors. Actual yield may vary from the
coupon rate, however, if mortgage-related securities are purchased at a premium
or discount, traded in the secondary market at a premium or discount, or to the
extent that mortgages in the underlying pool are prepaid as noted above. In
addition, interest on mortgage-related securities is earned monthly, rather than
semi-annually as is the case for traditional bonds, and monthly compounding may
tend to raise the effective yield earned on such securities.
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include (1) U.S. government securities, (2) securities that
(a) are rated (at the time of purchase) by two or more nationally recognized
statistical rating organizations ("NRSROs") in the two highest rating categories
for such securities (e.g., commercial paper rated "A-1" or "A-2" by S&P, or
rated "Prime-1" or "Prime-2" by Moody's), or (b) are rated (at the time of
purchase) by the only NRSRO rating the security in one of its two highest rating
categories for such securities; (3) short-term obligations and long-term
obligations that have remaining maturities of 397 calendar days or less,
provided in each instance that such obligations have no short-term rating and
are comparable in priority and security to a class of short-term obligations of
the issuer that has been rated in accordance with (2)(a) or (b) above
("comparable obligations"); (4) securities that are not rated and are issued by
an issuer that does not have comparable obligations rated by an NRSRO ("Unrated
Securities"), provided that such securities are determined to be of comparable
quality to a security satisfying (2) or (3) above; and (5) long-term obligations
that have remaining maturities in excess of 397 calendar days that are subject
to a demand feature or put (such as a guarantee, a letter of credit or similar
credit enhancement) ("demand instrument") (a) that are unconditional (readily
exercisable in the event of default), provided that the demand feature satisfies
(2), (3) or (4) above, or (b) that are not
7
<PAGE>
unconditional, provided that the demand feature satisfies (2), (3) or (4) above,
and the demand instrument or long-term obligations of the issuer satisfy (2) or
(4) above for long-term debt obligations. The Board of Directors will approve
or ratify any purchases by the Money Market Portfolio of securities that are
rated by only one NRSRO or that are Unrated Securities.
ILLIQUID SECURITIES. The Portfolio may not invest more than 10% of
its net assets in illiquid securities (including, repurchase agreements which
have a maturity of longer than seven days), including securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale. Securities that have legal or contractual
restrictions on resale but have a readily available market are not considered
illiquid for purposes of this limitation. The Portfolio's investment adviser
will monitor the liquidity of such restricted securities under the supervision
of the Board of Directors. With respect to the Money Market Portfolio,
repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have
an adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public
offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
SEC Rule 144A allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act for resales of certain securities to
8
<PAGE>
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
will expand further as a result of this relatively new regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the NASD.
The Portfolio's investment adviser will monitor the liquidity of
restricted securities in the Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may
consider, INTER ALIA, the following factors: (1) the unregistered nature of the
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (4) dealer undertakings to make a market in the
security and (5) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).
INVESTMENT LIMITATIONS.
The Money Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes
and for reverse repurchase agreements and then in amounts not in excess of
10% of the value of the Portfolio's total assets at the time of such
borrowing, and only if after such borrowing there is asset coverage of at
least 300 percent for all borrowings of the Portfolio; or mortgage, pledge,
hypothecate any of its assets except in connection with such borrowings and
then, in amounts not in excess of 10% of the value of the Portfolio's total
assets at the time of such borrowing; or purchase portfolio securities
while borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio's securities by enabling
the Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such purchase
more than 5% of the Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up
to 25% of the value of the Portfolio's assets may be invested without
regard to this 5% limitation;
(3) purchase securities on margin, except for short-term
credit necessary for clearance of portfolio transactions;
9
<PAGE>
(4) underwrite securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities, a
Portfolio may be deemed an underwriter under Federal securities laws and
except to the extent that the purchase of Municipal Obligations directly
from the issuer thereof in accordance with the Portfolio's investment
objective, policies and limitations may be deemed to be an underwriting;
(5) make short sales of securities or maintain a short
position or write or sell puts, calls, straddles, spreads or combinations
thereof;
(6) purchase or sell real estate, provided that the
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or
development programs;
(9) make loans except that the Portfolio may purchase or
hold debt obligations in accordance with its investment objective, policies
and limitations and may enter into repurchase agreements;
(10) purchase any securities issued by any other investment
company except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(11) make investments for the purpose of exercising control
or management.
In addition to the foregoing enumerated investment limitations, the
Money Market Portfolio may not:
(a) Purchase any securities other than Money-Market Instruments, some
of which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would
10
<PAGE>
cause, at the time of purchase, more than 25% of the value of its total assets
to be invested in the obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time of
purchase) in securities of issuers (including their predecessors) with less than
three years of continuous operations.
The foregoing investment limitations cannot be changed without the
affirmative vote of the lesser of (a) more than 50% of the outstanding shares of
the Portfolio or (b) 67% or more of the shares of the Portfolio present at a
shareholders' meeting if more than 50% of the outstanding shares of the
Portfolio are represented at the meeting in person or by proxy.
With respect to limitation (b) above concerning industry concentration
(applicable to the Portfolio), the Portfolio will consider wholly-owned finance
companies to be in the industries of their parents if their activities are
primarily related to financing the activities of the parents, and will divide
utility companies according to their services. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this paragraph may be
changed without the affirmative vote of the holders of a majority of the
affected Portfolio's outstanding shares, but any such change may require the
approval of the Securities and Exchange Commission (the "SEC") and would be
disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
Portfolio will meet the following limitations on its investments in addition to
the fundamental investment limitations described above. These limitations may
be changed without a vote of shareholders of the Portfolio.
1. The Portfolio will limit its purchases of the securities of any
one issuer, other than issuers of U.S. Government securities, to 5% of its
total assets, except that the Portfolio may invest more than 5% of its
total assets in First Tier Securities of one issuer for a period of up to
three business days. "First Tier Securities" include eligible securities
that (i) if rated by more than one NRSRO, are rated (at the time of
purchase) by two or more NRSROs in the highest rating category for such
securities, (ii) if rated by only one NRSRO, are rated by such NRSRO in its
highest rating category for such securities, (iii) have no short-term
rating and are comparable in priority and security to a class of short-term
obligations of the issuer of such securities that have been rated in
accordance with (i) or (ii) above, or (iv) are Unrated Securities that are
determined to be of comparable quality to such securities. Purchases of
First Tier Securities that come within categories (ii) and (iv) above will
be approved or ratified by the Board of Directors.
11
<PAGE>
2. The Portfolio will limit its purchases of Second Tier Securities,
which are eligible securities other than First Tier Securities, to 5% of
its total assets.
3. The Portfolio will limit its purchases of Second Tier Securities
of one issuer to the greater of 1% of its total assets or $1 million.
--------------------
In order to permit the sale of its shares in certain states, the Fund
may make commitments more restrictive than the investment limitations described
above. Should the Fund determine that any such commitment is no longer in its
best interest, it will revoke the commitment and terminate sales of its shares
in the state involved.
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their business
addresses and principal occupations during the past five years are:
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
Arnold M. Reichman, 48* Director Managing Director and
466 Lexington Avenue Assistant Secretary,
New York, NY 10017 E.M. Warburg, Pincus &
Co., Inc.; Senior
Managing Director,
Warburg, Pincus,
Counsellors, Inc.;
Executive Officer,
Counsellors Securities
Inc.; Officer of various
investment companies
advised by Warburg,
Pincus Counsellors, Inc.
Robert Sablowsky, 58** Director Since October 1996,
14 Wall Street Senior Vice President of
New York, NY 10005 Fahnestock & Co., Inc.
1985 to 1996, Executive
Vice President of Gruntal
& Co., Inc., Director,
Gruntal & Co., Inc. and
Gruntal Financial Corp.
12
<PAGE>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
Francis J. McKay, 60 Director Since 1963, Executive
7701 Burholme Avenue Vice President, Fox
Philadelphia, PA 19111 Chase Cancer Center
(Biomedical research and
medical care).
Marvin E. Sternberg, 62 Director Since 1974, Chairman,
937 Mt. Pleasant Road Director and President,
Bryn Mawr, PA 19010 Moyco Industries, Inc.
(manufacturer of dental
supplies and precision
coated abrasives);
Since 1968, Director and
President, Mart MMM, Inc.
(formerly Montgomeryville
Merchandise Mart, Inc.)
and Mart PMM, Inc.
(formerly
Pennsauken Merchandise
Mart)(shopping centers);
and Since 1975, Director
and Executive Vice
President,
Cellucap Mfg. Co., Inc.
(manufacturer of
disposable headwear).
Julian A. Brodsky, 63 Director Director, and Vice
1234 Market Street, 16th Fl. Chairman 1969 to
Philadelphia, PA 19107-3723 Present, Comcast
Corporation; Director,
Comcast Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (Wireless
Communication).
13
<PAGE>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
Donald van Roden, 72 Director Self-employed
1200 Old Mill Lane businessman. From
Wyomissing, PA 19610 February 1980 to March
1987, Vice Chairman,
SmithKline Beckman
Corporation
(pharmaceuticals);
Director, AAA
Mid-Atlantic (auto
service); Director,
Keystone Auto Insurance
Co.
Edward J. Roach, 72 President and Treasurer Certified Public
Suite 152 Accountant; Vice
Bellevue Park Corporate Chairman of the Board,
Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee Emeritus,
Wilmington, DE 19809 Pennsylvania School for
the Deaf; Trustee
Emeritus, Immaculata
College; Vice President
and Treasurer of various
investment companies
advised by PNC
Institutional Management
Corporation.
Morgan R. Jones, 57 Secretary Chairman of the law firm
1100 PNB Bank Building Drinker Biddle & Reath,
Broad and Chestnut Streets Philadelphia,
Philadelphia, PA 19107 Pennsylvania;
Director, Rocking Horse
Child Care Centers of
America, Inc.
14
<PAGE>
- -------------------------
* 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 a broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit
Committee of the Board of Directors. The Audit Committee, among other things,
reviews results of the annual audit and recommends to the Fund the firm to be
selected as independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally
carry on and manage the business of the Fund when the Board of Directors is not
in session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board annually all persons to be nominated as directors of the
Fund.
The Fund pays directors who are not "affiliated persons" (as that term
is defined in the 1940 Act) of the Fund $12,000 annually and $1,000 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. The Chairman (currently Donald van Roden)
receives an additional $5,000 for his services. For the year ended August 31,
1996, each of the following members of the Board of Directors received
compensation from the Fund in the following amounts:
Directors Compensation
--------- ------------
Julian A. Brodsky $12,525
Francis J. McKay 15,975
Marvin E. Sternberg 16,725
Donald van Roden 21,025
On October 24, 1990 the Fund adopted, as a participating employer, the Fund
Office Retirement Profit-Sharing Plan and Trust Agreement, a retirement plan for
employees (currently Edward J. Roach) pursuant to which the Fund will contribute
on a monthly basis amounts equal to 10% of the monthly compensation of each
eligible employee. By virtue of the services performed by PNC Institutional
Management Corporation ("PIMC"), the Fund's adviser, PNC Bank, National
Association ("PNC Bank"), the Portfolios' sub-advisor and the Fund's custodian,
PFPC Inc. ("PFPC"), and the Fund's transfer and dividend disbursing agent, and
Counsellors Securities Inc. (the "Distributor"), the Fund's
15
<PAGE>
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.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS. The advisory and sub-advisory
services provided by PIMC and PNC Bank and the fees received by PIMC and PNC
Bank for such services are described in the Prospectus. PIMC renders advisory
services to the Portfolio and also renders administrative services to the
Portfolio pursuant to separate investment advisory agreements and PNC Bank
renders sub-advisory services to the Portfolio pursuant to separate Sub-Advisory
Agreement. The Sub-Advisory Agreement is dated August 16, 1988. The advisory
agreement relating to the Portfolio is dated August 16, 1988. Such advisory and
sub-advisory agreements are hereinafter collectively referred to as the
"Advisory Contracts."
For the year ended August 31, 1996, PIMC received (after waivers)
$4,174,375 with respect to the Money Market Portfolio and PIMC waived
$3,527,715. For the year ended August 31, 1995, PIMC received (after waivers)
$2,274,697 in advisory fees with respect to the Money Market Portfolio. During
the same year, PIMC waived $2,589,882 of advisory fees with respect to the Money
Market Portfolio. For the year ended August 31, 1994, PIMC received (after
waivers) $1,947,768 in advisory fees with respect to the Money Market Portfolio.
During the same year, PIMC waived $2,255,986 of advisory fees with respect to
the Money Market Portfolio.
As required by various state regulations, PIMC will reimburse the Fund
or a portfolio affected (as applicable) if and to the extent that the aggregate
operating expenses of the Fund or a portfolio affected exceed applicable state
limits for the fiscal year, to the extent required by such state regulations.
Currently, the most restrictive of such applicable limits is 2.5% of the first
$30 million of average annual net assets, 2% of the next $70 million of average
annual net assets and 1 1/2% of the remaining average annual net assets.
Certain expenses, such as brokerage commissions, taxes, interest and
extraordinary items, are excluded from this limitation. Whether such expense
limitations apply to the Fund as a whole or to the Portfolio on an individual
basis depends upon the particular regulations of such states.
The Portfolio bears all of its own expenses not specifically assumed
by PIMC. General expenses of the Fund not readily identifiable as belonging to
a portfolio of the Fund are allocated among all investment portfolios by or
under the direction of the Fund's Board of Directors in such manner as the Board
determines to be fair and equitable. Expenses borne by a portfolio include, but
are not limited to, the following (or a portfolio's share of the following):
(a) the cost (including brokerage commissions) of securities purchased or sold
by a portfolio and any losses incurred in connection therewith; (b) fees payable
to and expenses incurred on behalf of a portfolio by PIMC; (c) expenses of
organizing the Fund that are not
16
<PAGE>
attributable to a class of the Fund; (d) certain of the filing fees and expenses
relating to the registration and qualification of the Fund and a portfolio's
shares under Federal and/or state securities laws and maintaining such
registrations and qualifications; (e) fees and salaries payable to the Fund's
directors and officers; (f) taxes (including any income or franchise taxes) and
governmental fees; (g) costs of any liability and other insurance or fidelity
bonds; (h) any costs, expenses or losses arising out of a liability of or claim
for damages or other relief asserted against the Fund or a portfolio for
violation of any law; (i) legal, accounting and auditing expenses, including
legal fees of special counsel for the independent directors; (j) charges of
custodians and other agents; (k) expenses of setting in type and printing
prospectuses, statements of additional information and supplements thereto for
existing shareholders, reports, statements, and confirmations to shareholders
and proxy material that are not attributable to a class; (l) costs of mailing
prospectuses, statements of additional information and supplements thereto to
existing shareholders, as well as reports to shareholders and proxy material
that are not attributable to a class; (m) any extraordinary expenses; (n) fees,
voluntary assessments and other expenses incurred in connection with membership
in investment company organizations; (o) costs of mailing and tabulating proxies
and costs of shareholders' and directors' meetings; (p) costs of PIMC's use of
independent pricing services to value a portfolio's securities; and (q) the cost
of investment company literature and other publications provided by the Fund to
its directors and officers. Distribution expenses, transfer agency expenses,
expenses of preparation, printing and mailing prospectuses, statements of
additional information, proxy statements and reports to shareholders, and
organizational expenses and registration fees, identified as belonging to a
particular class of the Fund, are allocated to such class.
Under the Advisory Contracts, PIMC and PNC Bank will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund or
a Portfolio in connection with the performance of the Advisory Contracts, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
part of PIMC or PNC Bank in the performance of their respective duties or from
reckless disregard of their duties and obligations thereunder.
The Advisory Contracts were each most recently approved with respect
to the Portfolio on July 10, 1996 by a vote of the Fund's Board of Directors,
including a majority of those directors who are not parties to the Advisory
Contracts or "interested persons" (as defined in the 1940 Act) of such parties.
The Advisory Contracts were each approved respect to the Money Market Portfolio
by shareholders of the Portfolio at a special meeting held December 22, 1989, as
adjourned. Each Advisory Contract is terminable by vote of the Fund's Board of
Directors or by the holders of a majority of the outstanding voting securities
of the Portfolio, at any time without penalty, on 60 days' written notice to
PIMC or PNC Bank. The Advisory Contracts may also be terminated by PIMC or PNC
Bank, respectively, on 60 days' written notice to the Fund. The Advisory
Contracts terminates automatically in the event of assignment thereof.
17
<PAGE>
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is custodian of
the Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank
(a) maintains a separate account or accounts in the name of the Portfolio (b)
holds and transfers portfolio securities on account of the Portfolio, (c)
accepts receipts and makes disbursements of money on behalf of the Portfolio,
(d) collects and receives all income and other payments and distributions on
account of the Portfolio's portfolio securities and (e) makes periodic reports
to the Fund's Board of Directors concerning each Portfolio's operations. PNC
Bank is authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon the Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross
assets; $.20 per $1,000 on the next $50 million of average daily gross assets;
and $.15 per $1,000 on average daily gross assets over $100 million, with a
minimum monthly fee of $1,000, exclusive of transaction charges and
out-of-pocket expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Class pursuant to a Transfer Agency Agreement
dated August 16, 1988 (the "Transfer Agency Agreement"), under which PFPC (a)
issues and redeems shares of the Class, (b) addresses and mails all
communications by the Portfolio to record owners of shares of the Class,
including reports to shareholders, dividend and distribution notices and proxy
materials for its meetings of shareholders, (c) maintains shareholder accounts
and, if requested, sub-accounts and (d) makes periodic reports to the Fund's
Board of Directors concerning the operations of the Class. PFPC may, on 30
days' notice to the Fund, assign its duties as transfer and dividend disbursing
agent to any other affiliate of PNC Bank Corp. For its services to the Fund
under the Transfer Agency Agreement, PFPC receives a fee at the annual rate of
$15.00 per account in the Portfolio for orders which are placed by third parties
and relayed electronically to PFPC, and at an annual rate of $17.00 per account
in the Portfolio for all other orders, exclusive of out-of-pocket expenses and
also receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder
servicing agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolio.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolio for purposes of responding to customer inquiries
18
<PAGE>
and brokerage instructions. In consideration for providing such services,
Authorized Dealers may receive fees from PFPC. Such fees will have no effect
upon the fees paid by the Fund to PFPC.
DISTRIBUTION AGREEMENTS. Pursuant to the terms of a distribution
contract, dated as of April 10, 1991, and supplements entered into by the
Distributor and the Fund on behalf of the Class (the "Distribution Contract"),
and the Plan of Distribution for the Class (the "Plan"), which was adopted by
the Fund in the manner prescribed by Rule 12b-1 under the 1940 Act, the
Distributor will use its best efforts to distribute shares of the Class. As
compensation for its distribution services, the Distributor will receive,
pursuant to the terms of the Distribution Contract, a distribution fee, to be
calculated daily and paid monthly, at the annual rate set forth in the
Prospectus. The Distributor currently proposes to reallow up to all of its
distribution payments to broker/dealers for selling shares of the Portfolio
based on a percentage of the amounts invested by their customers.
The Plan as amended to reflect a change in the Fund's distributor in
accordance with Rule 12b-1 was most recently approved for continuation, with
respect to the Class on July 10, 1996 by the Fund's Board of Directors,
including the directors who are not "interested persons" of the Fund and who
have no direct or indirect financial interest in the operation of the Plan or
any agreements related to the Plan ("12b-1 Directors"). The Plan was approved
by shareholders of the Class at a special meeting held December 22, 1989, as
adjourned.
Among other things, the Plan provides that: (1) the Distributor shall
be required to submit quarterly reports to the directors of the Fund regarding
all amounts expended under the Plan and the purposes for which such expenditures
were made, including commissions, advertising, printing, interest, carrying
charges and any allocated overhead expenses; (2) the Plan will continue in
effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Fund's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Class under the Plan shall not be materially increased without the
affirmative vote of the holders of a majority of the Fund's shares in the
affected Class; and (4) while the Plan remains in effect, the selection and
nomination of the Fund's directors who are not "interested persons" of the Fund
(as defined in the 1940 Act) shall be committed to the discretion of the
directors who are not interested persons of the Fund.
During the year ended August 31, 1996, the Fund paid distribution fees
to the Fund's Distributor under the Plan for the Class of the Money Market
Portfolio, in the aggregate amount of $5,826,142 of which $5,582,603, was paid
to dealers with whom the Distributor had entered into sales agreements, and
$243,539, was retained by the Distributor and used to pay certain advertising
and promotion, printing, postage, legal fees, travel and entertainment, sales
and marketing and administrative expenses. During the same period, the
Distributor waived no distribution fees for the Class of the
19
<PAGE>
Money Market Portfolio. The Fund believes that such Plan may benefit the Fund
by increasing sales of Shares. Mr. Reichman, a Director of the Fund, has an
indirect financial interest in the operation of the Plan by virtue of his
position as Chief Executive Officer and Secretary of the Distributor. Mr.
Sablowsky, a Director of the Fund, had an indirect interest in the operation of
the Plan by virtue of his previous position as Executive Vice President of
Gruntal & Co., Inc., a broker-dealer which sells the Fund's shares.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase securities with remaining maturities
of 397 calendar days or less, except for securities that are subject to
repurchase agreements (which in turn may have maturities of 397 calendar days or
less), and except that the Money Market Portfolio may purchase variable rate
securities with remaining maturities of 397 calendar days or more so long as
such securities comply with conditions established by the SEC under which they
may be considered to have remaining maturities of 397 calendar days or less.
Because the Portfolio intend to purchase only securities with remaining
maturities of one year or less, their portfolio turnover rates will be
relatively high. However, because brokerage commissions will not normally be
paid with respect to investments made by the Portfolio, the turnover rate should
not adversely affect such Portfolio's net asset value or net income. The
Portfolio does not intend to seek profits through short term trading.
Purchases of portfolio securities by the Portfolio are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. The
Portfolio currently expect to incur any brokerage commission expense on such
transactions because money market instruments are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission. The price of the security, however, usually includes a profit to
the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased directly
from or sold directly to an issuer, no commissions or discounts are paid. It is
the policy of the Portfolio to give primary consideration to obtaining the most
favorable price and efficient execution of transactions. In seeking to
implement the policies of the Portfolio, PIMC will effect transactions with
those dealers it believes provide the most favorable prices and are capable of
providing efficient executions. In no instance will portfolio securities be
purchased from or sold to the Distributor, PIMC or PNC Bank or any affiliated
person of the foregoing entities except to the extent permitted by SEC exemptive
order or by applicable law.
PIMC may seek to obtain an undertaking from issuers of commercial
paper or dealers selling commercial paper to consider the repurchase of such
securities from the Portfolio prior to their maturity at their original cost
plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that the Portfolio's anticipated need for
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liquidity makes such action desirable. Any such repurchase prior to maturity
reduces the possibility that the Portfolio would incur a capital loss in
liquidating commercial paper (for which there is no established market),
especially if interest rates have risen since acquisition of the particular
commercial paper.
Investment decisions for the Portfolio and for other investment
accounts managed by PIMC or PNC Bank are made independently of each other in the
light of differing conditions. However, the same investment decision may
occasionally be made for two or more of such accounts. In such cases,
simultaneous transactions are inevitable. Purchases or sales are then averaged
as to price and allocated as to amount according to a formula deemed equitable
to each such account. While in some cases this practice could have a
detrimental effect upon the price or value of the security as far as the
Portfolio is concerned, in other cases it is believed to be beneficial to the
Portfolio. The Portfolio will not purchase securities during the existence of
any underwriting or selling group relating to such security of which PIMC or PNC
Bank or any affiliated person (as defined in the 1940 Act) thereof is a member
except pursuant to procedures adopted by the Fund's Board of Directors pursuant
to Rule 10f-3 under the 1940 Act. Among other things, these procedures, which
will be reviewed by the Fund's directors annually, require that the commission
paid in connection with such a purchase be reasonable and fair, that the
purchase be at not more than the public offering price prior to the end of the
first business day after the date of the public offer, and that PIMC and PNC
Bank not participate in or benefit from the sale to the Portfolio.
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase of the
Portfolio's shares by making payment in whole or in part in securities chosen by
the Fund and valued in the same way as they would be valued for purposes of
computing the Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the
1940 Act so that the Portfolio is obligated to redeem its shares solely in cash
up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of the Portfolio.
Under the 1940 Act, the Portfolio may suspend the right of redemption
or postpone the date of payment upon redemption for any period during which the
New York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (The
Portfolio may also suspend or postpone the
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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 the Portfolio at $1.00 per share. Net asset value per share, the value
of an individual share in the Portfolio, is computed by dividing the Portfolio's
net assets by the number of outstanding shares of the Portfolio. The
Portfolio's "net assets" equal the value of the Portfolio's investments and
other securities less its liabilities. The Fund's net asset value per share is
computed twice each day, as of 12:00 noon (Eastern Time) and as of 4:00 p.m.
(Eastern Time) on each Business Day. "Business Day" means each day, Monday
through Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia
(the "FRB") are open. Currently, the NYSE is closed on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day (observed), Labor
Day, Thanksgiving Day and Christmas Day (observed). The FRB is currently closed
on weekends and the same holidays on which the NYSE is closed (except Christmas
Day (observed), as well as Martin Luther King, Jr. Day, Veterans Day and
Columbus Day.
The Fund calculates the value of the portfolio securities of the
Portfolio by using the amortized cost method of valuation. Under this method
the market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased,
the Portfolio may have to sell portfolio securities prior to maturity and at a
price which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price the Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for the Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for the Portfolio, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
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The Portfolio 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. The Portfolio's current and effective yields
are computed using standardized methods required by the SEC. The annualized
yields for the Portfolio are computed by: (a) determining the net change in the
value of a hypothetical account having a balance of one share at the beginning
of a seven-calendar day period; (b) dividing the net change by the value of the
account at the beginning of the period to obtain the base period return; and (c)
annualizing the results (i.e., multiplying the base period return by 365/7).
The net change in the value of the account reflects the value of additional
shares purchased with dividends declared and all dividends declared on both the
original share and such additional shares, but does not include realized gains
and losses or unrealized appreciation and depreciation. Compound effective
yields are computed by adding 1 to the base period return (calculated as
described above), raising the sum to a power equal to 365/7 and subtracting 1.
The yield for the seven (7) day period ending August 31, 1996 for the
Bedford Class of the Money Market Portfolio, were 4.51%. The effective yield
for the same period for the same Class was 4.61%.
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of the Portfolio will fluctuate, they cannot
be compared with yields on savings account or other investment alternatives that
provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of a
portfolio securities, the method
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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 the Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by the Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, PIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders,
the yields of the Portfolio may be quoted and compared to those of other mutual
funds with similar investment objectives and to stock or other relevant indices.
For example, the yield of the Portfolio may be compared to the Donoghue's Money
Fund Average, which is an average compiled by IBC/Donoghue's MONEY FUND REPORT
of Holliston, MA 01746, a widely recognized independent publication that
monitors the performance of money market funds, or to the data prepared by
Lipper Analytical Services, Inc., a widely-recognized independent service that
monitors the performance of mutual funds.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolio and its shareholders that are
not described in the Fund's Prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolio or their
shareholders, and the discussion here and in the Prospectus is not intended as a
substitute for careful tax planning. Investors are urged to consult their tax
advisers with specific reference to their own tax situation.
The Portfolio has elected to be taxed as a regulated investment
company under Part I of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, the Portfolio is
exempt from Federal income tax on its net investment income and realized capital
gains which it distributes to shareholders, provided that it distributes an
amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the
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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 the
Portfolio must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans and gains from the sale or
other disposition of stock or securities or foreign currencies, or from other
income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement") and derive less than 30% of
its gross income from the sale or other disposition of any of the following
investments if such investments were held for less than three months: (a) stock
or securities (as defined in Section 2(a)(36) of the 1940 Act); (b) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies); and (c) foreign currencies (or options, futures or
forward contracts on foreign currencies) but only if such currencies (or
options, futures or forward contracts) are not directly related to the regulated
investment company's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities) (the "Short-Short Gain
Test"). Interest (including original issue discount and, in the case of debt
securities bearing taxable interest income "accrued market discount") received
by the Portfolio at maturity or on disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security for purposes of the Short-Short Gain Test.
However, any other income which is attributable to realized market appreciation
will be treated as gross income from the sale or other disposition of securities
for this purpose.
Income derived by a regulated investment company from a partnership or
trust will satisfy the Income Requirement only to the extent such income is
attributable to items of income of the partnership or trust that would satisfy
the Income Requirement if they were realized by a regulated investment company
in the same manner as realized by the partnership or trust.
In addition to the foregoing requirements, at the close of each
quarter of its taxable year, at least 50% of the value of the Portfolio's assets
must consist of cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and securities of other issuers (as to
which the Portfolio has not invested more than 5% of the value of its total
assets in securities of such issuer and as to which the Portfolio does not hold
more than 10% of the outstanding voting securities of such issuer), and no more
than 25% of the value of the Portfolio's total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two
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or more issuers which the 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 will not enter into repurchase agreements with any one bank or dealer
if entering into such agreements would, under the informal position expressed by
the Internal Revenue Service, cause either one of them to fail to satisfy the
Asset Diversification Requirement.
All shareholders required to file a Federal income tax return are
required to report the receipt of exempt interest dividends and other exempt
interest on their returns. Moreover, while such dividends and interest are
exempt from regular Federal income tax, they may be subject to alternative
minimum tax as described in the Prospectus. By operation of the adjusted
current earnings alternative minimum tax adjustment, exempt interest income
received by certain corporations may be taxed at an effective rate of 15%. In
addition, corporate investors should note that, under the Superfund Amendments
and Reauthorization Act of 1986, an environmental tax is imposed for taxable
years beginning after 1986 and before 1996 at the rate of 0.12% on the excess of
the modified alternative minimum taxable income of corporate taxpayers over $2
million, regardless of whether such taxpayers are liable for alternative minimum
tax. Receipt of exempt interest dividends may result in collateral Federal
income tax consequences to certain other taxpayers, including financial
institutions, property and casualty insurance companies, individual recipients
of Social Security or Railroad Retirement benefits, and foreign corporations
engaged in a trade or business in the United States. Prospective investors
should consult their own tax advisors as to such consequences.
The Money Market Portfolio may acquire standby commitments with
respect to Municipal Obligations held in its portfolio and will treat any
interest received on Municipal Obligations subject to such standby commitments
as tax-exempt income. In Rev. Rul. 82-144, 1982-2 C.B. 34, the Internal Revenue
Service held that a mutual fund acquired ownership of municipal obligations for
Federal income tax purposes, even though the fund simultaneously purchased "put"
agreements with respect to the same municipal obligations from the seller of the
obligations. The Fund will not engage in transactions involving the use of
standby commitments that differ materially from the transaction described in
Rev. Rul. 82-144 without first obtaining a private letter ruling from the
Internal Revenue Service or the opinion of counsel.
Distributions of net investment income received by the Portfolio from
investments in debt securities (other than interest on tax-exempt Municipal
Obligations that is distributed as exempt interest dividends) and any net
realized short-term capital gains distributed by the Portfolio will be taxable
to shareholders as ordinary income and will not be eligible for the dividends
received deduction for corporations.
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While the Portfolio expect to realize long-term capital gains, any net
realized long-term capital gains, such as gains from the sale of debt securities
and realized market discount on tax-exempt Municipal Obligations, will be
distributed annually. The Portfolio will not have tax liability with respect to
such gains and the distributions will be taxable to Portfolio shareholders as
long-term capital gains, regardless of how long a shareholder has held Portfolio
shares. The aggregate amount of distributions designated by the Portfolio as
capital gain dividends may not exceed the net capital gain of the Portfolio for
any taxable year, determined by excluding any net capital loss or any net
long-term capital loss attributable to transactions occurring after October 31
of such year and by treating any such loss as if it arose on the first day of
the following taxable year. Such distributions will be designated as a capital
gains dividend in a written notice mailed by the Fund to shareholders not later
than 60 days after the close of the Portfolio's respective taxable year.
Investors should note that changes made to the Code by the Tax Reform
Act of 1986 and subsequent legislation have not entirely eliminated the
distinction between the tax treatment of capital gain and ordinary income
distributions. The nominal maximum marginal rate on ordinary income for
individuals, trusts and estates is currently 31%, but for individual taxpayers
whose adjusted gross income exceeds certain threshold amounts (that differ
depending on the taxpayer's filing status) in taxable years beginning before
1996, provisions phasing out personal exemptions and limiting itemized
deductions may cause the actual maximum marginal tax rate to exceed 31%. The
maximum rate on the net capital gain of individuals, trusts and estates,
however, is in all cases 28%. Capital gains and ordinary income of corporate
taxpayers are taxed a nominal maximum rate of 34% (an effective marginal rate of
39% applies in the case of corporations having taxable income between $100,000
and $335,000).
If for any taxable year the Portfolio does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and all
distributions will be taxable as ordinary dividends (including amounts derived
from interest on municipal obligations) to the extent of the Portfolio's current
and accumulated earning and profits. Such distributions will be eligible for
the dividends received deduction in the case of corporate shareholders.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute with respect to each calendar year
an amount equal to 98 percent of their ordinary income for the calendar year
plus 98 percent of their capital gain net income for the 1-year period ending on
October 31 of such calendar year. The balance of such income must be
distributed during the next calendar year. For the foregoing purposes, a
company is treated as having distributed any amount on which it is subject to
income tax for any taxable year ending in such calendar year. Because the
Portfolio intends to distribute all of its taxable income currently, it does not
anticipate incurring any liability for this excise tax.
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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 the Portfolio expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, the
Portfolio may be subject to the tax laws of such states or localities.
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ADDITIONAL INFORMATION CONCERNING FUND SHARES
The Fund has authorized capital of thirty billion shares of Common
Stock, $.001 par value per share, of which 13.47 billion shares are currently
classified as follows: 100 million shares are classified as Class A Common
Stock, 100 million shares are classified as Class B Common Stock, 100 million
shares are classified as Class C Common Stock, 100 million shares are classified
as Class D Common Stock, 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 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 (Strategic 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, 100 million shares are classified as Class EE, 50
million shares are classified as Class FF Common Stock (n/i MicroCap),50 million
shares are classified as Class GG Common Stock (n/i Growth), 50 million shares
are classified as Class HH Common Stock (n/i Growth & Value), 100 million shares
are classified as Class II Common Stock (BEA Investor International), 100
million shares are classified as Class JJ Common Stock (BEA Investor Emerging),
100 million shares are classified as Class KK Common Stock (BEA Investor High
Yield), 100 million shares are classified as Class LL Common Stock (BEA Investor
Global Telecom), 100 million shares are classified as Class MM Common Stock (BEA
Advisor International), 100 million shares are classified as Class NN Common
Stock (BEA Advisor Emerging), 100 million shares are classified as Class OO
Common Stock (BEA Advisor High Yield), 100 million shares are classified as
Class PP Common Stock (BEA Advisor Global Telecom), 100 million shares are
classified as Class QQ Common Stock (Boston Partners Institutional Large Cap),
100 million shares are classified as Class RR Common Stock (Boston Partners
Investor Large Cap), 100 million shares are classified
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as Class SS Common Stock (Boston Partners Advisors Large Cap), 700 million
shares are classified as Class Janney Montgomery Scott Money Market Common Stock
(Money), 200 million shares are classified as Class Janney Montgomery Scott
Municipal Money Market Common Stock (Municipal Money), 500 million shares are
classified as Class Janney Montgomery Scott Government Obligations Money Market
Common Stock (U.S. Government Money), 100 million shares are classified as Class
Janney Montgomery Scott New York Municipal Money Market 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 L Common Stock constitute
the Bedford Class. 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 Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Bradford Family, the BEA Family, the n/i Family,
the Boston Partners Family, the Janney Montgomery Scott Money Funds Family, 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 one non-money market portfolio as well as 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; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations
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Money Market and New York Municipal Money Market Portfolios; the Bradford Family
represents interests in the Municipal Money Market and Government Obligations
Money Market Portfolios; the BEA Family represents interests in ten non-money
market portfolios; the n/i Family represents interests in three non-money market
portfolios; the Boston Partners Family represents interest in one non-market
portfolio; the Janney Montgomery Scott Money Funds Family and Beta, Gamma,
Delta, Epsilon, Zeta, Eta and Theta Families represents interest in the Money
Market, Municipal Money Market, Governmental Obligations Money Market and New
York Municipal Money Market Portfolios.
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).
31
<PAGE>
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll, 1735
Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as counsel
to the Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle & Reath,
1100 Philadelphia National Bank Building, Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107, serves as counsel to the Fund's independent
directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., 2400 Eleven Penn
Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants. The Fund's financial statements which appear in this Statement of
Additional Information have been audited by Coopers & Lybrand L.L.P., as set
forth in their report, which also appears in this Statement of Additional
Information, and have been included herein in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
CONTROL PERSONS. As of November 6, 1996, 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. See "Additional Information Concerning Fund Shares"
above. The Fund does not know whether such persons also beneficially own such
shares.
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
RBB Money Market Luanne M. Garvey and Robert J. 12.7
Portfolio Garvey
(Class E) 2729 Woodland Avenue
Trooper, PA 19403
Harold T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
Karen M. McElhinny and 16.9
Contribution Account
4943 King Arthur Drive
Erie, PA 16506
John Robert Estrada and 16.5
Shirley Ann Estrada
1700 Raton Drive
Arlington, TX 76018
Eric Levine and Linda & Howard 29.6
Levine
67 Lanes Pond Road
Howell, NJ 07731
32
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
RBB Municipal Money William B. Pettus Trust 11.4
Market Portfolio Augustine W. Pettus Trust
(Class F) 827 Winding Path Lane
St. Louis, MO 63021-6635
Seymour Fein 88.6
P.O. Box 486
Tremont Post Office
Bronx, NY 10457-0486
Cash Preservation Money Jewish Family and Children's 56.8
Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
Lynda R. Succ Trustee for in 12.3
Trust under The Lynda R. Campbell
Caring Trust
935 Rutger Street
St. Louis, MO 63104 6.8
Theresa M. Palmer
5731 N. 4th Street
Philadelphia, PA 19120
Cash Preservation Kenneth Farwell and Valerie 11.1
Municipal Money Market Farwell Jt. Ten
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
Gary L. Lange and 10.4
Susan D. Lange JTTEN
13 Muirfield Ct North
St. Charles, MO 63309
Andrew Diederich and Doris 6.1
Diederich
1003 Lindenman
Des Peres, MO 63131
Marcella L. Haugh Caring Tr Dtd 15.3
8/12/91
40 Plaza Square
Apt. 202
St. Louis, MO 63101
Emil Hunter and Mary J. Hunter 8.2
428 W. Jefferson
Kirkwood, MO 63122
33
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Gwendoyln Haynes 5.2
2757 Geyer
St. Louis, MO
Savannah Thomas Trust 5.2
230 Madison Ave.
Rock Hill, MD 63119
Sansom Street Money Wasner & Co. 16.6
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
Saxon and Co. 74.8
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
Robertson Stephens & Co. 8.6
FBO Exclusive Benefit Investors
c/o Eric Moore
555 California Street/No. 2600
San Francisco, CA 94101
Bradford Municipal J.C. Bradford & Co. 100
Money 330 Commerce Street
(Class R) Nashville, TN 37201
Bradford Government J.C. Bradford & Co. 100
Obligations Money 330 Commerce Street
(Class S) Nashville, TN 37201
BEA International Blue Cross & Blue Shield of 5.1
Equity Massachusetts Inc.
(Class T) Retirement Income Trust
100 Summer Street
Boston, MA 02310
Invest Comm of MAFCO Hold Inc. MT
625 Madison Ave., 4th Floor
New York, NY 10022 5.0
BEA High Yield Temple Inland Master Retirement 10.2
Portfolio Trust
(Class U) 303 South Temple Drive
Diboll, TX 75941
34
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Guenter Full Trst Michelin North 16.7
America Inc.
Master Trust
P. O. Box 19001
Greenville, SC 29602-9001
Flour Corporation Master 9.4
Retirement Trust
2383 Michelson Drive
Irvine, CA 92730
C S First Boston Pension Fund 10.0
Park Avenue Plaza, 34th Floor
55 E. 52nd Street
New York, NY 10055
Attn: Steve Medici
SC Johnson & Son, Inc. Retirement 13.3
Plan
1525 Howe Street
Racine, WI 53403
GCIV Employer Retirement Fund 6.3
8650 Flair Drive
E. Monte, CA 96731-3011
BEA Emerging Markets Wachovia Bank North Carolina 15.7
Equity Portfolio Trust for Carolina Power & Light
(Class V) Co. Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101
Wachovia Bank of North Carolina 5.4
And For Fleming Companies Inc.
TRST Master Pension Trust
307 North Main 3099 Street
Winston, Salem, NC 27150
Hall Family Foundation 30.5
P.O. Box 419580
Kansas City, MO 64208
Arkansas Public Employees 10.8
Retirement System
124 W. Capitol Avenue
Little Rock, AR 72201
Northern Trust 12.9
Trustee for Pillsbury
P.O. Box 92956
Chicago, IL 60675
35
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Amherst H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Bank of New York 45.3
Portfolio Trust APU Buckeye Pipeline
(Class X) One Wall Street
New York, NY 10286
Werner & Pfleiderer Pension 7.5
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446
Washington Hebrew Congregation 11.1
3935 Macomb St. NW
Washington, DC 20016
Shamut Bank 6.3
TRST Hospital St. Raphael
Malpractice TR
Attn: DCRF Actions
P.O. Box 92800
Rochester, NY 14692-8900
BEA US Core Fixed New England UFCW & Employers' 24.5
Income Portfolio Pension Fund Board of Trustees
(Class Y) 161 Forbes Road, Suite 201
Braintree, MA 02184
W.M. Burke Rehabilitation 5.4
Hospital Inc.
Burke Employees Pension Plan
795 Mamaroneck Avenue
White Plains, NY 10605
Patterson & Co. 8.9
P.O. Box 7829
Philadelphia, PA 19102
MAC & Co 6.9
FAO 176-655
ROBF1766552
Mutual Funds Operations
P. O. Box 3198
Pittsburgh, PA 15230-3198
Bank of New York 9.6
Trst Fenway Partners Master Trust
One Wall Street, 12th floor
New York, NY 10286
36
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Citibank NA 12.8
Trst CS First Boston Corp Emp S/P
Attn: Sheila Adams
111 Wall Street, 20th floor Z 1
New York, NY 10043
BEA Global Fixed Income Sunkist Master Trust 36.0
Portfolio 14130 Riverside Drive
(Class Z) Sherman Oaks, CA 91423
Patterson & Co. 25.7
P. O. Box 7829
Philadelphia, PA 19101
Key Trust Co. of Ohio 20.8
FBO Eastern Enterp. Collective
Inv. Trust
P.O. Box 901536
Cleveland, OH 44202-1559
Mary E. Morten 6.2
C/O Credit Suisse New York
12 E. 49th Street, 40th Floor
New York, NY 10017
Attn: Portfolio Management
BEA Municipal Bond Fund William A. Marquard 37.4
Portfolio 2199 Maysville Rd.
(Class AA) Carlisle, KY 40311
Arnold Leon 12.5
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008
Irwin Bard 6.2
1750 North East 183rd St. North
Miami Beach, FL 33160
Matthew M. Sloves and Diane
Decker Sloves
Tenants in Common 5.7
1304 Stagecoach Road, S.E.
Albuquerque, NM 87123
37
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
n/i Micro Cap Fund Charles Schwab & Co. Inc. 15.8
(Class FF) Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94101
Chase Manhattan Bank 27.1
Trst Collins Group Trust
940 Newport Center Drive
Newport Beach, CA 92660
Currie & Co. 5.6
c/o Fiduciary Trust Co. Intl
P. O. Box 3199
Church Street Station
New York, NY 10008
n/i Growth Fund Charles Schwab & Co. Inc. 21.2
(Class GG) Special Custody Account for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94101
U S Equity Investment Portfolio 18.7
LP
c/o Asset Management Advisors
Inc.
1001 N. US Hwy
Suite 800
Jupiter, FL 33447
Bank of New York 9.8
Trst Sunkist Growers Inc.
14130 Riverside Drive
Sherman Oaks, CA 91423-2392
n/i Growth and Value Charles Schwab & Co. Inc. 24.4
Fund Special Custody Account for the
(Class HH) Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
38
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Janney Montgomery Scott Janney Montgomery Scott 100
Money Market Portfolio 1801 Market Street
(Class Janney Money Philadelphia, PA 19103-1675
Market)
Janney Montgomery Scott Janney Montgomery Scott 100
Municipal Money Market 1801 Market Street
Portfolio Philadelphia, PA 19103-1675
(Class Janney Municipal
Money Market)
Janney Montgomery Scott Janney Montgomery Scott 100
Government Obligations 1801 Market Street
Money Market Portfolio Philadelphia, PA 19103-1675
(Class Janney
Government Obligations
Money)
Janney Montgomery Scott Janney Montgomery Scott 100
New York Municipal 1801 Market Street
Money Market Portfolio Philadelphia, PA 19103-1675
(Class Janney N.Y.
Municipal Money)
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.
39
<PAGE>
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.
A-1
<PAGE>
The following summarizes the two highest ratings used by Moody's for
short-term notes and variable rate demand obligations:
MIG-1/VMIG-1. Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2. Obligations bearing these designations are of high
quality with margins of protection ample although not as large as in the
preceding group.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard & Poor's indicates that the
degree of safety regarding timely payment is either overwhelming or very strong.
Those issues determined to possess overwhelming safety characteristics are
designated A-1+. Capacity for timely payment on commercial paper rated A-2 is
strong, but the relative degree of safety is not as high as for issues
designated A-1.
The rating PRIME-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated PRIME-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of short-term promissory
obligations. Issuers rated PRIME-2 (or related supporting institutions) are
considered to have strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated PRIME-1 but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
A-2
